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

4 thoughts on “Baker’s Natural Gas Plan Makes No Sense

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s