Testimony of PowerOptions CEO Cynthia Arcate to the Commonwealth of Massachusetts Joint Committee on Telecommunications, Utilities and Energy, May 12, 2015

By Cynthia A. Arcate 13 May, 2015

Good Afternoon Chairman Downing, Chairman Golden, members of the Committee.  My name is Cynthia Arcate. I am the President and CEO of PowerOptions. Thank you for the opportunity to provide you with my views on the state of energy in the Commonwealth. I have about 30 years of experience in the energy industry, in both the private and public sector, as a lawyer and as an executive. PowerOptions is a non-profit energy buying consortium, representing the interests of about 500 Massachusetts non-profits and government entities ranging from some of the largest institutions of higher education and healthcare to small social service agencies, YMCAs, housing authorities, churches, cities and towns. The PowerOptions consortium has an annual demand of 200 MWs and 1 billion kWhs which could power about 132,000 homes and 13 million dekatherms of natural gas which could heat about 14,000 homes. With a 17% market share of Massachusetts’ competitive natural gas market and 4% of the electricity market, PowerOptions is the largest consortium of its kind in New England and has successfully leveraged this position in the market since 1998.

We also have a solar program for both behind the meter and remote net metering projects with over 60 MWs under contract. Under this program, 22 housing authorities have entered into net metering credit agreements which will provide them and their residents with millions of dollars in savings for next 20 years.

Unlike most end user organizations, PowerOptions is in the energy market on a daily basis and, therefore, we provide a unique perspective on energy issues. We also are an active member of the New England Power Pool and were an active participant in the Gas Electric Task Force created in the fall of 2012 to look at solutions for addressing the effects of constraints on gas supply to the region. We were not at all surprised by the price spikes of this past winter, as we had seen the rising prices emerging long before the announcement of the utilities’ Basic Service prices. In addition to high electricity prices, the continued constraints on the gas supply to the region has wreaked havoc on the competitive gas markets, driving customers off competitive supply to utility default service to take advantage of lower basis, which is the delivery portion of a gas price. The migration to the utility service further complicates the situation, requiring the utilities to procure more capacity on these customers’ behalf in an already tight capacity market.   Back in the fall of 2012 when PowerOptions first announced its support for gas pipeline expansion, the differential between winter basis in New York, where pipelines had been expanded, and New England was $1.00/dekatherm. Today, that differential is about $3.50/dekatherm or even higher if compared to central New Jersey and Pennsylvania.  Since that time we have continued to call for pipeline expansion and supported efforts to solve the challenges related to need, determining how much capacity is needed and devising a reasonable approach to paying for it.

In the meantime, customers continue to pay even higher gas and electricity prices as the aging nuclear, coal and oil generation fleet retires with inadequate replacement generation in place to offset the capacity loss. There is no question that energy efficiency and renewable generation, particularly the substantial growth of these resources in Massachusetts, has contributed significantly to reducing the need for new conventional generation and, with future technical advancement, are poised to provide even further support in this regard. But, we are not there yet and there clearly is a need for some level of gas pipeline expansion into the region to fire new electrical generation as well as support the continued growth of oil home heating conversion throughout the region.

After numerous studies which support anywhere from zero expansion to 2.2 billion bcf of pipeline capacity, we as a region are no closer to solving the problem. Even if there was agreement on how much capacity is needed, we would see even greater disparity of views on which project or projects should be built and who should pay and how to pay for them. My fear is that before acting, decision-makers are looking for a precision in answering these questions which does not exist and a consensus that will never be found. The Department of Public Utilities (DPU) recent order opening an investigation raises extensive questions which, we believe, are best addressed in the context of a specific project with specific costs rather than in a vacuum or in the abstract. The best approach is to establish some guiding principles upon which action can be taken swiftly by all parties needed to effectuate results. To that end, I suggest the following:

  1. Notwithstanding the desire to address the region’s overreliance on natural gas for electricity generation and a desire to acquire large scale renewable energy such as Canadian hydro, wind or others, leadership of the state must resist the temptation to link the pipeline expansion discussion to electric transmission expansion in the region. This path was taken last year and it failed. The approaches raise very different issues, have unique legal and market impacts that cannot be easily harmonized. We lost at least 18 months of progress by taking this approach last year. We cannot endure anymore delay by taking that route again.
  2. Limit the size of expansion to the level needed to replace the amount of generation lost, consistent with the current regional planning forecasts which already include estimates for the impact of continued energy efficiency programs and known and measurable impacts of installed solar and wind. We think that number is 1 billion bcf. An expansion of greater than that could lead to what advocates for great expansion describe as “crushing the basis”. This approach runs the risk of overbuilding, saddling consumers with the cost of unused pipeline capacity and exacerbating the continued overreliance on natural gas. Further, it will make the economics of justifying continued expansion of clean technology all the more difficult.
  3. The projects selected should be the ones with routes that are least intrusive, can be constructed most quickly and get gas to where it is needed, e.g. solves the problems in the Berkshires, keeping in mind that the right solution might be one not yet proposed by a pipeline company.
  4. Massachusetts consumers should foot the bill for only its share of the cost based on the established regional load based allocation formula.
  5. Authority to direct electric distribution companies to sign long term contracts with pipeline companies should be granted to the Department of Public Utilities by the legislature conditioned on a finding that such an approach is necessary in order to ensure construction of adequate capacity but only to the extent capacity is not subscribed by gas distribution companies, gas marketers, generators and others. Further, such an approach must include a set of rules governing the management of such capacity to maximize the value on behalf of consumers and avoidance of self-dealing with affiliated gas distribution companies and pipelines. Such approaches to maximize value might include creative rate design and contract terms for firm transportation during the winter months as opposed to simply releasing non-firm gas on a day-ahead basis.

This list is not meant to be inclusive but as a start to frame a path forward. The time for studies and stakeholder processes is past.  It is time for action. Gas pipeline expansion is not inconsistent with a commitment to cleaner energy resources. It’s a realistic, responsible step to ensuring our clean energy future reliably and economically.

2 comments on “Testimony of PowerOptions CEO Cynthia Arcate to the Commonwealth of Massachusetts Joint Committee on Telecommunications, Utilities and Energy, May 12, 2015
  1. Dennis Villanueva says: May 13, 2015 at 12:52 pm

    Well put, I agree with the approach as a starting point. Other alternatives increasing pipeline capacity should be considered.

  2. Dennis Villanueva says: May 13, 2015 at 12:53 pm

    Typo correction: Other alternatives TO increasing pipeline capacity should ALSO be considered.

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