WESTFIELD – The New England governors, meeting last week in Hartford, identified the goal of increasing the region’s natural gas pipeline capacity to increase gas-fired electric generation.
The governors of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont asked the regional electricity management company, ISO-New England, to formulate a plan to increase electric generation capacity sufficient to deliver electric power to 1.2 to 3.6 million homes. That plan is directly linked to gas pipeline capacity.
The six governors said lack of sufficient energy supply, both natural gas and electricity, is a major impediment to recovery of the regional economy, an impediment which erodes the ability of regional companies to compete in the national and global marketplace.
The governors are concerned, as well, that the high cost of energy, both electrical and natural gas, is a barrier to attracting new businesses to the region.
Westfield Gas and Electric Department general manager Dan Howard said the two energy sources are linked because of the increase dependence on the use of natural gas to generate electrical power.
“The governors are looking to ISO-New England to help with the expansion of (natural gas) pipeline capacity for that electrical power generation, because there is not a manager on the gas side to do that,” Howard said. “We’re into it big time. In Massachusetts, 65 percent of electric power is generated with natural gas and 53 percent for the entire New England region.
“The lack of pipeline capacity is harming both,” Howard said, “because electrical costs are jointed at the hip with gas, so if the gas prices are out of control, electrical generation feels it, as well. Natural gas supply is abundant, but the (existing) pipelines are not beefy enough to get it into the region. The demand is there, the pipelines just can’t supply it.”
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 ISOs now manage all of those functions within their specific region to ensure adequate power supply.
FERC then deregulated the natural gas industry a few years later, unbundling companies that controlled the both supply and transmission. However, FERC did not create a similar regional management structure for the natural gas industry. The inadequate gas pipeline capacity into the region results in gas prices that are 10 times as high as those in nearby states.
Howard said the Polar Vortex has also significantly increase the demand for gas because, in addition to power generation, it is the most cost-effective fuel source for heating homes during the current cold snap.
“This winter is 25 percent colder than last winter and with that colder weather, consumption is higher. In Westfield alone our purchase of gas is up 23 percent compared to a year ago,” Howard said. “Nobody saw this coming. Prices have doubled since last year, and that increase is being sustained longer.”
Typically the cost of a dekatherm of gas is below $5 on the “spot market” where gas is purchased to supplement the system for peak demand.
“Today that spot market price was $69 a dekatherm,” Howard said yesterday. “If this was a normal winter, we would not be seeing these prices. The governors’ plan is unorthodox, to use the ISO to get more pipeline capacity.”
“We’ve hit new daily gas consumption highs, 15 to 18 percent higher than we’ve ever seen before, so people will see increases in their rates because of their consumption,” Howard said. “During cold snaps we have to buy additional peak demand gas supplies which are well above our baseline (gas contract) costs.”
The Conservation Law Foundation, a Boston environmental group, warned that the governors’ proposal threatens an over-reliance on natural gas, a carbon-based fuel that could “potentially leave the public holding the bag for a bad bet.”
It also called on state officials to seek public comment, “rather than continuing the politically expedient closed-door meetings that have been taking place.”
The governors, who agreed in December to jointly develop a regional energy strategy, asked ISO-New England to collect money from utilities, retail suppliers and others who would then bill electricity ratepayers. Federal regulators approve the proposal.
ISO called it a novel approach to spurring investment in natural gas pipeline promising to “break the logjam that has stymied the level of natural gas pipeline expansion needed to meet the region’s needs.”
AP Business Writer Stephen Singer and Associated Press writer Rik Stevens in Concord, N.H., contributed to this report.
