Saddling Electricity Customers with Long-term Gas Pipeline Contracts is Not a Solution

By Cynthia A. Arcate 3 November, 2015

Every now and then, those of us who stick our necks out to support policy solutions have to admit that what initially sounded like a good idea turned out to be the wrong path. This is one of those times.

When the Baker administration first proposed having electric distribution companies (EDCs) enter into long term contracts for natural gas capacity to fill the gap where gas distribution companies cannot commit and electricity generators will not, it seemed like a good idea. Recall that the region had just experienced tremendous winter price spikes of both electricity and natural gas.

PowerOptions members were seeing 50 percent increases over their 2012 price locks. We, along with others, were desperate to get the process moving to solve the gas capacity problem in the region. The EDC approach made sense because it avoided all of the federal jurisdictional issues encountered by some previous proposals and was something the state could quickly implement on its own.

But clearly this idea hadn’t been thoroughly vetted from practical or legal perspectives, as proven in the detailed and thoughtful analysis by intervenors in the Department of Public Utilities docket (15-37) and the even more thorough order of the Department. Clearly, it is not that simple.

The legal issues are complex and reasonable people (lawyers) can differ. The Department determined there are no legal barriers to this approach. The appeal process has already started and will play out in the courts. The Department clearly got it right in the proof the EDCs would have to make for approval of a long-term gas contract paid by electric consumers.

The hurdles are high and show that this approach really does not make sense. However the EDCs have already issued an RFP for gas pipeline proposals to meet the standard and they’ve given bidders very little time to respond, suggesting that maybe this had been in the works anyway.  Maybe the Department’s bite won’t be as bad as its bark. We shall see. But the Department’s standard of review is strong, rigorous and right on target. Here are a few of the markers that have to be met:

  • Net benefits to customers at reasonable cost
  • Compares favorably to alternative options
  • Price is competitive
  • Satisfies other non-price factors such as reliability and diversity of supply
  • Proposal for ratemaking cost recovery

These are complex, substantive and important hurdles. Most importantly, the Department found that the EDCs have to identify any other filings and approvals necessary to implement the plan and demonstrate that the proposal is “viable.” The Department doesn’t want to spend time on something that is “not feasible.”  So, while the Department did not find legal barriers, it acknowledges that its views alone may not be determinative to implement such an approach. The EDCs have to show that, to the extent that any waivers or changes in law are required, they can be done.

This is not an easy task and probably a waste of time because the hurdles probably cannot be cleared. While it was worth thinking about, it’s now clearly the wrong path. It’s time to regroup.

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