WESTFIELD – The Municipal Light Board continued its discussion of a resolution to the volatility of the price of natural gas last night, a discussion that was not marked by any degree of enthusiasm for finding a near-term solution to the New England regional supply problem.
General Manager Dan Howard said the gas supply, and cost per dekatherm, “is substantially worse now than it was last year” when the department used reserve funds to stabilize both gas and electric rates.
Commissioner Jane Wensley asked about the recent approach by the six New England governors to seek a resolution from ISO-New England, the regional electric management organization, to break the gas pipeline gridlock into the region.
The Federal Energy Regulatory Commission (FERC) created the regional ISO structure when it deregulated the electric industry, separating the functions of generation, transmission and power delivery to end users to increase competition and eliminate vertical monopolies which existed prior to that deregulation. The regional ISOs now manage all of those functions within their specific areas of responsibility to ensure adequate power supply.
FERC then deregulated the natural gas industry a few years later, unbundling companies that controlled both supply and transmission. FERC did not create a similar regional management structure for the natural gas industry. The inadequate gas pipeline capacity into the New England region results in gas delivery prices that are substantially higher than those in regions even though there is an abundance of supply.
Howard said the governors’ action “is unorthodox” in that ISO-New England is only responsible for managing the region’s electrical supply and delivery system and, historically, has had nothing to do with natural gas pipeline capacity into the region.
“The governors sent that request to ISO-NE because the problem with the gas (pipeline delivery) infrastructure is now a concern not only to the natural gas industry, but also the electric generation industry because more than 50 percent of electric power is gas generated in New England,” Howard said. “In Massachusetts it is even more of an issue because 70 percent of power is from gas-driven generation.”
“The governors hope that ISO-NE will take a role in expanding the capacity of gas (pipelines) in New England,” Howard said. “If supply and pipeline capacity are not there for the electric power plants, the whole grid is at risk, so the governor’s asked the regional ISO to put a plan together, which is a new approach. I think what the governors are seeking is more of an investment (in new pipeline capacity) more than control (of the gas industry). I don’t see this problem going away soon.”
The current pipelines are privately owned and regulatory review of new pipeline construction projects can take years, and huge investment, Howard said.
“The pipeline owners will not invest in new pipeline construction unless they have assurance of payback on that investment,” he said, adding that the gas-generated power companies are hesitant to lock into long-term gas supply contracts because of the volatility in that market.
Howard, in a written report to the board members, said that spot market wholesale prices have jumped to as high as 1,400 percent of the historic average and those prices this winter are twice those of last winter directly linked to weather and the pipeline constraints.
The problem is also directly related to the extremely cold winter this year which has increased consumer demand by more than 20 percent and that fact that the department has had to purchase the higher-priced gas to meet that higher demand.
Howard asked the board to sign a letter to Governor Deval Patrick to take aggressive action to address “restriction on pipeline capacity that has caused adverse financial impact to the residents of the City of Westfield and customers of the Westfield Gas & Electric Department. We believe this will continue until such time increases in availability of natural gas capacity occurs in New England.”
A sample of the letter is as follows:
February 5, 2014
Hon. Deval Patrick, Governor
Commonwealth of Massachusetts
Massachusetts State House
Office of the Governor, Room 280
Boston, Massachusetts 02133
Re: Interstate Gas Pipeline Capacity
Dear Governor Patrick:
Westfield Gas & Electric is a municipally operated gas and electric department which serves approximately 18,000 electric customers and nearly 10,000 natural gas customers within the municipal boundaries of Westfield. Through its strategic planning, risk management portfolio and conservation efforts, Westfield Gas & Electric has been able to maintain some of the lowest electric and gas rates within the Commonwealth of Massachusetts. However, while gas is abundant within the United States at relatively low commodity prices, there are restrictions on pipeline capacity that have caused adverse financial impact to the residents of the City of Westfield and customers of Westfield Gas & Electric Light Department. We believe this will continue until such time increases in availability of natural gas pipeline capacity occurs in New England.
The Northeast has seen the increased reliance on natural gas to generate electricity at its power plants. This reliance on natural gas to meet electric power demand has placed stresses on the natural gas supply/transportation system infrastructure. Local distribution companies, such as Westfield Gas & Electric, have always maintained and contributed to interstate pipeline infrastructure in order to assure gas supplies to its customers. However, the increase in reliance by electric power plants and the lack of construction of new and/or upgraded gas transportation facilities into the New England area has caused gas prices to spike due to delivery restrictions and increased delivery cost. In 2013, over 50% of electricity produced in New England was provided by gas fire generating units. The pipeline transportation cost to the local distribution companies is higher due to the need for firm transportation to assure that capacity is available to our customers. However, electric generating systems have not purchased firm gas transportation and thus the interstate pipeline system has not kept up with demand.
The failure of certain gas users to have firm capacity into New England and contribute to the needed infrastructure has caused increased demand for such capacity and thus constraints upon the pipeline as well as significant increases in delivered costs. For example, delivered daily spot natural gas, that gas used to provide customers on a colder than normal day of which we have encountered many this January, had peaked at about $5/MMBtu in January 2012 to $32/MMBtu in January 2013 and $70/MMBtu this January. This is not sustainable. These costs have negative impacts on both residential and commercial customers alike and have far reaching effects on such items as job growth, economic stability and investments within the community.
In order to resolve this issue and provide for access to less expensive gas available outside of New England a regional and national solution needs to be implemented to help alleviate the physical constraints on our gas supply into New England. This can be accomplished by having all stakeholders contribute on an equitable basis to increase pipeline capacity. We are aware of the New England Governors’ Commitment to Regional Cooperation on energy infrastructure issues as well as the New England States Committee on Electricity (NESCOE) request for ISO-NE to accomplish new electric transmission and natural gas pipeline capacity by the winter of 2017/2018.
We are hopeful that this occurs however, in the interim, our natural gas and electric consumers will be subject to volatile conditions in pricing. This negatively impacts our community as well as other communities in the region.
The Municipal Light Board felt that this was an important issue to bring to your attention and request assistance in attempting to find a global solution to this problem.
Very truly yours,
WESTFIELD GAS & ELECTRIC LIGHT BOARD
Kevin M. Kelleher, Ward 1 Commissioner
Ramon Rivera, Ward 2 Commissioner
Jane C. Wensley, Ward 3 Commissioner
Francis L. Liptak, Ward 4 Commissioner
Thomas P. Flaherty, Ward 5 Commissioner
Robert C. Sacco, Ward 6 Commissioner
A. Edward Roman, Appointed Commissioner
Daniel J. Howard, General Manager
