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Has Access Northeast Become the New NED?

September 15, 2016 | By Annalisa Kraft

Has Access Northeast become the new Northeast Energy Direct Project (NED), the gas pipeline project so controversial it generated thousands of FERC comments as New England towns, villages and counties refused to allow it within their borders?

Just as the Kinder Morgan NED Project was a lightning rod for the ire of environmentalists and New Englanders, so is the Access Northeast project…but maybe not to NED’s extent.

Many of the same arguments used against NED are being trotted out against Access Northeast, but an additional strategy is being deployed. Since there is no longer a competing pipeline available to use as an argument with NED gone, the opponents are trying to cut it off at the knees, moving the fight to the utility level.

In this Get the Point, we look at the politics and economic issues that are facing the developers of this project that is – at the moment – the last, best hope for breaking through the bottleneck of delivering large new volumes of gas to New England.

Getting Rid of AC-NE

Unlike the $3.3-billion NED project, Access Northeast (or "AC-NE" for those who think of it as a blemish on the landscape) is an expansion, a smaller project in terms of line miles at only 123, but with a similar price tag of $3 billion. Also unlike NED’s initial status solely as a Kinder Morgan project, Access Northeast has been a joint venture from the beginning. Spectra Energy’s Algonquin Gas Transmission will build and operate the 925 MMcf/d pipeline, but Eversource (40% interest) and National Grid (20% interest) are its partners.

The fate of Access Northeast might be another difference, too. “It’s not a new build, but an expansion along existing rights of way owned by Algonquin and Maritimes Northeast. Unlike NED, [it] is being pushed by a few large New England utilities,” said Warren Waite, PointLogic Manager of Energy Analysis. “However, environmental and regulatory pushback may prolong the in-service date of delivering economic and reliable energy to New England consumers.”

But it's undeniable that across New England at the state and local level, Access Northeast is running into opposition in a variety of forms. Town commissioners (Keene, N.H), state of Massachusetts legislators and Maine Public Utilities Commissioners are advocating against individual utilities contracting with pipelines, or blocking mandates that would pass along construction costs as part of a consumer's monthly bill. This is very different than prior pipeline opposition, in which bans were imposed at the state or town level against the physical expansion itself.

FERC has been publishing transcripts of the local scoping meetings. An Acushnet, Mass. meeting drew 35 commenters, and one Roger Cabral summed up the locals’ thinking. “Is there no other solution to solving a nine-day [winter heating] problem but to spend $3 billion on the Access Northeast Project?” he asked.

The company counters that the project would save New Englanders $2.5 billion in the first year alone, arguably paying for itself in 18 months. And Spectra has said it’s not just a nine-day problem but more like a 40 to 50 day problem.

PointLogic's analysis suggests that 40-50 days might be on the high side, said Rob Applegate, manager of energy analysis, but it is a real problem nonetheless.

“New England’s coldest month of January requires an average of 31 HDDs [heating degree days] per day," said Applegate. "Since the winter of 2006/2007 the subregion has had 379 days that were colder than that average, so the subregion typically has 38 days of extreme cold each winter requiring substantial heating demand for its residential and commercial sectors.”

With New England temperatures so nippy by early December that one feels they can snap off an extremity, it’s no wonder New England spot gas on the coldest days can cost 15 times more than Marcellus gas. According to theBureau of Labor Statistics, Boston utility consumers paid 30.4% more per them in February 2016 than the national average and 29.4% more per therm the February before. Over the last five years the percentage more paid by Boston consumer per therm has ranged between 25.8% to 30.4% of the national average.

S&D Fundamentals: Summer 2016td v Summer 2015td

Source:ISO-NE Spring 2016 Markets Report

Set to be in service on Nov. 1, 2018 Access Northeast has been hailed as a New England “de-bottlenecker.” It has been the subject of much executive-level discussion and analysts' questions on Spectra Energy earnings calls.

“Access Northeast has been uniquely designed both physically and contractually to serve the needs of New England power generators. With recent developments in the Northeast [the withdrawal of NED as a competitor], our project's responsiveness to market needs is increasingly evident,” said Spectra CEO Greg Ebel on a May 4, 2016 earnings call.

“Just as Access Northeast is unique in its structure, we're working through a unique regulatory process. We continue to work with our partners to advance state approvals for customer agreements, and we're well-positioned to participate in the various state processes currently underway. We anticipate moving Access Northeast into execution later this year,” Ebel added.

But by late summer things had become more dicey, Ebel admitted. “Regulatory permitting at the state level is the biggest challenge the industry faces. A year ago, there were multiple projects, now there’s one. Logic will prevail. Without a project it will be difficult to keep the lights on,” he said on Aug. 3.

And in a conference call last week discussing the Enbridge-Spectra merger, Ebel once again remarked that building infrastructure in the Northeast is "challenging."

The next key step in the process, according to Spectra executive Bill Yardley, will be utilities’ filings and request for proposals (RFPs). “Once we see the Connecticut RFP come out we'll have a good evaluation of that. If we're the winner in that RFP, I think we're in execution. And I'd look to execution the second half of the year, maybe late third quarter, early fourth,” he said.

Part of the problem with Northeast infrastructure, aside from those stubborn Yankees, is the high population density in New England. As Massachusetts State Sen. Patrick O’Connor wrote in a letter to FERC, his objection to a Weymouth, Mass. compressor station is not to the station itself but to its location. “The commonsense approach would be to not site a compressor station in a heavily populated and over-industrialized area to begin with,” O'Connor wrote.

Unwilling to commit

Another problem in the Northeast (and one that bedeviled NED, too) is that electric power utilities there have a long tradition of not signing up for firm transportation commitments. This has been discussed time and again in ISO-New England reports, even as the utiility coordinator notes the need for additional pipeline infrastructure.

In March 2015, ISO-NE discussed the issue in its annual Regional Electricity Outlook. “About 80% of new capacity built in the region since 1997 runs on natural gas. Gas-fired units remain the top choice for developers, representing more than 60%—about 8,200 megawatts (MW)—of all new generation currently proposed,” ISO-NE said.

Then, ISO-NE wrote in the January 2016 State of the Grid Report that “New England’s generation fleet is changing rapidly – the use of natural gas for power generation is increasing dramatically; older, fossil-fired units are retiring. New England needs additional energy infrastructure – rising demand for natural gas drives the need for additional natural gas infrastructure.

“Because so much of the region’s generating capacity runs on natural gas, the price of this single fuel source sets the price for wholesale electricity about 70% of the time. Both electricity and gas prices have seen dramatic swings in recent years. Between February and June 2015, for example, the region’s average monthly wholesale electricity price plummeted from the third-highest price to the lowest price since 2003, the year that competitive markets in their current form were introduced in New England. Behind these ups and down is the region’s inadequate natural gas delivery infrastructure, which can cause price spikes,” said the 2016 ISO-NE report.

“The New England power system continues to be in a precarious position during extended periods of extreme cold," added ISO-NE President Gordon Van Welie in a separate commentary that accompanied the 2016 Outlook. "The region will continue to be in this position until the New England’s natural gas infrastructure is expanded to meet the demand for gas. The price of wholesale power in New England is directly correlated to the price of natural gas. When generators can’t get natural gas, prices spike.”

S&D Fundamentals: Summer 2016td v Summer 2015td

Source:ISO-NE 2016 State of the Grid Report

The alternative marginal gas supplier into New England continues to be imported LNG to make up for the inadequate pipeline infrastructure. But this, too, comes at a price. “The increased use of existing LNG facilities and the addition of regional LNG storage can help fill the gap when the pipelines shipping Marcellus shale gas to the region are congested. However, regional LNG storage is limited, and because it is sourced internationally, LNG pricing varies and can be expensive,” said ISO-NE.

One LNG supplier to the region, ENGIE LNG, wrote in a comment letter to FERC about Acees Northeast to rebut both Algonquin’s and ISO-NE’s argument. “When contracted for in advance, LNG supplies can significantly reduce the potential for winter period peak price spikes as evidenced by the reduced prices experienced during the winter of 2014/15, where LNG was under contract for delivery to New England from a variety of suppliers compared to winter 2013/14,” ENGIE LNG stated.

Meanwhile, utilities remain hesitant to commit to volumes big enough to support major gas infrastructure buildout. Kinder Morgan admitted the reason it pulled the project was that it couldn’t get enough utilities or local distribution companies to sign up for firm commitments. On April 20, in announcing the freeze of NED, Kinder Morgan cited “inadequate capacity commitments from prospective customers” as the cause of its decision. This dollars-and-cents problem belies the claims of environmentalists who took credit for NED's demise.

Kinder Morgan also partly blamed the entire New England utility ratepayer-electric distribution companies (EDC) mishmash, stating when it pulled the project, “… the New England states have not yet established regulatory procedures to facilitate binding EDC commitments, that the process in each state for establishing such procedures is open-ended, and that the ultimate success of those processes is not assured.”

Meanwhile, enviros still have Access Northwest in their sights, and on July 22 Oil Change International along with 11 other environmental groups issued a report on 19 Northeast gas pipelines they say should not be built.

Pipeline politics

Massachusetts has been the state most vociferously opposed to both NED and Access Northeast. But the state’s leaders and elected officials are split on the ratepapayer pipeline issue. On July 5, 2016, the state Senate passed unanimously an amendment to a renewables bill that would deny the state’s Department of Public Utilities the authority to charge ratepayers to recoup the cost of new or expansion pipeline infrastructure contracts over 20 years.

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Massachusetts Gov. Charlie Baker (R) is firmly for more gas and gas pipelines for the state, at odds with the state’s Attorney General Maura Healey. Healey not only commissioned a study on the need for pipeline infrastructure (conclusion: not needed) but was an intervenor in the Massachusetts State Supreme Court hearing on whether ratepayers should subsidize gas pipeline infrastructure. An interesting aside is that Attorney General Healey commissioned that 2015 natural gas pipeline necessity study with Engie LNG, and the two have acted as co-intervenors at FERC against both NED and Access Northeast over the last two years. (FERC Docket PF16-1)

Access Northeast was dealt what was hailed by environmentalists as a major blow when the Massachusetts Supreme Court decided on Aug. 17 that ratepayers could not be charged to support gas infrastructure. Utilities Eversource and National Grid subsequently withdrew their applications with the state’s utility regulator for gas storage and transportation contracts on Access Northeast.

On Aug. 23, Engie LNG filed a motion motion to deny the FERC approval process to Access Northeast entirely, arguing that the original filing was predicated on these tariff waiver exclusions. (FERC Docket RP16-618)

AG Healey filed a supporting statement. “A significant part of Algonquin’s original tariff waiver filing was directed specifically at the Access Northeast Project and the contracts between Algonquin and Eversource and Algonquin and National Grid to purchase capacity on the Access Northeast pipeline to be paid for by Massachusetts electric ratepayers," Healey wrote. “As a result of the ENGIE decision, there will be no funding of Access Northeast pipeline construction by Massachusetts electric ratepayers, no precedent agreements for gas capacity to be paid for by electric ratepayers and no ‘state regulated electric reliability program,'" Healey added.

On Aug. 24, John Flynn of National Grid, Lee Olivier, executive vice-president of Eversource Energy, and Spectra's Bill Yardle (the go-to guy on Northeast projects) wrote a letter to Massachusetts lawmakers to reinforce their desire for a solution to their gas sourcing needs, despite the court ruling. “A ‘do-nothing’ scenario is untenable,” they said.

“In fact, studies estimate that for every $1 of gas infrastructure that customers pay for, the price of electricity would be reduced by as much as $3 to $4 in normal weather,” said the joint letter.

Chloe Gotsis, deputy press secretary of AG Healey’s office, told PointLogic via email the attorney general is firm in her opinion that Massachusetts ratepayers shouldn’t, nor are they required to, subsidize gas pipelines. In light of the Supreme Judicial Court decision, Access Northeast will have to find some other way to pay for itself in Massachusetts besides electric ratepayers, said Gotsis, adding that the AG believes a natural gas pipeline is not the most cost-effective use of ratepayers’ money.

The Conservation Law Foundation (CLF), Massachusetts Chapter, is one of the groups that led the courtroom fight against Access Northeast, adding its concerns about the environmental to the issues of need for the pipeline and its cost. “We just do not believe ratepayers should undertake the risk involved in natural gas pipelines,” CLP Vice President Tom Irwin told PointLogic.

In his New Hampshire chapter, he said the state’s utility restructuring years before means Access Northeast “is really counter to the restructuring that New Hampshire mandated.”

The CLF is “supportive of permanent approaches--more targeted approaches—like using LNG to address peak demand,” said Irwin, though its ultimate goal is to decouple the region from a fossil fuels.

What's next?

What's next, given that everyone agrees that New England is vulnerable to supply shortages and price spikes on at least some cold days every winter?

Both Eversource and National Grid have told PointLogic that they are still definitely supporting the project, as has Spectra. “While the Court’s decision is certainly a setback, we will re-evaluate our path forward and remain committed to working with the New England states to provide the infrastructure so urgently needed to ensure reliable and lower-cost electricity for customers,” said Eversource spokesperson Caroline Prettyman.

National Grid spokesperson Amie O’Hearn told PointLogic the court decision and the partners’ withdrawal of capacity application with the Massachusetts Department of Public Utilities were not showing a loss of faith in the project. “The SJC decision only applies to EDC contracts in Massachusetts -- our Rhode Island petition remains before the Rhode Island Public Utilities Commission," she said.

The project cleared one hurdle a few weeks ago, related to an important, if not critical, capacity waiver release from FERC that Algonquin has requested for Access Northeast to expedite capacity releases to electric distribution companies. “Algonquin’s waiver proposal appears, on the surface, to make a small request to facilitate a policy direction that could help a stubborn electric market problem, but it seems to have some significant ramifications for both the natural gas and electric markets,” ClearView Energy Partners, a D.C. consulting firm, had warned before FERC's decision.

The critical part of the waiver request was approved by FERC on Aug. 31, but only if local utilities in Connecticut, New Hampshire, Massachusetts and Rhode Island allow it. If so, the third-party waiver will permit an asset manager to resell the EDCs' capacity. This was a very important win for Access Northeast, according to ClearView.

Currently, Access Northeast is still in the pre-filing FERC process. In contrast, NED had filed for its certificate before Kinder Morgan cancelled it. Comments still pour into FERC almost daily, with the Town of Acushnet, Mass. voting Aug. 30 against Access Northeast’s LNG storage facility in its town. Shades of NED and villagers with pitchforks, indeed.

S&D Fundamentals: Summer 2016td v Summer 2015td

Stay tuned to "Get the Point" and daily coverage from PointLogic for the latest updates on Access Northeast and other pipeline projects.

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