Natural gas fracking site at the Marcellus shale formation in New York (Courtesy New York City Department of Environmental Protection)
Natural gas fracking site at the Marcellus shale formation in New York (Courtesy New York City Department of Environmental Protection)
After three years of contentious public debate, the three members of the Maine Public Utilities Commission (PUC) — all Gov. LePage appointees — will likely vote in July on whether to accept a controversial plan to charge electricity customers up to $75 million a year to subsidize the construction of natural gas pipelines into the state. Under a 2013 law, the PUC is authorized to approve so-called Energy Cost Reduction Contracts (ECRCs) that would divert subsidies to selected pipeline projects, provided that the commission determines that they will bring down electric costs for all ratepayers. But while the LePage administration and PUC Chairman Mark Vannoy have expressed strong support for the concept, the proposal was dealt a blow recently when the PUC’s own staff recommended against moving forward. 

In a report released on June 8, the PUC staff wrote that ECRC proposals “are not in the public interest,” are not likely to be cost-beneficial, and “do not meet the requirements of the law.”

The staff report found “that the record in this proceeding does not support a finding that an ECRC is reasonably likely to provide net benefits for Maine electricity and natural gas consumers under a sufficiently broad spectrum of future scenarios. Moreover, regional market conditions, rule changes, and other events suggest that the price and volatility concerns that led to the Act may be addressed without an ECRC. Therefore, the Commission does not authorize the execution of an ECRC. However, the Commission will keep this docket open and continue to monitor market conditions and other developments in the region.”

The PUC staff report comes on the heals of last year’s PUC-commissioned study by Boston-based consultant London Economics International LLC, which determined that it would not be cost-effective to charge Maine ratepayers to subsidize natural gas pipeline given the state’s low consumption of the fuel. 

A more recent London Economics International LLC study commissioned by the Maine PUC determined that Maine ratepayers could benefit from an investment in pipeline capacity provided that the other New England states contributed a proportional share of the subsidies and that a generic liquefied natural gas (LNG) export facility in Eastern Canada was up and running. However, no such facility exists or will even likely exist in the near future.

While the PUC staff recommendation is not binding, the report could influence the PUC commissioners’ decision when they vote in July. The Industrial Energy Consumers Group (IECG), a leading pipeline subsidy proponent that includes large manufacturing companies, says it intends to file an objection against the PUC staff’s report. 

“Unfortunately, the staff recommendation is exceptionally flawed and its implications for Maine are ominous,” said IECG lobbyist Tony Buxton. “There have been well over 30 studies for a need for natural gas pipeline expansions into New England from the south or west. Virtually all of them, with the exception of the London Economics study, show a need for a substantial investment in natural gas pipeline capacity.”

Background of Energy Cost Reduction Act  

The Energy Cost Reduction Act (ECRA), which authorizes the PUC to charge electricity customers for pipeline expansions, was passed in 2013 after a particularly cold winter when demand for natural gas for heating caused constraints on existing pipelines in New England. This allowed pipeline companies to charge high premiums to natural gas-fired plants, which account for nearly half of the region’s electrical generation. As a result, electric prices spiked dramatically, costing New England electric ratepayers approximately $3 billion that year. Although Maine has the lowest electricity costs in New England, the state’s ailing paper mills have argued that while they can’t control the demand for paper or currency exchange rates, the state can intervene in the energy market to control electricity costs. In the past five years, five paper mills have either shut down or will soon be out of business.

Pipeline subsidy proponents argue that customers closer to the natural gas fields in Pennsylvania and New York can get cheap gas, but New England does not have enough pipeline infrastructure to take full advantage of the low prices. Furthermore, they point out that with over 8,000 megawatts of oil, coal and nuclear plants going off-line by 2020, the region will need to have firm pipeline capacity for the natural gas plants that will replace them. Since a pipeline can’t be built unless it has long-term contracts for its full-capacity, the law allows the state to step forward and sign a contract for capacity if private companies won’t take the risk. 

 In order to alleviate the burden on Maine ratepayers, state energy officials have been negotiating with other New England states to come up with a cost-sharing formula to cover the cost of the contracts. However, with the steep drop in oil prices and warmer-than-average winters, the urgency for subsidized pipeline expansion appears to have diminished. 

In April, advocates for the plan were dealt a blow when Kinder Morgan subsidiary Tennessee Gas Pipeline Company (TGP) pulled the plug on its controversial Northeast Energy Direct (NED) pipeline from upstate New York to Massachusetts. The Texas-based company, which had previously submitted an application for ECRC subsidies, said that it couldn’t secure enough commitments from big customers and that low energy costs made it difficult to compete in the market. Currently the two remaining pipeline bidders for ECRCs are Spectra Energy’s Access Northeast project and the Portland Natural Gas Transmission System’s Continent to Coast proposal. According to Spectra, the Access Northeast pipeline would connect directly to natural gas-fired power plants in New England to ensure they have adequate supply during peak demand times in the winter. The much smaller Continent to Coast project would transport gas into the Maritimes & Northeast Pipeline in Westbrook.



Critics Respond

Environmental groups, who oppose continued investment in greenhouse gas-emitting fossil fuels, hailed the PUC staff recommendation as another victory in the three-year battle. 

“Hot on the heels of the recent downfall of Kinder Morgan’s massive pet pipeline project, this is an important victory on the path to stopping the patchwork effort across New England to build a polluting pipeline on the backs of consumers,” wrote Maine Conservation Law staff attorney Ben Tettlebaum. “Enough time, resources, and money have been wasted on this two-year flirtation with the fossil fuel industry. For the health and well-being of communities across New England, it’s time to break off this relationship with our dirty past. CLF strongly urges the PUC to become a true leader in the region and adopt the wise and reasoned recommendation of its own staff. Then, we can turn our attention to proven, low-risk investments, such as energy efficiency and renewables, that will truly move Maine and the region forward on the path to a clean energy future.”

Maine CLF has argued that there’s no need to build out a massive pipeline infrastructure that will be here for several decades when technical fixes appear to already be solving some of the pipeline problems, such as properly coordinating fuel supplies, finding efficiencies and implementing market reforms to lower natural gas costs. The group has pointed out that liquefied natural gas imports through existing terminals have likely helped offset higher pipeline costs as global LNG prices have dropped to compete with oil prices. In addition, they argue that increased LNG imports can hold down prices until additional privately financed pipeline can be built without subsidies. The Sierra Club has also opposed the plan, citing the environmental damage caused by hydraulic fracking, which involves injecting a pressurized mixture of water, sand and chemicals into the ground to release deposits of gas. The practice has been blamed for contaminating groundwater. 

CLF and Central Maine Power have also argued that Maine should not invest so much of its resources in a volatile commodity that could put ratepayers at risk of much higher costs down the road. 

In testimony against the original bill, CMP compared the proposal to the 1970s-era Public Utility Regulatory Policy Act (PURPA), which required utilities to enter into contracts with biomass, waste-to-energy and natural gas cogeneration plants in an effort to offset dependence on foreign oil following the 1973 oil crisis. As CMP noted, when electricity costs dropped, electricity customers were still left paying above-market prices for the PURPA contracts. 

Nonetheless, Buxton insists that the region still needs to invest in more capacity. 

“The cost to New England ratepayers in 2013 was $3 billion. In 2015 it was $2 billion,” said Buxton. “It is fundamentally erroneous to conclude that the crisis has abated. Yes we have warmer weather and colder weather. That’s the nature of weather, it’s variable. But renewables are intermittent, so we have to have a base load to rely on when the sun isn’t shining and wind is not blowing.”

Tim Schneider, the Public Advocate, has taken the middle ground on the case. In his brief filed with the PUC, Schneider advocates for a regional investment in the Portland Natural Gas Transmission System  project, but stopped short of endorsing Spectra Energy’s much larger Access Northeast proposal. 

“Since this proceeding began, Maine has been lucky: a combination of mild winters and a historic drop in oil and LNG prices has reduced winter price volatility and largely spared the state from the extreme price spikes experienced in previous winters,” wrote Schneider. “Maine’s electricity customers cannot afford to rely on luck indefinitely.”

He argued that the smaller regional investment will help ensure that electricity and gas customers will be protected from future electricity price volatility while “preserving the opportunity for flexibility amidst a rapidly changing market.”

Patrick Woodcock of the Governor’s Energy Office would not comment directly on the PUC case except to say that the administration continues to work with neighboring states to come up with a regional solution to build natural gas infrastructure. But the proposal also remains controversial in the other New England states. 

An energy study commissioned by the Massachusetts Attorney General’s Office determined that the region’s power system can maintain power reliability until 2030 without an interstate natural gas pipeline. The study’s author, Boston-based Analysis Group, concluded that energy efficiency and improved demand response systems are preferable to building new gas pipeline infrastructure. The authors further noted that New England’s growing dependence on natural gas is not sustainable and will hinder the region’s ability to meet national and regional carbon reduction requirements.

Meanwhile, Buxton, who has been vigorously lobbying the other New England states, says that if the PUC rejects the current ECRC proposals, it will likely put the final nail in the coffin of the regional talks. 

“There’s no point in Maine going it alone, but if Maine does it other states will do it,” he said. “So you have the risk here that if Maine does not do this, that may, all by itself, kill the regional solution. That would be just horrific because we started this and we were right.”