All Consumers Are the Big Winners with the Cancellation of Kinder Morgan Pipeline

By Cynthia A. Arcate 26 April, 2016

There has been much hand-wringing and crystal ball reading in the days since Kinder Morgan announced its plans to cancel their Northeast Direct natural gas pipeline project. As usual, some of the analysis is spot on but most paint too broad a brush in identifying winners and losers, especially as it relates to consumers.

One of the biggest fallacies I’ve seen presented since Kinder Morgan’s announcement last week is that industrial consumers will be hurt from the fallout because they will not be getting the benefit of lower cost electricity from pipelines bringing in low cost natural gas. The truth is, that’s just not true in Massachusetts.

The reality is that even the worst case scenarios discussed at the beginning of this pipeline debate did not seem to support both the Kinder and the Spectra projects. And this was before the drop in the price of oil and the glut of liquefied natural gas, which is the real reason the Kinder Morgan project has been dropped.

This reality was quite clear in Attorney General Maura Healey’s study, which showed as its “base case” no need for more pipeline capacity even under the status quo—and demand is expected to continue to decline over time. It was under the “scenarios,” the portion of the study that looked at the “what ifs,” that the study turns to increased efficiency and demand resources to meet needs, e.g. if Pilgrim Power Plant were to shut down.

Attorney General Healey is indeed a “winner” for having initiated this study to capture the dramatic game-changing impact from low cost oil and LNG to the regional energy markets. Her study predicted what in fact happened this past February with the most recent capacity auction in the region where several new “dual fuel” generation units cleared the market at substantially lower prices than the two previous auctions.

Maine, on the other hand, is a clear loser. Maine Governor LePage was hoping to get a pipeline built to bring cheap natural gas to Maine, which has limited access to Marcellus shale gas but, sadly for them, plenty of access to more expensive Canadian gas. Maine wanted Massachusetts consumers to foot most of the bill for the pipeline by arguing that it lowers electricity costs for all New England consumers and, therefore, Massachusetts should pay its share based on its electricity demand, i.e. about 50%. However, out of the many studies that have been done, the Maine industrial groups’ study was the only one that showed a benefit to New England consumers from the oversized pipe proposed by Kinder Morgan.

The fact is we still need some new pipeline capacity into the region for home heating and other industrial users who need firm supply in the winter. Spectra’s project is the answer in part and we still need to address the problems with supply in the Berkshires.

But we need not worry about the electricity generators anymore. That is clear from the Attorney General’s study and the recent auction. For the same reason this pipeline plan failed, Governor Baker should rethink his “combo platter” because it’s likely to be too much food and overpriced.

If we distort the market with ratepayer subsidized Canadian hydro that we don’t need, customers will definitely end up being the ultimate losers. But let’s also take a step back and not look at each of these proposals in terms of winners and losers. Now is the time for leadership where there are no winners and losers, just a fair and rational plan to the lowest cost clean energy supply.

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