Generators, electric utilities spar over pipeline funding in FERC fuel security docket
New England power generators filed comments at the Federal Energy Regulatory Commission Thursday, asking regulators to reject a request from electric utilities to allow them to charge consumers for pipeline development as part of a larger proceeding on regional fuel security.
Early this month, a group of electric utilities filed with FERC, asking that it clarify that the "central issue" in its ongoing proceeding on fuel security is to allow electricity customers to pay for new natural gas pipelines. The utilities proposed that the ISO establish a tariff through which the grid operator "would pay for, and recover in its rates, the costs of adding new natural gas pipeline capacity."
The generators said the utilities' request would undermine FERC's market-based approach to pipeline siting and argued their proposal is an attempt to circumvent decisions from New England states to not allow rate recovery for pipeline construction.
The ISO-New England fuel security proceeding could reshape how the grid operator prices electricity and provide a model on how to ensure grid reliability and resilience as power systems move toward more natural gas generation.
FERC established the fuel security docket in July when it rejected a cost recovery proposal for a Boston gas plant. ISO-NE and plant owner Exelon had argued that the 1,700 MW Mystic Generating Station was essential for reliability, but FERC decided any reliability threats were not imminent and ordered the ISO to design broader changes to its tariff within 60 days.
The goal, FERC said, is to devise a market-based compensation mechanism for fuel security attributes, like onsite supplies or firm delivery contracts, so that generators that have them can stay in the market, rather than applying for cost recovery under a Reliability-Must-Run arrangement.
Electric utilities in the region believe those interests could be served by building more natural gas pipelines, as the region has become increasingly reliant on the fuel for power generation in recent years while pipeline infrastructure has remained "static."
To assist in building new pipelines, utilities wrote that FERC should "clarify" that its order directs ISO-NE to consider changes to its market rules "through which ISO-NE customers would pay for the costs of natural gas pipeline capacity additions via rates under the ISO-NE Tariff."
Such an approach is common for siting electricity infrastructure but is not used for interstate pipelines, which are financed with private shareholder investments, rather than ratepayer dollars.
Power generators pushed FERC to retain its approach, saying the utilities request would "circumvent" ISO-NE's established market rules "by requiring that ISO-NE enter into 20-year contracts for pipeline capacity."
"The necessary conclusion from the [utility] proposal, that long-term cost-of service contracts are a form of market design improvement, is absurd on its face and contradicts the remainder of the Commission's Order, as well as the concurrences of Commissioners LaFleur and Chatterjee, each of whom made clear their preference for market-based solutions," the New England Power Generators Association wrote in filed comments.
Utilities in the region have sought ratepayer funds for pipeline development at the state level, the generators point out, but were rebuffed in both New Hampshire and Massachusetts.
"The [electric utilities] collectively have a 60% ownership interest in the Access Northeast Project — a $3.2 billion pipeline expansion project," NEPGA wrote. "To date, the EDCs have been unable to convince the New England states to allow them to recover pipeline costs through retail rates, and thus the EDCs now apparently turn to FERC for such authority."
New pipeline capacity may not be necessary in New England, generators wrote.
"The experts in the prior state proceedings all agree that any potential need for new pipeline capacity is limited in time to a few peak days each year — estimates range from as little as nine days per year to 30 days per year, as projected by the Eversource EDCs' own expert," NextEra Energy wrote in its comments. "This means that the proposed new pipeline capacity is unneeded in most market conditions."
The NextEra argument reflects comments made by its vice president — ex-FERC Chairman Joe Kelliher — at a Senate hearing this summer. When demand for natural gas is high, he said, it can be cheaper for plants to use onsite supplies of fuel oil or liquefied natural gas for power generation, rather than build pipelines.
Just as the utilities have a financial interest in building new pipelines, NextEra and other generators have a stake in not seeing them constructed. The companies own dual fuel generators that operate during times of high natural gas demand, and building new transport capacity could eat into their revenues.
ISO-NE has until Aug. 31 to respond to FERC's decision with proposed market design reforms. No matter how stakeholders view the plan, the commission will likely evaluate it without a full slate of regulators. Commissioner Robert Powelson stepped down this month, allowing Democrats on FERC to deadlock votes until a replacement is confirmed by the Senate.
Follow Gavin Bade on Twitter