Connecticut’s energy regulator is in the midst of a major power procurement that could determine the fate of New England’s largest proposed natural gas expansion project.
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Connecticut's energy regulator is in the midst of a major power procurement that could determine the fate of New England's largest proposed natural gas expansion project.
On July 1, the Department of Energy and Environmental Protection (DEEP) will accept responses to a recent request for proposals to expand natural gas capacity and storage in the state.
Among the expected bidders will be the $3 billion Access Northeast project, a proposed expansion of Spectra Energy's Algonquin pipeline, which runs from the Marcellus Shale and crosses Connecticut diagonally from the southwest to the northeast, before heading into Massachusetts.
DEEP's selection of Access Northeast — in which Eversource owns a 40 percent stake — would provide a substantial amount of the demand needed to make the project economically viable, particularly since Connecticut is the second-highest power user in New England, according to Morningstar analyst Travis Miller, who covers Eversource.
If Access Northeast doesn't get picked, however, it could threaten the project, leading to the region's second major natural gas expansion hitting a roadblock this year.
Competing expansion
A competing $3.3 billion pipeline expansion — targeted largely at natural gas utilities — was shelved by Kinder Morgan in April after the company reported that it couldn't secure enough customer contracts.
“If either Connecticut or Massachusetts decides not to move forward with contracts [for Access Northeast], it would be very challenging to justify constructing the pipeline,” Miller said.
Sidebar: Rate recovery controversy
At stake is potentially hundreds of millions of dollars in annual ratepayer savings that developers say Access Northeast could bring to Connecticut, although some are skeptical of those projections. Meantime, environmentalists and others also worry that expanding the region's reliance on natural gas could cause greenhouse gas emissions to rise. Access Northeast will also be competing against clean-energy projects that supporters say would better allow the state to meet its energy needs and achieve environmental goals.
Camilo Serna, Eversource's vice president for strategic planning and policy, said earlier this month that Access Northeast has approximately half of the commitments from New England utilities it feels are needed to make the project viable.
“We continue to look for more commitments in the region and we're in good standing today,” Serna said.
$250M annual savings?
Serna said Access Northeast could translate to net annual savings of $1 billion to New England ratepayers for 15 years or more. Connecticut's portion of that number would be approximately $250 million.
The promised savings have won the project support from the Connecticut Business & Industry Association and MetroHartford Alliance, which wrote in comments to the Federal Energy Regulatory Commission — which is currently reviewing Access Northeast — that New England's energy prices have stifled economic growth.
Under its RFP, DEEP could procure as much as approximately 300 million cubic feet per day of added natural gas capacity.
That's the amount of gas consumed in one year by 3,750 of Eversource's average residential customers for heating, hot water and appliances. But the gas sought in DEEP's RFP isn't for home heating.
It's intended for gas-fired power plants, which have struggled on the state's coldest days to secure enough gas to generate needed electricity, a situation that caused especially steep spikes in wholesale energy prices in early 2014 and forced plants to burn dirtier oil.
Another 300 million cubic feet of gas capacity is enough to generate approximately 1,800 megawatts of power, depending on the efficiency of the gas-fired plants producing the electricity.
High Energy Prices
New England has long suffered from some of the highest energy prices in the country and the electricity prices businesses and residents pay are closely linked to the price of natural gas, which is used to generate roughly half of Connecticut's electricity.
Regional grid administrator ISO-New England has also said that increased gas capacity would bolster grid reliability.
DEEP is not bound to select any proposals unless they meet its evaluation criteria, which are centered on perceived benefits to ratepayers. Two key criteria include cost savings and reliability of the region's energy grid.
Gas, clean-energy RFPs related
DEEP's natural gas RFP is the third and final procurement under a 2015 state law, which also instructs the agency to procure a large amount of clean-energy generation — up to 10 percent of the state's electric load.
Earlier this year, Connecticut conducted one of two clean-energy RFPs, meant for projects larger than 20 megawatts, with two other New England states. An RFP for smaller clean projects came soon after. In total, the two RFPs received 131 responses.
Those proposals will be competing against the natural gas proposals, which is unprecedented in Connecticut.
Major solar, wind, fuel cell and other clean-energy projects could help slow emissions growth in the coming years.
“The solution, we have always said, is not necessarily just building out more gas resources,” DEEP Deputy Commissioner Katie Scharf-Dykes, said in an interview. “We are working to marry our policy commitment to reliable and affordable power with our policy commitment to achieve the benefits of a cleaner electric system.”
Lee Hoffman, an energy attorney at Pullman & Comley, said the complexity inherent in DEEP's plan to compare competing clean-energy projects with natural gas projects makes it likely that lawsuits will emerge once winners are selected, which could lead to delays in project construction. In 2013, for example, a losing bidder of another DEEP procurement, Allco Finance, unsuccessfully challenged the results.
“Connecticut has a history of disgruntled bidders bringing lawsuits,” Hoffman said.
Emissions concerns
Connecticut has made several emissions-reductions pledges since 2008, and environmentalists worry that increasing the supply of natural gas will make it less likely the state can meet the goals.
Connecticut's emissions hit a low point in 2012, dipping beneath a carbon emissions pledge made in 2008, but it rose above that line in the three years that followed, according to a recent data analysis by the Acadia Center, which cited a number of causes that the state has little control over, including low gasoline prices and economic recovery.
“While it is too soon to predict with certainty whether Connecticut will meet its mandatory 2020 GHG emissions cap, implementing additional short-term mitigation measures will increase the likelihood of doing so,” Acadia said in its report this month.
The nonprofit has urged state officials to rely on energy efficiency, solar energy and electric vehicles to lower demand for electricity and fossil fuels.
“We take a long view of electric emissions and believe that any short-term reductions in pollution on cold winter days that might be provided by additional pipeline capacity will be far outweighed by the additional emissions that will result from locking us into additional fossil fuels for 20 or 30 years,” said Jamie Howland, who directs Acadia's Climate and Energy Analysis Center.
Some have also fretted that a ratepayer-funded expansion of natural gas-fired electricity generation could hobble the competitiveness of Connecticut's sole nuclear power plant, Millstone, which provides a major portion of the state's electricity.
Nuclear plants have far lower emissions than fossil-fuel plants, so if Millstone owner Dominion decided to shutter it, emissions in the region would rise.
Challenged by persistently low natural gas prices, Dominion attempted to secure state incentives late in the recent legislative session, but was unsuccessful.
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