State of Energy in the Commonwealth Hearing 4/14/2015

I attended the public hearing about “State of Energy in the Commonwealth” yesterday (04/14/2015). I learned that, if you can find the time, attending these meetings in-person is worthwhile; you pick up on subtle things beyond the slides.

This was part one of a two-part hearing (they’re targeting May 12th for the second hearing). Yesterday the testimony came from:

Pre-Meeting

Before the meeting there were many people gathered in the hallway and I had the opportunity to talk to a couple from Quincy who unfortunately are within the shadow of a land-based wind turbine. It can be frustrating to live with pulsating light. Unfortunately this made them detest all wind power (on-shore or off-shore) and they were there to fight any wind. What this highlighted for me is the importance of properly siting wind project through mechanisms like pro-active local ordinances; if done poorly we create renewable detractors.

The meeting room itself was small and packed with participants (standing room only). Although uncomfortable, the closeness was personal; I could clearly see all the legislators and people giving testimony. What surprised me is how civil the hearing was overall; many of the players appear to have working relationships and although there was not agreement there also was very little grand-standing. Questions were useful but non-confrontational; the co-chair Senator Dowling asked the bulk of the questions. The number of questions, however, was limited because they wanted to keep to the schedule. I also felt the depth and scope of the questions were very limited.

With that, let me give quick impressions I got from all the presenters. To be clear these are [admittedly biased] impressions; as opposed to some of my other posts that are structured logical arguments.

EOEEA Secretary Beaton

Secretary Beaton’s prime focus was on electricity cost and economic competitiveness. He highlighted gas constraints stating that it causes price volatility and if not handled we’ll have rolling blackouts (the latter part surprised me as no other group has gone that far on the risk factors). He supports gas pipeline expansion however he minimized opposition as siteing concerns and down-played the low electric wholesale prices we saw this winter as getting lucky with oil prices. Lastly he said that he feels the committee will be surprised with the collective message and firm commitment that will come from the Governor’s meeting next week on this topic.

Beyond this I felt cognitive dissonance; he acknowledged Massachusetts is the national leader on efficiency and that we should expand on it, however he set a goal to make efficiency more efficient and hinted that efficiency programs should be handed of to the private sector and that we may be able to reduce our costs by eliminating the efficiency charge from our electric bills (this would effectively kill programs like MassSaves). Then he stated the Baker administration has a goal to create a new website that will be a one-stop shop for efficiency (perhaps a private-sector replacement to MassSaves?)

This seemed to be a common theme; in testimony groups verbally support something then their proposed actions would effectively kill it; I’ll get more into that later.

He also acknowledged climate change with the solution being the “Global Warming Solutions Act” (I have not read up on that yet) and they support additional solar but provided no details on how.

Mass CEC

Nothing dramatic from the CEC; just that their programs have been very successful and that they’re phasing out their solar subsidy (I got the impression that solar uptake is so fast that it surpassed the subsidy).

Mass DOER

MassDOER’s presentation was much more low-key then I expected given their phenomenal success. They highlighted that Massachusetts is the national leader in efficiency (another common theme) and that MassDOER efficiency programs get 300% return on investment.

They also support additional solar electric but want to do more with solar thermal and are investing $40m in “solar resiliency”. They are also helping to re-work net-metering. This overall is interesting because solar thermal generally has a smaller return on investment now that electric panel prices have fallen; I wonder if they are getting pressured by utilities who don’t like solar electric?

Beyond that they stated they’ve had great progress in their “LEED-ing by example” program (for government buildings) and “Green Communities” program.

Lastly they acknowledged they authored Baker’s plan for gas expansion.

DPU

The DPU presentation was interesting. Chair O’Connor acknowledged the rate-payer uproar about prices but stressed the core problem was beyond the DPU’s control as they were winter issues with the energy market. To illustrate she unveiled that National Grid’s summer rate is slated to nearly drop in half to $.09/kwh.

Despite that there was a little grand-standing about electric rates.

O’Conner’s solution to the rate problem is interesting; she’s pushing hard to get everyone off of basic service and onto competitive suppliers and is planning to make a website that breaks down what suppliers are available and what their terms are. She also eliminated confusing billing rules when someone chooses to swap.

This overall makes sense to me; I see a lot of problems arise from the fact that utilities were removed from the generation business but they still sell basic service. This both confuses rate-payers as well as creates conflicts of interest at the utilities. I remember the last time the DPU tried to phase out basic service around the year 2000 I had looked into it but it was a broken plan; there was only two competitive suppliers and if you left basic service one was not allowed to return to it. It was like throwing rate-payers into the water with the sharks. With enough competitors, good information and the ability to fall-back to basic service it might just work this time.

Beyond that, she acknowledged that she is new to the position and is still learning and one of the recent things she learned is about the supply restrictions that a gas company is western Massachusetts is experiencing and the fact they have done everything they can possibly do to alleviate the problems and as such are forced to implement new customer moratoriums (I believe she was referring to Berkshire Gas). She expounded on the problems this is causing for residents in Western Massachusetts. Based on her testimony, I believe that she is willing to listen and she may not have heard the details of any other analysis for Berkshire Gas’s situation from rate-payers.

Based on what I heard her main argument for increased natural capacity stems from her experience with Berkshire Gas.

ISO-NE

Anne George did the ISO-NE presentation alone and it was fascinating not for the facts presented but how it illuminated their thought process. The sum of her presentation was that low-cost shale gas made market rates cheaper and caused emissions to fall but since we don’t have enough of it we’ve seen price spikes, we’re going back to oil and emissions are rising.

Senator Dowling asked her about the role of LNG in the fuel mix and at first she said we can’t rely on LNG because it may go away then she backed it down to LNG is subject to world demand so LNG prices are too volatile to rely on.

ISO-NE’s thinking LNG will go away is a fascinating slip; I imply that they either think shale gas is going to price it out of the market, our import terminals will be converted to export terminals or both. . .

Senator Dowling also asked since we’re at more then 50% gas generation will adding more gas generation create an all-eggs-in-one-basket risk. Her response was initially defensive: if oil and coal go away what are we going to replace it with? Then she clarified that she believes if the new gas pipelines are big enough that will mitigate the risk however she can not say any more because ISO-NE is fuel-neutral.

Overall I got a can’t teach an old pony new tricks vibe from ISO-NE which was shown more clearly when she discussed renewables — they stated they have seen growth from wind and they are aware solar exists but have no insight into it (we don’t see solar in our control room).

This seems like a fundamental problem to me. The technical reason makes sense — solar connects to the utilities’ wires away from ISO-NE and they can’t control it. There are two pretty basic problems, though: 1) ISO-NE needs to react to solar (execute spinning dispatch) so it shocks me they have no insight into it and 2) if they don’t see solar it is never on their minds as a solution. If the only tool a person ever works with is a hammer everything is a nail.

National Grid

Marcy Reed did National Grid’s presentation and it was a little more grand-standing then others; for example, she stated they speak on behalf of all their customers (I can say, as a National Grid customer, they are not speaking on my behalf :)).

They stated we need all the proposed pipelines combined. Their argument is that if every generator were run at peak output simultaneously there would not be enough pipeline capacity unless we had all three. This is not the capacity test that anyone else uses; generators rarely run at peak output and there is always a subset down for maintenance, reserve, etc. The test for capacity is usually demand estimates.

National Grid’s capacity test doesn’t make sense to me; it seems like saying we need to double the number of gas stations because we can’t fill everyone’s gas tank simultaneously.

They also echoed ISO-NE’s stance on LNG.

Beyond that, it was another case of cognitive dissonance where they stated they support electric solar but then used the rest of the presentation to undermine every aspect of it. For example, Massachusetts has made more progress on solar then other states so we should scale back our incentives. Net-metering burdens customers without solar panels. It appears the only solar they like is if they run their own fixed solar plant or if customers have western-facing panels, National Grid pays them wholesale rates (no net-metering) and the customer pays for the grid. To be fair, western-facing panels is not a bad idea because it generates power during a high demand period (we should probably look at how to encourage that).

When asked if National Grid sees any benefit to solar the response was they’re studying it. When pressed harder about why they even bother saying they support solar National Grid responded we believe in climate change and solar has a role in alleviating it.

To me the utilities response to solar feels a lot like the RIAA’s response to digital on-line music when it emerged in the 90s. It was too big of a change for record companies to transition to on-line sales and instead of embracing it, they fought it and successfully delayed on-line sales for about a decade. They ultimately lost the entire market, though, by failing to change. Solar is certainly a growing pain for utilities but fighting it will only push customers to ultimately disconnect from the grid as panel prices continue to plummet and storage technology improves. If they fully embrace solar (even if it is painful) they have a chance at keeping their customers long-term. If they fight it just delays our overall progress toward renewables. . . .perhaps by a decade or two.

After solar National Grid was asked about hydroelectric and their response was we need gas because we need baseload which resulted in a awkward moment where the senator who asked the question informed them hydro is baseload. National Grid’s answer was then there is not enough hydro.

The last bizarre moment was when they were asked about how many customers they lost due to competitive supply (rate-payers ditching basic service) their response was they did not know.

What surprised me is that National Grid did not talk about their efficiency programs at all. Historically they had been very forward-thinking and aggressive. . . I wonder if that is still the case. . .

Eversource

Eversource’s stance on rates was similar to National Grid’s as well as their stance on solar (neuter net-metering, reduce incentives), so I won’t go into detail there.

They expect their Northern Pass project to bring in power from Hydro Quebec in 2018.

Lastly they were big supporters of NESCOE and Baker’s gas expansion plan.

Unitil

Unitil seemed to be the sad utility of the bunch; they’re small, they’re seeing very low growth and they expressed problems due to the economically challenged area they serve.

Like National Grid and Eversource they expressed dislike of solar as well as the need to increase diversity with natural gas (interesting word choice on their part).

They did give a solar anecdote that was illustrative, though. Basically they see their infrastructure as more of a hub-and-spoke system then a grid and when a customer generates more solar then the use they can overload a spoke. They question who should pay for that [spoke upgrade]. To me, this seems natural — they own the wires and the system so it is their responsibility (much like if a pole falls over it is their responsibility to pay for the replacement). PG&E had a number of lawsuits about this very question and the courts found it was their responsibility. Apparently, however, when generators overload a spoke they generally offer to pay for the wire upgrades to keep the power flowing and Unitil does not like that they don’t get that same deal from customers who generate power.

I’m starting to think that this is one of the core problems that all the utilities have with solar.

Municipal Electric Association

The municipal presentation was interesting in that, in sharp contrast to the investor-owned utilities, they have few problems to report. Apparently they have not had price spikes, their prices are lower then investor owned utilities, they have a great customer service record, all the legislators loved them and they’re at 20% renewable generation (better then all the other utilities). They take no stance on any of the issues the other utilities expressed.

Their only request is that they become a part of MassDOER’s Green Communities program which would require them to administer efficiency programs (which they traditionally have been exempt from). This seems like a win/win to me.

Beyond that I don’t believe they are required to net-meter solar but that was not brought up in neither their presentation nor the questions after.

Attorney General’s Ratepayer Division

I learned something new with this presentation — the attorney general’s office has a whole division dedicated to the energy markets including representing rate-payers as well as watching the markets themselves at ISO-NE and working with FERC to prosecute market manipulation. This was a great thing to learn about.

State of Energy in the Commonwealth Hearing 4/14/2015

More Details on why MassDOER (Baker’s) Natural Gas Plan Makes No Sense

Background

In my previous post I quickly outlined why Governor Baker’s natural gas plan makes no sense. This post is a more rigorous letter I’ve sent to my local representatives that breaks down the flaws in MassDOER’s letter to the DPU a little more detail.

For more background I suggest reading my over-arching post on the general topic: Northeast Energy Direct Pipeline: Everyone is Right. . . so What is Wrong?

Updates

  • On April 16th, 2015 on Boston Public Radio (21:30 into the audio play) when questioned about the pipelines Governor Charlie Baker responded:

    I don’t know where this tariff thing came from, to the best of my knowledge it has never been discussed inside the administration by anybody.

    Note this is semantics; as I outline below the Baker administration crafted a subsidy. It is unfortunate that the misleading continues.

  • I also wrote a letter to FERC enforcement (same content applied in a different context) as this may undermine FERC’s process to grant a certificate of public convenience and necessity (the process used to grant the right for a private company to use eminent domain).

The Letter

April 12th, 2015

Representative X,

When you get a chance please read MassDOER’s filing in DPU docket 15-371. I have included a copy with highlighted sections. As a citizen and an electric rate-payer2, I find specific aspects of this concerning and need your feedback and help.

As explained clearly in the docket, New England electric generators have experienced fuel shortages because they fail to reserve enough fuel for the winter (which resulted in price spikes). MassDOER believes part of the solution is to increase fuel supply by bringing more gas pipeline capacity into the region. In order to justify eminent domain for any pipeline, FERC requires that the pipeline has customers3. As MassDOER explains, despite experiencing fuel shortages the generators won’t sign up for gas on the pipelines3:

However, generators with gas-fired power plants who sell into an unregulated power market are generally unwilling or unable to take similar steps to secure firm gas capacity1

MassDOER’s creative solution is to have the DPU create a new type of customer for gas. Specifically to let electric utilities (who the DPU has control over) buy pipeline gas (remember electric utilities manage the wires while generators run the power plants). The idea is to underwrite pipeline capacity with basic service funds and then float it back to the generators when they run out of fuel.

The part that MassDOER implied but did not state directly is that this innovative mechanism attempts to generate the customers necessary for FERC to justify eminent domain (satisfy the basic requirements for a FERC certificate of public convenience and necessity)3. Unfortunately the legal basis for this creative solution appears to be purposely misreading the law; page 4 of MassDOER’s letter reads:

The plain reading of 94A does not limit an electric utility from filing only electricity contracts. Section 94A applies to any "gas or electric company" that is seeking to purchase "gas or electricity." G.L. c. 164, § 94A1

As shown in their footnotes, the law reads:

No gas or electric company shall hereafter enter into a contract for the purchase of gas or electricity covering a period in excess of one year. . .1

The intent of the law was clearly written that gas companies handle gas and electric companies handle electricity. If MassDOER feels the law is out-dated, insufficient or unclear they should approach the legislature to change it. The justification for eminent domain should never be created on misreading the law. As a citizen I feel that no one’s land (whether it be our state’s protected land nor our citizen’s land) should be taken by a private company with a justification based on legal trickery. Period.

I think you will find broad pubic support for this notion. Is there any way that the legislature can clarify the existing law to MassDOER and the DPU?

What thoroughly disturbs me is that although this justification appears weak and will likely not stand up on appeal it won’t matter. If implemented by the DPU, by the time this is appealed land will have been taken and built on. Thus I feel it is prudent to be pro-active in the legislature and ensure that the people get fair treatment and that MassDOER and the DPU follow the law or approach the legislature to change it — not find clever ways to subvert it.

Beyond that, as an electric rate-payer I find other aspects of MassDOER’s plan misleading and ineffective. I know, however, you may not be able to influence all aspects so feel free to stop here. I covered the most important point. However if you are curious and able to listen please let me explain:

Gas Pipelines Don’t Need Incentives

If you follow the news it is plainly clear that multiple gas pipeline companies are very aggressive in pursuing the three proposed pipeline projects (Kinder Morgan’s Northeast Energy Direct, Spectra Energy’s Algonquin Incremental Market and Access Northeast) that combined will nearly double our existing pipeline capacity4. They are so aggressive that there are repeated allegations of trespassing on private land in order to survey5.

Thus MassDOER’s assertion in this docket that we need to stimulate necessary gas pipeline expansion is misleading. There already is plenty of motivation from multiple projects. Nonetheless MassDOER is still attempting to use ratepayer basic service funds to underwrite and float the purchase of natural gas from the pipelines:

…allowing EDCs to contract for natural gas firm transportation capacity would require the net annual cost/savings to be reconciled through electric rates1…(emphasis added)

As Gordon van Welie (CEO of ISO New England) summarized: "it would essentially create a subsidy to gas generators"6.

But generators state they don’t even want gas subsidies:

The question of whether to ask ratepayers to finance a pipeline rather than gas companies is an important one to Dan Dolan, president of the New England Power Generators Association. "Where I start from," he said, "is that subsidies anywhere on the system distort the market outcome and lead to a dramatic cost and risk consequence to consumers."12

Then why, exactly, is MassDOER crafting a subsidy? As I asserted before I believe that it is less about stimulating gas pipeline investment and more about using rate-payer funds to create new local gas customers to justify FERC’s use of eminent domain.

As a rate-payer I believe that this is a mis-use of the electric basic service charge. If the pipeline is needed there should be enough traditional local gas contracts to justify eminent domain. We don’t need to use rate-payer funds to fabricate new customers.

Incremental Gas Pipelines Will not Lower Costs

Consider this scenario: a city has traffic jams during rush hour and the people are desperate for relief so the state decides, rather then bolstering local roads, to build an interstate turnpike through the city. Will this alleviate the local congestion? As anyone who lives near an Interstate knows, the local trip to the grocery store is no easier when Interstate rush hour traffic is involved.

This is the scenario Massachusetts faces with pipeline expansion. We have occasional fuel traffic jams that cause price spikes however these pipelines are not upgrading the local roads, they are changing Massachusetts from a last-stop on energy infrastructure into an off-ramp on a gas superhighway to Canada for export. The existing Maritimes and Northeast import pipeline from New Brunswick to Dracut is being reversed and the Bear Head import terminal in New Brunswick is being converted to an export terminal. I argue this is why the gas pipeline companies are being so aggressive on New England expansion even without MassDOER incentives — I argue New England will be their secondary market; export is their primary market.

The core problem is more gas supply will not mean more gas will be available to Massachusetts; the reason is Massachusetts market will be fighting world demand for the pipeline gas and foreign markets pay much more for gas then we do. Even Black & Veatch, the consultants that conducted the Gas Supply Study7 for the New England Governors (NESCOE) justifying incremental pipeline, outright states in their "Bear Head [LNG] Export Project" review that gas prices in New England will rise above last year’s peak rates once export begins:

these proposed export volumes are expected to have a limited price impact in New England during the analysis period of 2019 through 20498

and Kinder Morgan consistently and plainly states they can not stop the gas from being exported from their proposed Northeast Energy Direct pipeline:

Under FERC’s regulations and policies, Tennessee cannot discriminate among customers based on the ultimate destination or use of the gas, such as the Northeast vs. Canada or another foreign country (via export of LNG).9

MassDOER is extremely misleading about this in the docket. On page 2 they begin:

While it is not clear how much capacity may be needed to address these issues…1

Basic economics states that in order to predict price one must know both supply and demand. MassDOER clearly states they don’t know what demand will be; so it follows that they have no grounds to make implications about price. Nonetheless they attempt to imply prices will fall by citing the Massachusetts Low Gas Demand Analysis report. That report, however, was not meant to analyse gas aggregate demand; it only looked at local demand. Then to add impact they added a quote that compares prices at different locations:

A comparison of natural gas wholesale prices in the New England and PJM Interconnection ("PJM") markets shows that the same volume of gas used by New England generators during 2014 would have cost over $600,000,0003 less in PJM due to lower gas prices. Homeowners, businesses, manufacturers, Commonwealth offices and municipalities are bearing the cost of these gas constraint-driven high prices and without added capacity this will become a common occurrence in future years.

Note that paragraph never states prices will be lower. I have searched and I am not aware of any study that accounts for expected exports and finds our prices will be lower. Rather then carefully wording a docket to imply we’ll get lower prices MassDOER should be putting this effort into studying whether the pipelines will, in fact, lower long-term costs. If they don’t we’ve solved absolutely nothing. As a rate-payer I would like to believe that MassDOER and the DPU would be able to provide concrete evidence their proposed solutions will actually solve problems.

Overall this seems like the Central Artery project all over again; government agencies so stuck in group-think about how to solve traffic jams that the miss the basic premise that tearing down 1/3 of old Boston an bisecting what was left with a highway through it created more problems then it solved.

Incremental Gas Pipelines will Exacerbate Problems

The most glaring short-term problem I see is electric generation is increasingly concentrated on one fuel source (natural gas) via one transport method (pipeline) from one location (Marcellus). Massachusetts is already at 63% gas generation10 and it is slated to become an even larger percentage as implied in the MassDOER docket:

The New England electric grid is a changing landscape with gaps in generation predicted for the near future. More than 4,6005 MW of capacity is expected to retire over the next three years; ISO NE further estimates that up to 8,300 MW (total) of generating capacity are assumed at risk of retirement by 2020 in the region, putting the system’s reliability at risk.

The risk that MassDOER neglected in that docket is that when our gas infrastructure becomes an export superhighway we not only will more than half our electric generation be coming from one source, the world will now be competing with us for the gas.

What hedges the risk of a all-eggs-in-one-basket energy portfolio? I read hundreds of pages of energy reports and I can’t find it.11 FERC doesn’t handle that, ISO-NE punts it to the states and MassDOER programs are way too small to substantively tackle diversification. To make the renewable slice of the pie as big as the gas slice we would need to grow renewables to 50% of our portfolio as fast as the pipelines are coming in — in about five years. We would need a program that rivals Germany’s energiewende. I’m not saying it is not possible, but I am saying that it is irresponsible for MassDOER to even imply the diversity issue is handled as they attempt to do on page 1 of the letter:

The Commonwealth has made great strides in reducing electric load through energy efficiency as well as in diversifying the electric mix1

The part about diversification is not just misleading; it is patently false. We have become more reliant on gas and MassDOER’s plan will make us more dependant. I would hope that MassDOER would have a handle on this; as they state in the letter on page 1, it is their responsibility:

DOER is the Massachusetts executive agency responsible for establishing and implementing the Commonwealth’s energy policies and programs aimed at ensuring the adequacy, security, diversity, and cost-effectiveness of the Commonwealth’s energy supply within the context of creating a cleaner energy future.1 (emphasis added)

The only thing MassDOER attempts to address in this docket is adequacy and as I show they fail in the basic argument. MassDOER and the DPU should be channelling their creativity into innovative mechanisms to solve this diversity issue; not finding creative ways to create new gas customers and exacerbate it.

Do it Right

I am an engineer who was the lead of the technical operations of a quarter of the Internet’s traffic. One of the first things I taught new employees was that when there is a crisis it is imperative to ensure that every step is checked and it is certain it will make the situation better. It is human nature to grab the quickest and easiest options when under pressure. More often than not, that only makes the situation worse and bad choices make the situation tougher to unravel.

I believe MassDOER is under pressure for a solution to our electric rate spike and they are reaching for what they think is a quick and easy solution without fully thinking it through. I, a layman not in the energy industry, just dismantled the logic of their plan without even looking at the higher order issues like climate change, limited fossil fuel resources and our long-term vision. The fact is this plan makes no sense and there is no easy solution.

New England has always had high energy prices due to bottlenecks and they have been a perpetual challenge. The reason is simple; we’re a fossil fuel island: we have no native sources (we import everything). Pain stimulates innovation and it is our pain that has made us the national leader in energy efficiency and renewable growth. Why, exactly, are we trying to change that?

Do we subsidize the fossil fuel we already have too much of, we’re looking to step away from in the long term, we’re not certain will actually solve anything and will create problems? Do we subvert the law and undermine the public trust to allow private out-of-state companies to take our land? Is a desperate move to do something a good solution? I don’t think so. We should be doubling down on our pioneering efficiency and renewable path and MassDOER should be channelling their creativity into finding more ways of stimulating local energy on our little fossil fuel desert island. We should not throwing the system into reverse with a knee-jerk.


1: Request to Open an Investigation into New, Incremental Natural Gas Delivery Capacity for Thermal Load and Electric Generation (http://web1.env.state.ma.us/DPU/FileRoomAPI/api/Attachments/Get/?path=15-37%2finitial_filing.pdf)

2: I am a resident of Lowell and am not affiliated with any corporation or group involved in Massachusetts energy. I’m an engineer trained in complex systems and economics and in my spare time am passionate about energy efficiency. When I read ISO-NE’s reports and MassDOER’s plans to incentivize natural gas expansion I came to the conclusion that they make no economic sense, don’t actually solve any problems and have the potential to make the situation worse. My goal is to share this as I don’t believe it is being debated as rigorously as it should be.

3: FEDERAL ENERGY REGULATORY COMMISSION STATEMENT OF POLICY (http://www.ferc.gov/legal/maj-ord-reg/PL99-3-000.pdf):

In sum, if an applicant can show that the project is financially viable without subsidies, then it will have established the first indicator of public benefit

4: EIA Gas Pipeline Projects (http://www.eia.gov/naturalgas/pipelines/EIA-NaturalGasPipelineProjects.xls), EIA State to State Gasline Capacity (http://www.eia.gov/naturalgas/pipelines/EIA-StatetoStateCapacity.xls)

5: Lowell Sun: &Surveyors cross a line in Dracut& (http://www.lowellsun.com/news/ci_27894052), The Boston Globe: &Pipeline surveyors draw landowner complaints& (http://www.bostonglobe.com/business/2015/04/09/pipeline-surveyors-draw-landowner-complaints/fwk9yfh3h4NCQq2N7CDTkL/story.html)

6: Argus Media: "Fixing gas-electric concerns might fall to states" (http://www.argusmedia.com/News/Article?id=1013985)

7: Gas Supply Study (http://www.nescoe.com/Gas_Supply_Study.html)

8: Black & Veatch, New England Market Impact Assessment for
LNG Exports at the Bear Head Export Project (February 2015)
(http://energy.gov/sites/prod/files/2015/02/f20/Appendix%20C.pdf)

9: Tennessee Gas Pipeline Northeast Energy Direct (NED) Project FAQ (http://www.kindermorgan.com/pages/business/gas_pipelines/east/neenergydirect/faq.aspx)

10: EIA: Massachusetts State Profile and Energy Estimates (http://www.eia.gov/state/?sid=MA)

11: I wrote a detailed paper on the dwindling diversity issue; if you are interested please contact me and I’ll send a copy.

12: Cuorant: Winter And The Power Grid: A Near-Miss Or A Policy ‘Object Lesson’? (http://www.courant.com/business/hc-winter-electricity-prices-much-milder-than-last-year-20150412-story.html#page=1)

More Details on why MassDOER (Baker’s) Natural Gas Plan Makes No Sense

Baker’s Natural Gas Plan Makes No Sense

In Februrary Governor Baker mentioned the intent to create a natural gas expansion plan and just this month the first details emerged via DPU docket 15-37. After reading it I’ve come to the conclusion it makes no sense. I’ll tackle this in two parts — here I’ll give a non-technical plain English summary of where we’re at (if you want more detail with things like citations, see my previous post) and later I’ll dig into the details of that docket.

Where We are At

ISO-NE (or region’s electric grid operator who sells electricity to our utilities) has had a recurring problem where the generators they contract with shut down in the middle of winter because they tried to save a few pennies and did not buy enough fuel. They call it having no incentive to stock fuel. In a nutshell, this is the cause of our electric price spikes.

So ISO-NE busted out a carrot and a stick to whip those generators into shape. The carrot is an incentive called the Winter Reliability Program where generators get a few bucks thrown their way to stock fuel and the stick is the Pay for Performance program where generators get fined for running out of fuel. This has worked to some degree.

ISO-NE does not like this carrot and stick thing (it is too much work) and they think if they flood the generators with tons of Natural Gas from some big, new pipelines then the generators won’t have an excuse and ISO-NE won’t have to play these games any more (it is flawed logic; we’ll get into that later). They call it fuel certainty.

They ran into a problem, though. New England is the national leader in efficiency (our energy use has flat-lined) and renewable growth so the energy fuel market does not see New England as a good place to invest in new fossil fuel infrastructure. ISO-NE saw this is as a market failure so they argue we need a subsidy for private pipeline companies to build big gas pipes to us. Partnering with the region’s governors (NESCOE) they devised a rate-payer funded tariff (basically a tax) to pay for the private gas pipelines.

Meanwhile the pipeline companies are smart; they noticed that if they reversed the Martimes & Northeast import pipeline that goes from New Brunswick Canada to Dracut, MA they could convert the Bear Head gas terminal in New Brunswick for export. Since places like Japan and Germany pay big bucks for natural gas there is a lot of profit to be made by running a pipeline through New England and into Canada for export. The problem is that the pipeline companies need local New England customers to justify taking New England land via eminent domain to the feds (FERC). Since generators are stingy and don’t like buying fuel they were relying on NESCOE’s tariff to justify it to FERC.

That is until NESCOE’s tariff fell apart because it was a shady deal (or as they say legally questionable).

So Governor Baker makes a plan. Now remember, in de-regulation electricity was broken into two parts: utilities and generators. Utilities manage the wires to your house (NStar, National Grid), generators run the power plants (you can see how this is broken down in your electric bill). Baker’s idea is to make utilities (the wire people) use rate-payer money to buy gas and then sell it back to the generators. The idea is the pipelines get a New England customer, ISO-NE does not need to play with carrots and sticks any more, and generators don’t have to worry about penny-pinching because if they screw up the utilities will fix their mess for them.

The problem is that it is a clever but convoluted solution to an overall plan that makes no sense.

Remember:

  • The core problem is that generators were stingy when buying fuel for the winter.
  • Gas pipeline companies explicitly plan to change New England from a last-stop on fuel infrastructure to an off-ramp on a gas superhighway to Canada. This is undisputed. New England is not the prime customer so there will be no flood of gas into New England to stop those silly generator antics (it solves nothing).
  • Rate-payers will be subsidizing pipelines that won’t help them.
  • Rate-payers will be directly on the hook for bad fuel buying decisions by generators.
  • It incentivies putting more of our generation on one fuel source (natural gas) via one transport method (pipeline) from one location (Marcellus) when we’re already at 47% gas generation.
  • There is no realistic plan to hedge the risk of a all-eggs-in-one-basket energy portfolio.

It only benefits two groups:

  • ISO-NE is off the hook for herding those stingy gas generators. They successfully dump the responsibility on the utilities and rate-payers.
  • Pipeline companies get their export pipeline subsidized by New England rate-payers.

If you put this all in human terms you’ll see just how silly it is. . .let’s say that you have a town that perpetually starves because they’re too cheap and lazy to stock up the barn for winter. First, you give them some grants to store food and taxes when they fail to do so. This works but you think it is too much work. Maybe if there was a food train that ran through the town this problem would go away. But guess what, no one is building a food train to the town because it does not make business sense. But it does make sense to build a food train to the city down the street but they need to take the town’s land to do it. In order to take the land, though, they need local buyers. . .but those cheapos who won’t stock the barn won’t buy from the food train either. So let’s pass an ordinance and make the town’s schools buy food from the food train and stockpile it for when those cheapos run out of food. That works and the train is built to the city. . .but they still starve because the food all goes to the city. The only thing that changed is they now have a train bisecting their town and they pay city prices when food is available.

Baker’s Natural Gas Plan Makes No Sense

Letter to Governor Baker on tariffs

April 8th, 2015

Massachusetts State House
Office of the Governor
Room 105
Boston, MA 02133

Governor Baker,

I have heard that you will soon be meeting with other New England governors about the natural gas pipeline tariff; I have feedback for that meeting:

  • I do not support a natural gas pipeline tariff.
  • I also do not support an indirect tariff by requiring electric utilities buy natural gas (as outlined in your February 25th press release: “Baker-Polito Statement on Regional Clean Energy RFP and DPU Docket on Natural Gas Expansion”)

There are four core reasons:

  1. There should be no subsidies nor incentives for fossil fuels.

    We are and should be trying to step away from fossil fuels. This seems clear.

  2. Will pipelines solve any problem(s)?

    This is not clear. ISO-NE’s stated goal is fuel certainty however this is not so simple: more gas supply will not mean more gas will be available to Massachusetts. The reason is these pipeline(s) are changing Massachusetts from a last-stop on energy infrastructure into an off-ramp on a gas superhighway to Canada. The existing Maritimes and Northeast pipeline from Dracut to Canada is being reversed and import terminals in New Brunswick are being converted to export terminals.

    The Massachusetts market will be fighting world demand for the gas in these pipelines and foreign markets pay much more for gas then we do. Even Black&Veatch, the consultants that stated more pipelines are needed to the New England Governors (NESCOE) outright states in their “Bear Head [LNG] Export Project” review that gas prices in New England will rise above last year’s peak rates once export begins (http://energy.gov/sites/prod/files/2015/02/f20/Appendix%20C.pdf) and Kinder Morgan consistently and plainly states they can not stop the gas from being exported.

    I challenge you to find a study that shows either prices will fall or that we’ll have ample supply once LNG export begins. If neither happens we’ve solved nothing.

  3. The pipelines will create problems.

    The most glaring short-term problem I see is electric generation is increasingly concentrated on one fuel source (natural gas) via one transport method (pipeline) from one location (Marcellus). We’re already at 47% gas generation. I challenge you to show what hedges the risk of a all-eggs-in-one-basket energy portfolio. I read hundreds of pages of energy reports and I can’t find it. FERC doesn’t handle that, ISO-NE punts it to the states and state DOER programs are too small relative to the problem. Is more gas really the solution? Note that this does not even look at higher-order problems like climate change and the ethical dilemma of eminent domain for private gain.

  4. There are other solutions that will work.

    Heavy investment in renewables is both attainable and has been shown to work. This is not pie-in-the sky. Just look at Germany’s energiewende. It may not be the easy route but it is the best route for Massachusetts to (for the first time in history) reduce our energy imports and grow our new domestic energy industry.

ISO-NE keeps saying it was a market failure that we don’t have the pipelines already and that’s why they need a tariff. It seems to me the market worked in this case — the market saw that Massachusetts is a national leader in efficiency and renewable growth so therefore was not a solid investment for fossil fuels. Why, exactly, are we trying to change that? Do we incentivize pipelines we’re looking to step away from in the long term, we’re not certain will actually solve anything and will create problems? Is a desperate move to do something quick a good solution? I don’t think so. We should be doubling down on our pioneering renewable path, not throwing the system into reverse.

Letter to Governor Baker on tariffs

Northeast Energy Direct Pipeline: Everyone is Right. . . so What is Wrong?

Introduction

Everyone is right. Every argument for and against the Northeast Energy Direct Pipeline I’ve researched is correct. . .but how can it be that we both need a pipeline and don’t need it at the same time? It turns out this not Scrodinger’s pipeline. It is less of a solution and more of a symptom of a massive overhaul in our energy underpinning that is accelerating unchecked; the bigger issue that should be a concern to all parties.

To explain, let me go over the background, explore the overall issue then dive into the deeper problem (if you already know the background feel free to skip ahead).

The Background1

High energy prices due to bottlenecks have been a perpetual challenge in New England. The reason is simple; we’re a fossil fuel island: we have no native sources (we import everything) and we’re at the last stop on national infrastructure. Traditionally the bulk of our fuel has been shipped in via rail, truck, ship, barge and pipeline however pipeline has become more important recently.

For New England, this is all about the Marcellus. New drilling techniques developed in the 1990s (hydraulic fracturing) allow for previously inaccessible shale gas to be extracted from the ground in Pennsylvania, New York and West Virginia leading to an explosion in domestic gas production:

This new gas is inexpensive so it has been quickly replacing other fossil fuels in New England — pay close attention to how small the purple area was in 1990 and how large it is now:

2
Note also how the top of the line is relatively flat; we’re not using that much more energy.

This is why even though we’ve more then doubled our pipeline capacity since 1990 (249%)3 it is still full during peak demand — pipeline gas is replacing coal, oil and nuclear very quickly. In fact it is now the dominant slice of our electric pie:

4

In many ways this is good:

  • Natural Gas is one of the least-dirty fossil fuels (compared to coal, oil and nuclear5)
  • Pipelines are not ideal but they’re arguably one of the least-dangerous fossil fuel transport methods (compared to trains, trucks, barges, tankers, etc).
  • It is a less foreign fossil fuel for New England (remember we have no native fossil fuels).
  • It is currently inexpensive
  • It appears to be available in large quantities

But if the shale gas is cheaper why did our electricity prices go up?

Remember how I said that Marcellus pipeline shale gas has been replacing oil, coal and nuclear? It also has been replacing natural gas transported in by ship (LNG):

6
Note the recent steep decline in LNG imports

as well as gas brought in via pipelines from other locations:

Growing gas production in Marcellus has already made an impact on U.S. gas transportation. As more gas has flowed out of Marcellus, less gas has been needed from the Rockies or the Gulf to serve the eastern United States. This new production has contributed to a reduction in natural gas prices and the long-standing price differentials between the Northeast and other parts of the United States. It has also caused imports from Canada to decrease.7

So electric generation is increasingly concentrated on one fuel source (natural gas) via one transport method (pipeline) from one location (Marcellus):

Our operating experience this winter revealed that the natural gas infrastructure in New England is even more constrained than we previously understood.8

Therefore when energy use peaks in the winter our generators must fight for the gas. . .but it is a game of musical chairs where they lose every time. Pipelines serve the long-term contracts first such as industrial users where as seasonal energy peaks are short-term contracts (they call it the “buying on the spot market”).

Think of it like a black friday sale. The prices are so cheap that everyone bum-rushes the store, the sale items run out and anyone who needs to buy a gift ends up paying higher prices. ISO-NE is the conflicted shopper — they’re directed to always go for the sale (cheap pipeline shale gas generation) but they must always leave the store with an item no matter the cost (the electricity can’t go out!)9

To work around the peak pipeline congestion, ISO-NE has been encouraging their generators to store as much fuel as possible before peak-demand hits. Much like a squirrel burying nuts for winter, they implemented the Winter Reliability Program. This does help because storing oil, coal, LNG, etc is much cheaper then playing pipeline musical chairs but it is difficult to do right because they need to be able to accurately predict New England weather. If they store too much our electric prices go up. If they store too little we’re right back to pipeline musical chairs and. . .you guessed it, electric prices go up:

Demand is constantly changing, challenging grid operators and suppliers responsible for ensuring that supply will meet demand. Consequently, they expend considerable resources to forecast demand. Missed forecasts, where actual demand differs significantly from the forecast, can cause wholesale prices to be higher than they otherwise might have been. [emphasis added].7

The Price Issue

So at quick glance this seems pretty simple and literally right out of the energy 101 handbook:

Pipelines and other equipment need to be sized to account for peak demand.7

and that is the road we’re headed down; the Federal Energy Regulatory Commission (FERC) is considering four pipeline projects over the next five years that combined will nearly double our existing pipeline capacity (88%)10. That is way more energy then we’ll use within New England11. . .but Interstate pipeline rules are clear; a pipeline can’t be built until it is proven that someone will buy the gas12. So who would buy the gas we would not use?

Let’s take a drive down that road to see what happened South of us when the cheap Marcellus pipeline shale gas hit the market:

13
Note the complete reversal in fossil fuel flow

New England is following the same path; in other words we’re going from being an fossil fuel island to an off-ramp on the new American natural gas superhighway:

The gas industry has been consistent and clear about this trend:

With the strong rise in U.S. domestic production, there is now a major trend to develop LNG export facilities in the U.S., in many cases reversing the flow of existing import facilities. Numerous companies have filed with the federal government for export licenses. The U.S. government is projecting that the U.S. will become a net exporter of LNG by 2016.16

What does this mean for our electric bills? This is the price issue — it is not clear. Why? We’ll still be playing pipeline musical chairs — the only thing that changed is that we’ll have double the chairs with double the number of people playing. The exporters will eventually consume all the gas in the pipeline in long-term contracts and when there is a bottleneck power generator’s peak short-term contracts will lose causing prices to spike.

This is the core of the public debate about price; if we were to remain a fossil fuel island like we traditionally had been then more gas supply would likely make prices fall. But this is not a static supply-demand curve. The proposed pipelines don’t just bring more gas they bring more demand. The game changes as we turn from a fossil-fuel last stop to an off-ramp on a highway that adds world demand to ours. Economists call this phenomina supply-driven demand and it is intuitive. Running an interstate highway through a city won’t necessarily help the local trip to the grocery store because you also have to contend with all the interstate traffic, too. Like an Interstate highway won’t necessarily make local commute times faster an international pipeline system won’t nenessarily make local prices lower.17.

With that, let me pause here — it is tempting to argue the price issue but it would overshadow what I think is the deeper economic issue.

Delving Deeper

Let’s re-visit what pipeline shale gas is replacing in New England:

  • Nuclear
  • Coal
  • Oil
  • Gas transported by ship (LNG)
  • Gas from other locations (such as the Gulf of Mexico)

So our energy is coming more and more from one fuel source (natural gas) via one transport method (pipeline) from one location (Marcellus). Just as every investor knows not to put all their money in one stock, it turns out that the risks in managing an emerging Marcellus monoculture is well-known in the energy circles; below are a few examples:

The three planning authorities [NYISO, ISO-NE, PJM] have discussed these studies and key planning issues affecting the Northeast with stakeholders. Some of these issues include environmental regulations and their potential effect on the power system, challenges and solutions facilitating the integration of renewable resources, the need for fuel diversity, and the results of coordinated studies of the natural gas system.18 [emphasis added]

New England has fuel diversity, certainty, and flexibility issues. The region relies heavily on natural-gas-fired capacity, and serious and growing reliability problems have emerged because of fuel constraints of the natural gas delivery system and both the cost and availability of liquefied natural gas (LNG).18 [emphasis added]

Now before I go any further I want to make one point clear that I am not advocating we go back to oil, nuclear and coal. There are many methods to check and balance risk when the markets go too far; for example, when banks take risks they are required to increase cash reserves so they don’t collapse the banking system. When the stock market takes a nose-dive the exchanges have circuit breakers that pause trading and give them time to evaluate what is happening. In fact, I am not advocating for anything in particular; I am highlighting the problem.

So with that, what hedges the risk of a Marcellus monoculture? After reading hundreds of pages of energy reports it is not clear; all the relevant agencies appear to be aware of it but lack tools and authority to address this big picture item. Let’s look at the national level, the regional level, the states and the markets:

At the national level, the FERC doesn’t look at why a pipeline is needed, it regulates how to create it (what route it takes, what the tariff will be, who controls the pipeline, etc). This is surprisingly clear in their policy:

In sum, if an applicant can show that the project is financially viable without subsidies, then it will have established the first indicator of public benefit.12

...there are three major interests that may be adversely affected by approval of major certificate projects, and that must be considered by the Commission. These are: the interests of the applicant's existing customers, the interests of competing existing pipelines and their captive customers, and the interests of landowners and surrounding communities. There are other interests that may need to be separately considered in a certificate proceeding, such as environmental interests.12

In pipeline decisions the FERC thoughtfully listens to considerations like risk but when pressed they appear to be limited by their own policy do the regulatory equivalent of throwing their hands in the air and saying “not it”:

However, the FERC as a matter of policy and in accordance with the Natural Gas Act and other governing regulations, does not direct the development of the natural gas (or other energy types such as solar power) industry's infrastructure regionally or on a project-by-project basis, nor does it have the authority to permit or approval solar energy projects. As such, the FERC staff's evaluation of reasonable alternatives does not include setting project objectives, determining what an applicant's objective "should" be, nor does it include redefining the objectives of a project.19

In a nutshell, if a developer can show they can fill a pipeline the big-picture question of why (or whether) is settled.

So if the FERC doesn’t look at the bigger-picture why, that punts the problem down to the regional operator, ISO-NE. Do they handle it? We already established they are well-aware of the issue but it turns out that they don’t have many tools; they have some short-term levers like their Winter Reliability Program but in the long-term they’re severely boxed in by two things: 1) what type of electric plants developers want to build and 2) what pipelines developers want to build:

New England also faces the retirement of non-gas-fired generation, which will likely increase the regional reliance on natural-gas-fired generation.18

Unlike the electric power industry, which builds infrastructure in anticipation of demand, interstate natural gas pipeline companies build or expand pipeline capacity using a business and regulatory model that requires gas shippers and customers to enter into long-term firm commitments before the infrastructure can be developed.18

So they side-step the problem of dwindling diversity and focus on making gas supply meet gas demand by bringing in. . .you guessed it, more gas:

Recent improvements to the interregional natural gas infrastructure have helped increase the supply of natural gas from the Marcellus Shale production areas, displacing the Northeast's traditional supply sources, such as the Gulf of Mexico. Additional enhancements to the regional pipeline network are planned and would allow New England to access the larger quantities of natural gas for the region's power generators. Further expansion, however, is likely required, which would improve fuel certainty for the electric power system and provide access to more economical natural gas supply.18

 

Then they effectively say “not it” and prop the all eggs in one basket problem up on two legs: 1) The markets and 2) The states:

Investment in new generation ensures that the grid operates reliably and that adequate supply is available to meet demand. Because private firms make this investment and not public utilities, consumers are shielded from the investment risks they had been exposed to before the introduction of competitive markets. ...Tomorrow's Energy Mix: State Renewable Portfolio Standards (RPS) promote the development of renewable energy resources by requiring electricity providers (electric distribution companies and competitive suppliers) to serve a minimum percentage of their retail load using renewable energy.20 [emphasis added]

First, let’s look at the markets. At this point even if you can’t understand regulator-speak or financial markets your spidey senses should be tingling because it is both circular logic and nebulous (the markets will safe-guard against risky market-driven behavior). Nonetheless let’s unwind how it works:

A key financial contract structure used in natural gas and electric markets is the swap, or contract for differences. The CFTC defines a swap as an "exchange of one asset or liability for a similar asset or liability ..."7

These are derivatives and derivatives are a tool that protect against market fluctuations. The general idea is if you duct-tape together lemmings it will protect them from transient problems like hawks. . .but the key is it won’t stop the herd from jumping off a cliff21. Derivatives work, they’re just not the tool that protects against systemic (big picture) issues. It is like saying seat-belts will protect us from speeding. Speed limits set outside of the car protects against risky speed choices just like policy outside of the markets protect against risky portfolio choices. In other words the markets themselves don’t hedge any risk of a Marcellus mono-culture.

But what about the states’ renewable portfolio standards (RPS)? This does help balance our Marcellus-heavy portfolio and it is the right direction but the wrong scale. It is like trying to balance out an elephant with a lively squirrel. Look again at the charts earlier in this article. To make the renewable slice of the pie as big as the gas slice we would need to grow renewables to 50% of our portfolio as fast as the pipelines are coming in — in about five years. We would need a program that makes Germany’s energiewende look like child’s play. I’m not saying it is not possible but I am saying that it is irresponsible and unrealistic to dump the energy diversity issue solely on the states without a renewables and efficiency plan that is at least as massive as the shale gas boom.

So what does this all mean? New England is going all-in on Marcellus pipeline shale gas and there is effectively nothing realistic to hedge the risk. This is a much deeper economic problem.

Conclusion

I said in the introduction that the Northeast Energy Direct pipeline is a symptom, not a solution. It is not clear if the pipeline is beneficial to us from an energy-cost perspective. The economics that are clear, however, is that there is no check nor balance on our current path. Turning over more of New England’s energy portfolio to one fuel source (natural gas) via one transport method (pipeline) from one location (Marcellus) without an accompanying risk-management plan of the same scale is reckless. Moving away from the dirtier fossil fuels is certainly good; doing so recklessly risks undermining all the progress we have made.

This is a solve-able problem with solid solutions but the key now is to focus and consolidate on what we want and then bring together the experts22. Looking back, this is much like mid-century transportation policy that both brought us our wonderful interstate highway system but also had the unintended consequence of tearing down 1/3 of old Boston to build a highway to it. Analysis about what went wrong back then seem shockingly familiar in our energy debate and can guide our path forward:

It became clear that citizens could not effectively contribute to a highway decision by the time the project had already been designed. Many of the concerns related to the basic issue of whether to build the highway project at all and the consideration of alternative modes of transportation.23

Freeways cannot be planned independently of the areas through which they pass. The planning concept should extend to the entire sector of the city within the environs of the freeway. The conference recommendations reinforced the need to integrate highway planning and urban development.23

The planning process had still not become multimodal and was not adequately evaluating a wide range of alternatives.22

What did they do back then? Governor Sargent implemented a moratorium on new highways within the 128 belt and empowered the experts to encompass the big picture. Some may argue whether the results were ideal but they certainly are better then the path we were headed down. We need to take charge of our energy path and re-focus it to the big picture.


1: I’ve explained many complex and technical things from powertrains to the Internet backbone but I’ve found this particular subject extremely difficult to balance accuracy, scope, background, readability and frankly, how much time I’ve spent on it. For example, if I explain in great detail it becomes accurate, convincing and harder to attack. . .but it will be boring and few will read it (eyes quickly glaze over when I use terms like “demand elasticity” and “spinning dispatch”). If I keep it short it will be no better then the one-line sound-bites like we need the pipeline to lower our electric bill (which is easy to understand but completely misses the core issues). I’ve come to the conclusion that my goal is to explain it better then the sound-bites but be easier to read then the technical reports and live with the risk it is wide open for attack.

2: CERC: Shedding Light on Electrical Generation July/August 2014

3: EIA State to State Gasline Capacity

4: ISO New England -> Key Facts -> Resource Mix

5: Yes, nuclear has lower emissions then natural gas but there are other well-known complex fuel issues.

6: Northeast Gas Association: The Role of LNG in the Northeast Natural Gas (and Energy) Market

7: FERC Energy Primer

8: US Department of Energy — Quadrennial Energy Review Meeting

9: The most extreme case of the conflicted-shopper syndrome was the California energy crisis in the early 2000s; when Enron was playing games and manipulating the energy market PG&E had to buy whatever was on the market no matter the price. The end-result was rolling blackouts and PG&E going bankrupt despite ample energy supply!

10: EIA Gas Pipeline Projects

11: Massachusetts Low Demand Analysis

12: FEDERAL ENERGY REGULATORY COMMISSION STATEMENT OF POLICY

13: I need to track down where I got this image from and will update this as soon as I do. If someone else finds the source before I do please let me know!

14: www.Fool.com: 3 High-Yield Stocks That Could Have the Solution to New England’s Gas Problem

15: Spectra Energy: Atlantic Bridge Project

16: The Role of LNG in the Northeast Natural Gas (and Energy) Market

17: To know whether increased supply will lower prices one has to know what the demand will be. For an example of how hard world demand is to predict, see the cavets listed on page 10 of the EIA’s 2014 Effect of Increased Levels of Liquefied Natural Gas Exports on U.S. Energy Markets. That list of unknowns does not even include things like geopolitical events!

18: ISO-NE Regional System Plan 14

19: Final Environmental Impact Statement for the Constitution Pipeline and Wright Interconnect Projects (CP13-499-000 and CP13-502-000)

20: ISO New England -> Key Facts -> Resource Mix

21: Yes, lemmings mindlessly jumping off a cliff is a myth however it is still a useful metaphor.

22: When there is laser-like focus on problems the solutions are unleashed. There are brilliant people in the energy circles (much smarter then I) and they, too, see the issues but I believe a general fear of one particular solution (going back to oil, coal and nuclear) is making many side-step the problem — but the paradox is if we ignore the problem we also ignore all other [much better] solutions!

23: Urban Transportation Planning In The US – A Historical Overview/Nov 1992

Northeast Energy Direct Pipeline: Everyone is Right. . . so What is Wrong?

Framing

I face a dilemma. Based on my readings of past FERC decisions, FERC policy and the Gas Act I’m fairly certain that the FERC will appear to listen but ultimately will not consider any argument as to “why” and “whether” no matter how rock-solid and evidence-backed it is. As such, I feel to have any effect I must make a three-part argument:

  1. A meta-argument about why “the why” or “the whether” must be considered
  2. Frame my argument
  3. Make the core argument

This is huge task. The dilemma is as a private citizen I have limited time and resources and having to make multiple arguments will mean less time to spend on each argument. Less time means the arguments will be weaker therefore less likely to be considered. A Catch-22!

So I attempted to do one thing well rather then many things poorly in the Northeast Energy Direct Pipeline: Everyone is Right. . . so What is Wrong? argument. Based on limited feedback I think I failed. It stands up on its own but not very well because the framing is weak and the meta-argument is non-existant. On the other hand I can’t spend much more time on this.

So let me roughly outline a stronger framing that this could fit into if someone else has the time to run with it:

  1. Current, approved, planned projects have been shown to meet New England energy demand through 2030
  2. Since it greatly surpasses New England demand, it is over-supply and as such can create supply-driven demand.
    • There is already strong evidence of supply-driven demand in the application for reversal of the Maritimes & Northeast pipeline as well as applications to export.
    • This appears to be un-studied. I have not been able to find any reports that look at aggregate demand; the papers I have read only look at black-box New England market demand.
    • Without the notion of aggregate demand it is utterly unclear what this will do to the New England energy market prices. As such, any argument about positive effects on price is invalid and should be stricken from consideration. It is simply unknown.
  3. New England’s energy portfolio is already too gas-heavy (47% and growing!) [this is the argument I made here]
    • Increasingly from one fuel(gas) via one transport method(pipeline) from one location(Marcellus)
    • I challenge the FERC to show what market or regulatory mechanisms hedge the risk of a severely unbalanced portfolio:
      • The FERC doesn’t
      • ISO-NE doesn’t
      • The markets don’t
      • States’ Renewable Portfolio Standards only have a tiny slice of the pie
    • The FERC may argue that energy portfolios are not their domain however if it is an un-hedged risk it must be a consideration or else the FERC’s decisions risk being aware of it yet exacerbating it!
  4. There is both leading innovation and substantive progress in the New England energy market and over-supply could quash it
    • New England has no domestic fossil fuel supplies; we traditionally have imported everything
    • For the first time New England is generating a non-trivial amount of energy locally
    • There has been pain but without pain there is no innovation; New England’s energy pain has resulted in New England energy innovation
    • We already have ample gas underpinning to supply spinning dispatch for solar and wind (47% and rising); thus arguments that we need more gas to support renewables are invalid and should be stricken from consideration.
    • The pipeline is easy; the easy route is not necessarily the right route.
  5. The economic risks are clearer then the economic benefits; thus it is an unnecessary exercise of eminent domain.
Framing