Report: Gas Market Dynamics Cost New England Electricity Consumers $3 Billion

Oct 16, 2017
Originally published on October 18, 2017 1:39 pm

New England electricity consumers paid billions of dollars more than necessary over a three-year period, according to a report by a national environmental group. It's prompted a review by Massachusetts Attorney General Maura Healey, but one utility named in the report is calling it an outright fabrication.

The Environmental Defense Fund report's findings stem from the complicated dynamics of gas and electricity markets.

It says that on hundreds of occasions, gas distributors Avangrid and Eversource reserved a certain amount of natural gas pipeline capacity and then at the very end of the day - decided not to use it. The lead author, Vanderbilt University economist Matthew Zaragoza-Watkins, says that "artificially" constricted supplies on cold days when natural gas was in high demand, particularly during the polar vortex four winters ago.

"They had reserved it like a table at a restaurant and then that table sat empty all day long and then at the last minute they said actually we never needed that table anyway," he said.

So why does that matter? Well, it can make gas more scarce, which drives up its price. That raises the price of electricity fueled by natural gas, in turn making non-gas fired electricity - from coal, oil, or renewables -- more competitive in the marketplace. So when Avangrid and Eversource withheld gas capacity, non-gas units throughout New England benefited, according to Zaragoza-Watkins.

"When it's more expensive for gas powered power plants to run, everybody earns higher revenues," said Zaragoza-Wiatkins. "And what that resulted in over the three-year span of our data was about a 20 percent higher price on average for electricity and about a $3.6 billion transfer from electricity customers, to electricity generators."

Tricia Modifica, a spokeswoman for Boston-based Eversource, calls the report "a fabrication." She said the analysts don't understand gas and electricity markets.

"The pipeline capacity we reserve is done so to meet the needs of our customers and no other purpose," she said. "We do not engage in any behavior to artificially constrain capacity. Our focus and actions are driven by our responsibility to ensure our customers have enough gas because we can't run the risk that they are left out in the cold."

A spokesman for Avangrid also said that company is following all rules and regulations.

The report's authors and its sponsor defend the analysis. Environmental Defense Fund spokesman Jon Coifman says it raises important questions about whether New England's gas supply issues are or were as dire as they've been painted by would-be pipeline developers - including Eversource - who were pushing regulators to make electricity consumers pay for new gas pipelines.

"Nobody is arguing that New England doesn't have tight capacity right now," Coifman said. "The question is 'how tight is that capacity and what's the best way to most quickly meet it at the lowest cost?'"

Several industry observers said they are perplexed by the report. Tony Buxton is a lobbyist for paper mills and other large industrial energy users in Maine, and he has worked to add gas pipeline infrastructure serving this region, including the now-shelved Kinder-Morgan project. Buxton says the report's accuracy needs to be established. But he said it raises legitimate questions about the transparency and effectiveness of gas and electricity market operations.

"If it is correct that otherwise lawful behavior in New England has increased the cost of gas to consumers and thereby the price of electricity, then we need to be certain that's the case, and to fight hard to fix it," Buxton said.

Some state-level officials are already calling for new regulatory scrutiny, and in a statement, Mass. AG Healey's office called the allegations in the report "concerning," and will require "careful assessment and analysis." On Tuesday, officials from Connecticut's Public Utilities Regulatory Authority announced they would be opening an investigation into the allegations in the report.

Representatives of the regional grid operator, ISO-New England, and the Federal Energy Regulatory Commission declined comment. The report's authors, meanwhile, say they soon will submit it to a scientific journal for peer-review.

This report comes from the New England News Collaborative, eight public media companies coming together to tell the story of a changing region, with support from the Corporation for Public Broadcasting.

This story was updated on 10/16/17 to include information about a regulatory investigation in Connecticut, and to correct the spelling of Maura Healey's name.

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