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As the Baker administration contemplates allowing utilities for the first time to buy capacity on not-yet-built natural gas pipelines, Attorney General Maura Healey is urging caution.

The attorney general’s office believes reduced energy consumption and other alternatives to new gas infrastructure could better rein in spiking costs.

On April 2 the Department of Energy Resources asked the Department of Public Utilities to investigate how best to add capacity for natural gas to the New England market, and whether utilities might secure additional capacity themselves.

Pipeline developers are seeking entry into Massachusetts via the west and the south, and one of the ways to receive approval from the Federal Energy Regulatory Commission is to show that somebody has purchased capacity, which is essentially reserving space within the pipe, according to a DOER official. Utilities have not purchased pipeline capacity themselves since the energy market was restructured in the 1990s, the official said.

The construction of any pipeline itself would be borne, ultimately, by ratepayers through a tariff system, according to the energy official. In its inquiry to the Department of Public Utilities, the DOER has opened the door to ratepayers also funding those capacity agreements, which would help a pipeline receive approval and could help lower the cost of electricity.

Much of the existing pipeline is reserved for utilities’ natural gas customers who use the fuel to run restaurant kitchens, water heaters and home furnaces. During extreme cold there is little leftover for the power plants to convert the gas to electricity. Relatively cheap domestic natural gas supplies have caused old coal and nuclear power plants to give way to gas-fired plants. When winter’s cold brings about a shortage of gas for the power plants, electricity costs spike.

Energy and Environmental Affairs Secretary Matthew Beaton has pursued diversification of Bay State electricity – such as importing Canadian hydroelectric power – while also calling for increasing the capacity of natural gas infrastructure leading into Massachusetts.

Healey’s office has counseled the Baker administration to consider alternatives to building additional pipelines, warning that the cost of construction would be substantial.

“Reducing winter demand for pipeline gas through a variety of methods may turn out to be far more economic than obligating Massachusetts ratepayers to pay for long term contracts for firm transportation on a new pipeline and/or additional expanded pipelines,” wrote Assistant Attorney General Christina Belew, of the Energy and Telecommunications Division, in initial comments to the Department of Public Utilities. Belew wrote that building enough pipeline capacity or alternative generation to “completely eliminate congestion” would likely cost billions of dollars and it would be an inefficient expense “since the last units added would be minimally utilized and would add little value.”

The attorney general’s comments were prepared with the assistance of The Brattle Group, the Cambridge consultancy Gov. Charlie Baker and legislative leaders selected to evaluate the Boston Olympics bid.

The letter notes that the Everett liquefied natural gas terminal has imported the fuel since 1971, supplying pipelines and a major electric power station nearby. The letter also advises more analysis of grid-operator ISO New England’s efforts to encourage power plants to have oil or other fuel on hand for periods when the pipeline supply is squeezed by heating systems, and says that despite the price-spikes in the past two winters the region did not experience blackouts during that time.

The letter from Healey’s office also expressed “serious concerns regarding the legality” of DOER’s suggestion that electric utilities purchase natural gas capacity.

“By pushing electricity generation outside of the Department’s jurisdiction and into the competitive marketplace, the Restructuring Act ‘shifted the risks of generation
development from consumers to generators, who are better positioned to manage those risks,'” read the AG’s letter, quoting from a prior DPU study.

LNG and oil is generally pricier than natural gas and the AG noted that relying on liquefied natural gas or oil, while cheaper in capital expenses, could have bigger cost swings than natural gas.

ISO New England reported that the area’s high energy costs “provided strong economic signals” for LNG tankers to visit the region, and cited a 2014 Federal Energy Regulatory Commission analysis showing that winter futures prices for natural gas and power in New England were the highest in the United States and the estimated landing prices of LNG showed New England to have the highest prices in the world.

Natural gas pipelines, and the ability to end-run them with LNG tankers, are a dynamic of global politics, especially in oil-rich Russia’s increasingly tense dealings with Europe.
Healey’s office recommended DPU consider LNG, renewable energy including Canadian hydro, management of electrical demand and storage technology for both electricity and natural gas – which is voluminous.

The attorney general advised that the DPU “carefully analyze” the “assumptions” made by DOER, and if DPU elects to allow electric utilities to buy gas capacity it should ensure “a competitive, transparent procurement process that avoids conflicts of interest.”

Utilities have joined the effort of pipeline builder Spectra Energy to expand pipeline along existing rights-of-way running into Massachusetts from Connecticut. Known as Access Northeast, the project claims it would provide “firm capacity” for more than 70 percent of New England natural gas plants, shipping up to 1 billion cubic feet of gas per day and saving electric customers an average of $1 billion per year.