Combined-Cycle Generation Process (Photo courtesy SMRT Architects and Engineers)
Combined-Cycle Generation Process (Photo courtesy SMRT Architects and Engineers)
In early April, a Boston-based energy company came to Rockland with an ambitious proposal to build a $200 million natural-gas-fired electricity and steam generating plant on city property. For a small town struggling with a tremendous budget shortfall, the po-tential tax revenue generated by such a massive project made it seem like a godsend. Rockland En-ergy Center LLC (REC), a newly created subsid-iary of Boston-based En-ergy Management Inc. (EMI), told city leaders that the 76-megawatt combined heat and power plant would have the capacity to generate and sell electricity to utilities and capture waste heat from the exhaust to sell to local industrial clients. The plant would require a $13 to $20 million extension to be built from the 670-mile Maritimes and Northeast (M&NE) natural gas pipeline that runs inland from Canada down to Massachusetts, with compressor stations in Searsmont and Richmond. 

The company also claimed that the project could facilitate the build-out of a local distribution network to deliver natural gas to homes and businesses. However, the company warned the City that there wasn’t much time to act. In order to meet a May 1st deadline for the Maine Public Utilities Commission to consider its application for a long-term contract to sell electricity, REC said that it needed a non-binding option agreement with the City to negotiate the purchase of 18 acres of city property including City Hall and the Public Works Garage. The company also later made it known that if the project goes forward, the company plans to request a 25-year TIF (tax increment financing) deal with the City in order to receive tax breaks on its investment. 

Although Rockland City Council voted to pursue negotiations with the company, REC announced it would not seek PUC approval this year, in order to give it time to provide more information to allay some of the fears and concerns of local residents. On August 1, the City signed an agreement with REC to negotiate the sale of city property by 2019. If REC chooses to execute the option, the company will then have 180 days to complete the purchase-and-sale agreement. If the two parties do not execute a purchase-and-sale agreement within that time frame, the company may terminate the option agreement. If a proposal to build the plant actually comes to fruition, Rockland voters will have the opportunity to approve or vote it down by ballot referendum. REC spokesman Evan Coleman said back in May that if Rockland decides not to support the plan, the company could always take its business elsewhere. 

“Capital goes where capital is wanted,” he said.

But just because the company signed an agreement to consider building a plant in Rockland, it doesn’t mean they will ever submit a formal proposal. Rockland City Manager James Chaousis said that he hasn’t had much contact with the company recently. He said that because REC was in a rush to get an option agreement to submit to the PUC back in May, it “accelerated the conversation to the point where they were really unprepared to talk about it.” He said the company is still figuring out the basic design of the proposed plant, including its size, operation and controls.  

“I don’t think that there is anything that is nailed down,” he added.

REC declined to comment for this story. 

Many Questions Still Unanswered

Some Rocklanders enthusiastically support the prospect of an efficient, relatively clean-emitting energy plant with the potential to revive the local manufacturing sector, bring in tax revenue and give residents the choice of a lower-cost heating fuel. However, others have expressed worries about the project’s potential impact on the quality of life in town as well as concerns about the broader environmental implications of natural gas, such as groundwater contamination caused by gas drilling and methane leaks that contribute to climate change. 

And there are many questions yet to be answered. It’s still not known whether there are enough large businesses and institutions in Rockland to make the project economically viable for REC’s financiers. It also remains to be seen whether it would be economical for Rockland residents to invest in natural gas if it were made available, given the volatility of fuel prices and the high costs of making the transition from heating oil to gas. It’s also unknown where the new pipeline would be run. The M&NE pipeline’s two closest connection points are at Searsmont and Windsor.  An REC spokesman has said that the pipeline would be built in existing transmission corridors and rights-of-way, but offered no further information. 

Lastly, critics question the wisdom of building out a massive fossil-fuel infrastructure that will be around for several decades when the National Research Council recommends cutting power-sector carbon emissions by 90 percent from current levels by 2050 in order to lessen the potentially catastrophic effects of climate change. In many ways, Rockland has become a microcosm for a critical debate that has been playing out on state, regional and national levels over the future role of natural gas, says environmental attorney Greg Cunningham of the Conservation Law Foundation. 

“Climate change feels like it’s something that we can’t control, that it’s something that’s beyond us individually,” said Cunningham during a panel discussion at Rockland City Hall last week. “But each and every one of you as individuals is about to participate in a decision that has a climate change implication.”  

Maine’s Expensive Energy Woes

But natural gas wasn’t always so controversial. In the late 1990s, CLF fought to pressure New England to transition its fleet of oil and coal electrical generators to the much cleaner, lower-emitting natural gas, which it argued was a “bridge fuel” to renewable power sources. And the effort was successful in part due to government regulation, but also cheaper gas prices as a result of better extraction technologies and the recent shale gas boom at the Marcellus formation in Pennsylvania. Since 2000, the amount of electricity generated in New England from oil has dropped from 22 percent to less than 1 percent, while coal generation has fallen from 18 percent to around 6 percent. During the same period, the proportion of New England’s power derived from natural gas rocketed from 15 percent to nearly half today and is expected to rise even further in the next decade. The region’s grid makes use of a 610-megawatt oil plant in Yarmouth for backup generation at high-energy-demand times or when a big plant goes down. However, 60 percent of the state’s generation fleet is considered “renewable” — the largest portion being biomass wood and waste plants, followed by hydro and wind. Largely due to Maine’s substantial biomass fleet, it has the highest percentage of non-hydro renewable energy use in the country.

Maine is also a net exporter of energy and has the lowest electricity prices in New England as a result of its ample energy supply. The bad news is that Maine has some of the highest electricity prices in the country because it doesn’t have any cheap indigenous fossil fuels and developing large-scale hydro plants is not economically viable. For manufacturing companies, the state’s energy costs have been especially challenging. The recent layoffs at the Verso paper mill in Jay and the shutdown of Verso’s mill in Bucksport have been partially blamed on high utility rates. Meanwhile, New England’s energy problems are compounded by the anticipated retirement of 8,300 megawatts of coal- and oil-fired generators in the next few years, which are among the roughly one quarter of New England’s existing electricity capacity expected to shut down. Therefore, says natural gas company lobbyist Tony Buxton, the answer is natural gas.

“The reality is that for manufacturing to stay in Maine, it needs a reasonably priced kilowatt hour of power,” said Buxton at the energy forum in Rockland last week.

Buxton claims that while his clients support investments in renewable power and energy efficiency, the wind isn’t always blowing and the sun isn’t always shining, so they are not always available on demand. Natural-gas plants can ramp up quickly if other plants go down, provided that they have enough pipeline capacity, particularly during winter peak demand times. Buxton was instrumental in passing the 2013 Maine Energy Cost Reduction Act, which allows the Maine PUC to potentially charge electric customers up to  $1.5 billion over 20 years to subsidize the extension of a 250-mile-long gas pipeline from upstate New York through western Massachusetts to connect with the M&NE pipeline into the state. The most likely candidate to build the pipeline is Buxton’s client Kinder Morgan. The PUC is currently debating the proposal, while Maine also negotiates with the other five New England governors to potentially offer a substantial regional subsidy for the expansion. With the market effectively flooded with natural gas, advocates believe energy costs would drop substantially.

“We have to burn a fuel, and we’re going to have to burn fuel on most days of the year,” said Buxton. “… And we need to figure out how to do it at the lowest cost and environmental impact.”

However, as Maine Public Advocate Tim Schneider noted at the meeting, there’s not much Maine can do to replace the retiring power plants, as the state doesn’t have the ability to transmit all of the power it produces — despite the recent $1.4 billion investment in upgrading its transmission lines.

“New England is projected to not have enough electricity generation to meet its needs in the future,” said Schneider. “But that is a problem that is primarily a southern New England problem. I said Maine is a net exporter. They don’t need more generation to be built here because not all of the generation fleet that’s here in Maine can get out of Maine now.”

Project Hinges on Power Purchase Agreement

In order for the Rockland plant to go forward, it would likely need to win a bid to sell power in what is called a “forward capacity auction” (FCA). FCAs are annual auctions in which power producers compete for long-term contracts to sell electricity three years in advance of production. REC’s bid would have to be extremely competitive in order to receive approval, according to PUC spokesman Harry Lanphear. He added that the Commission favors bidders that have detailed plans and have secured financing and land over those that are purely “speculative.” Schneider said it’s highly unlikely that the REC project will go forward without a long-term contract. 

REC missed the last deadline, on May 1, to apply for a long-term contract, and the approval process won’t be opened for at least another year. However, Schneider noted that EMI lobbied last session to get a special law passed to allow the PUC to consider a liquefied natural gas (LNG) storage facility in Rumford, and it could do the same with the Rockland proposal. Still, Cunningham agreed that REC’s proposal will face stiff competition, noting that combined heat and power plants are twice as costly to develop as conventional natural-gas plants. 

“The more costly a project is, the less likely it wins out in that kind of an auction because the cheapest resources are the first ones accepted,” he said. “So to the extent that this facility is costly because it’s more expensive than other natural-gas-fired facilities, it’s possible that it doesn’t clear in that auction.”

Anchor Tenant Yet to Be Determined

Finding large energy consumers in the area to sell its waste energy to also poses a significant challenge for the company. Because steam must be transferred within three miles of the project, it limits how many large consumers would be able to take advantage of it. REC has said steam lines would likely be built into the roadways, which would be rebuilt at the company’s cost. The largest employers in the area are the FMC plant (about 130 employees) and Dragon Cement in Thomaston (230 employees). The City has identified about 31 “major energy users” in town. FMC plant manager Joseph Hamlin said that REC contacted the company last spring and they had “very non-detailed discussions” about the plant’s energy consumption.  

“We have not gone into contractual or in-depth discussions on cost or exact consumption issues,” said Hamlin. 

Last October, FMC converted its carrageenan manufacturing plant from No. 6 heating oil to compressed natural gas (CNG), which it has trucked in, in order for it to remain cost competitive. Schneider said that converting from oil to CNG or LNG is the first step to switching over to a natural-gas pipeline. Once a large anchor tenant like a manufacturing facility or hospital gets connected, it becomes more economical for a gas distribution company to run a pipeline out to the area. The next step is to build out the pipeline to neighborhoods where it can offer the fuel to residential customers and smaller businesses. In recent years, Colorado-based Summit Natural Gas and  Maine Natural Gas, a subsidiary of Spanish multinational Iberdrola (the parent company of Central Maine Power), have run pipelines out to the Kennebec Valley and suburbs north of Portland. 

REC spokesperson Coleman said in the spring that the company was drawn to the midcoast because the region “is an upper-income area” and that “higher-income areas typically have higher conversion rates to natural gas.”

However, it’s not known yet whether the area has the population density to warrant such an expansion or if the average Rocklander, with a median household income of about $37,000, could afford it. According to Tony Buxton, the savings from switching from heating oil to natural gas can be as much as $1,000 to $1,500 a year. But according to the Governor’s Energy Office, the cost to convert to natural gas can range from $2,500 to $12,000, depending on whether the customer is converting an existing boiler or replacing the system. And with the recent drop in oil prices, fewer residents in natural-gas service regions have been willing to make the costly conversions. 

As a result, Summit just recently decided to scale back its new service in Kennebec and Cumberland counties, according to the Portland Press Herald. At the same time, Maine Natural Gas has requested a rate increase from the PUC to raise gas prices by a third of a typical customer’s total bill or 62 percent over the next three years.

Environmental Concerns

Energy experts say that combined heat and power plants are much cleaner and efficient sources of energy than other fossil-fuel power plants. According to REC, the proposed Rockland facility will be 60-percent efficient and have 20-percent lower emissions than the average gas-fired plant. The plant will need a Title 5 permit under the Clean Air Act from the Maine Department of Environmental Protection, and the stacks would be equipped with scrubbers to remove contaminants. Natural gas combustion produces “negligible amounts of sulfur, mercury, and particulates,” according to the Union of Concerned Scientists. It also emits much less CO2 than coal and oil plants, according to the EPA. The Obama administration has set a national goal of installing 40 gigawatts of new combined heat and power generation by the end of 2020, due to its cleaner-burning potential. 

However, Cunningham pointed out that natural gas is still a non-renewable, carbon-emitting fossil fuel. According to a 2014 study published in the journal Environmental Research Letters by researchers at the University of California Irvine, Stanford University and the nonprofit group Near Zero, switching US electricity generation from coal- to natural-gas-fired power stations “will not significantly lower greenhouse gas emissions … despite gas plants’ lower emissions per unit of electricity generated.” The reason, concluded the researchers, is because the shift effectively delays the deployment and cost competitiveness of renewable electricity technologies for making electricity.

“The point is, the relative gains from new natural gas are diminishing, and we need to recognize that fact, that it is a carbon-emitting resource, and look for alternatives to it that are cleaner,” said Cunningham.

The Wild West of Energy Speculation

Meanwhile, state and regional officials continue to debate the merits of subsidizing pipeline expansion in the midst of what has become a Wild West of energy speculation. As former Maine PUC Commissioner David Littell warned last year, the potential $1.5 billion state subsidy would be unprecedented in the commission’s 100-year history.

“It may involve entering into a contract to buy capacity on an interstate gas pipeline, an endeavor with which this Commission has no legal, technical or economic experience,” wrote Littell in March 2014. “Large sophisticated parties can make or lose billions of dollars on natural gas contracts — as the nation learned with the collapse of Enron Corporation several years ago.”

Natural gas advocates suffered a setback in June when a PUC-commissioned study by Boston-based consultant  London Economics International LLC determined that it would not be cost effective to charge Maine ratepayers to subsidize natural gas pipeline through what is known as an “Energy Cost Reduction Contract” (ECRC). 

“The benefits to Maine do not outweigh the costs, primarily because there are other consumers that are beneficiaries of the market-wide impacts created by the reduced natural gas prices by the ECRCs,” wrote LEI. “However, those beneficiaries would not be paying for the ECRCs. Maine’s gas and electric consumption profile is a small portion of the New England region. Therefore it is not surprising that relative to bearing 100% of the cost of an ECRC, the benefits to Maine are too small to offset the cost of firm transportation.”

Critics of the pipeline expansion proposal have also expressed concerns that the development of LNG export terminals in the Canadian Maritimes could cause gas prices to spike as the fuel is sold on the global market, leaving ratepayers with all of the risk and none of the reward. As the Toronto-based Globe and Mail reported last week, two proposed LNG projects have received approval from the National Energy Board to export LNG, “but they are counting on the United States to build pipeline capacity into New England in order for them to obtain the supply needed to underpin their ambitious plans.” The Maritimes and Northeast Pipeline currently pipes natural gas from the Maritimes, but Canadian supplies have dwindled in recent years. The pipeline’s owner, Spectra Energy, has applied to reverse the pipeline, which would allow natural gas from the Marcellus shale to be sold to European markets through new LNG export terminals.  

 The Globe noted that Pieridae Energy, which owns an LNG facility in Goldboro, Nova Scotia, is counting on the US Department of Energy to issue a permit to allow the re-export of American gas to Europe. However, Pieridae’s CEO Alfred Sorensen told the Globe and Mail that “he worries that, given tensions between the Obama administration and the Harper government on energy issues,” the company may wait until after the Canadian federal election in October to see who they’re dealing with. In response to strong opposition from Massachusetts residents to the proposed $3.3 billion  Northeast Energy Direct pipeline expansion, Spectra Vice President Richard Kruse told G&M that his company was confident it would “overcome those hurdles, obtain federal approval and meet a 2017 in-service date.” RBN Energy, a fundamentals analytics company that provides consulting and advisory services to the energy industry, noted in a 2014 report that because the Canadian approval process is much more streamlined than the complex US process, exporting Marcellus gas to Canada before liquefying it into LNG would allow gas companies to more easily bypass the US regulatory jurisdiction.

In the meantime, as natural gas advocates, including the Obama administration, repeat an Energy Information Administration estimate that the US has nearly a 100-year supply of natural gas left to extract, other studies have not been optimistic. Last year, University of Texas researchers published a study that projected that US shale gas production in the major drilling fields, including Marcellus, will level out by 2020. As municipal, state and national leaders consider far-reaching policies to subsidize and facilitate the build-out of a vast natural gas infrastructure of pipelines and power plants, there may be reason to be less hasty. As study co-author Tad Patzek, head of the University of Texas at Austin’s department of petroleum and geosystems engineering, told the journal Nature last year, we could be setting ourselves up for a “major fiasco.”