Anatomy of a pipeline decision: A scheme of ‘dubious’ legality
Over an eight-month period in 2013 and early 2014, closed-door discussions by an obscure but powerful organization, New England States Committee on Electricity (NESCOE), led to a decision by its members to impose a charge of dubious legality on all New England electricity ratepayers in order to support the funding of a natural gas pipeline that is planned to traverse Massachusetts from Richmond in the west to Dracut in the east.
The written justification for the unpopular pipeline was drafted by a Maine industry lobbyist, Anthony Buxton, and adopted by the Maine member of NESCOE, Tom Welch. Mr. Welch apparently added the idea for publicly funding the pipeline by charging New England ratepayers, and convinced his colleagues from Connecticut and New Hampshire of the wisdom of the scheme.
The three other NESCOE states – Massachusetts, Vermont, and Rhode Island – apparently went along with it.
Outraged landowners, conservation groups, and townships protested the pipeline and its destructive path throughout the summer, arguing that alternative measures are available that can meet New England’s energy needs – increased development of renewable fuel sources, incentives for decreased demand, market adjustments, and energy efficiency requirements.
Although Governor Patrick of Massachusetts appears for now to have listened to the protests, pausing state involvement with the pipeline to better analyze the state’s energy needs and options, the pipeline is proceeding, and continues to be advocated by NESCOE staff.
NESCOE: “A Shadow Bureaucracy”?
NESCOE is one of several “regional state committees,” or RSCs, in the country. The purpose of these Committees is to coordinate regulatory oversight among the states and to facilitate interstate coordination and communication relating to electric transmission within a region.
To simplify a complex structure, the Regional State Committees include one for the Midwest states, one for the Mid-Atlantic and nearby states, and one for the Southwest states. Like NESCOE, two of these are funded by electric ratepayers through a tariff on ratepayers collected by the applicable regional “grid” organization.
However, unlike NESCOE, the other RSCs are generally transparent, and subject to the Open Meeting laws of the states that they represent. The Midwest RSC, for example, states, with regard to its bylaws, “Under [our] bylaws, these meetings are open…Member states operate under open meeting laws and the initial board believed it appropriate for [us] to operate with similar transparency.”
NESCOE’s decision-making process has not been transparent. In one email, for example, a NESCOE staffer writes that he advocates a “closed door” process because “the court of public opinion can be fickle and recalcitrant.”
And, although NESCOE met with and coordinated frequently with “stakeholders,” such as ISO-NE (which manages the New England electricity grid), NEPOOL (the New England Power Pool), state energy regulators, and others, the general public has not been included. In the words of the Conservation Law Foundation, “formulation of and negotiations around [energy] proposals have been conducted almost completely behind closed doors.”
Moreover, as a general rule, multistate or regional bodies are required to respond to document requests made under a state Freedom of Information Act request if they are supported by public funds and if they perform governmental functions.
“I don’t think of myself as a government agency, but I tend to give out almost everything that anyone asks for,” said William H. Smith, Jr., Executive Director of OMS, the Midwest Regional State Committee, analogous to NESCOE. Mr. Smith said that the FOIA matter had not come up, but that he would comply with a request if one were made, subject to standard exceptions, such as those relating to litigation and commercially sensitive information.
NESCOE, however, has refused to comply with a FOIA request from the Conservation Law Foundation, stating in a July 14, 2014 memorandum, “NESCOE is not a state government agency and is not subject to the state laws CLF references.”
Yet, a strong case could be made that NESCOE has been performing government functions. The six New England Governors appointed the Managers from the six states, and the actions undertaken by NESCOE to develop energy policy on their behalf appear to be governmental functions. NESCOE’s Facebook page identifies itself as a “Government Organization.”
In fact, unlike the other Regional State Committees, the scope of NESCOE’s activities goes beyond merely facilitating communication among the six New England states, and appears to be more in the nature of initiating and developing energy policy.
From its inception, some questioned the organization’s size and budget. When, in 2005, FERC (Federal Energy Regulatory Commission) proposed to accept the tariff imposed on ratepayers for the support of NESCOE, a group called the Eastern Massachusetts Consumer-Owned Systems (EMCOS) protested the budget for NESCOE – $2,140,000 for 2013 — complaining that it far exceeded those of Regional State Committees “covering significantly larger geographic footprints and significantly larger and more diverse groups of regulator interests.”
EMCOS also stated that no other Regional State Committee was “a source of comparative justification” for the size of NESCOE’s staff or for its budgetary set asides for outside consultants and legal counsel. EMCOS contrasted NESCOE’s “shadow bureaucracy” with the “more modest operations” of other RSCs, which, according to EMCOS, generally are funded only enough for “an Executive Director’s salary and reimbursements for state regulators’ travel, meals and lodging.” OMS, for example, with an Executive Director, a Deputy Director, and two office managers, is considerably smaller than NESCOE. And the OMS budget request for 2013 was “for a range between $713,900 and $948,400.”
Anatomy of the Pipeline Decision
Documents obtained throughout spring and summer 2014 from the six individual State members of NESCOE (as opposed to the organization itself) by the Conservation Law Foundation under a Freedom of Information Act request cast light on NESCOE’s decision to embrace a natural gas pipeline. The picture that emerges shows that Massachusetts, Maine, New Hampshire, Vermont, Connecticut and Rhode Island had differing degrees of enthusiasm for the pipeline project.
Maine, where electricity rates are 27 percent higher than in the rest of the United States, was the driver of the Kinder Morgan pipeline project. In June 2013, Maine’s state legislature passed comprehensive legislation, the “omnibus energy bill,” supported by Governor Paul LePage and Maine PUC Chair Tom Welch, who is also a governor-appointed, Manager of NESCOE.
The legislation included an unusual provision for the PUC to collect fees from Maine ratepayers to buy up to $75 million annually in natural gas pipeline capacity, according to an article in the Midcoast Maine’s Free Press.
Pipelines are normally required by the Federal Energy Regulatory Commission to be funded by private contracts for natural gas capacity. The Maine arrangement sweetened the pot for potential pipeline companies to locate in the Northeast by guaranteeing that a certain percentage of the capacity would be purchased publicly by State ratepayers, who would, in theory, eventually reap the benefits of lower energy costs.
Around the time of passage of the Maine legislation in June, Kinder Morgan met with Governor LePage to discuss Maine’s energy policy.
Critics of the unusual funding arrangement argued that Maine ratepayers should not be funding natural gas investments without help from the New England region as a whole.
NESCOE’s Tom Welch said that he was hopeful that other states would jump on board, but admitted that it would be very difficult convincing them, according to the Free Press.
The FOIA’ed documents show that throughout the fall of 2013, Mr. Welch sent numerous emails, developed materials, and organized conference calls with TransCanada, Spectra, and Kinder Morgan to discuss increasing pipeline capacity regionally.
To convince his NESCOE colleagues of the merits of the plan, Mr. Welch leaned heavily on a memorandum drafted in September 2013 by Maine lobbyist, Anthony W. Buxton. Mr. Buxton had advocated the Maine legislation on behalf of his client, the Industrial Energy Consumer Group, (IECG) a trade association that represents large industrial facilities such as pulp and paper mills in Maine.
The Buxton memorandum stated that New England should follow Maine’s example, noting that, “the State of Maine’s action has given additional life to the ongoing effort to build…the new Tennessee Gas 500 to 800 MMcf/day pipeline… known as the Kinder Morgan project.” The challenge, he stated, “is to cause [the pipeline] to be built at a size that would bring the cost of natural gas down to the price levels paid in states outside of New England.”
Commissioner Welch adopted Mr. Buxton’s memorandum, writing “Tony, would you mind if I used the attached…in my efforts to make the case [for a pipeline] to my NE colleagues?” Mr. Buxton replied, “Of course, the IEGC and I would be thrilled.”
Mr. Welch also included his own idea for a framework whereby ISO-NE (the New England grid) would include the pipeline cost in its electricity rates as “an infrastructure recovery charge,” meaning that New England ratepayers would pay for some part of the pipeline construction and natural gas capacity. If ISO-NE proved to be reluctant to do this, he added, individual states could find mechanisms, such as Maine’s approach, to purchase their share of incremental electric load.
On September 25, 2013, Commissioner Welch took the Buxton memorandum to a meeting in Boston with Connecticut’s NESCOE Manager, PUC Commissioner Dan Esty.
Commissioner Esty was apparently convinced of the merits of the pipeline plan. New Hampshire’s NESCOE Manager, Robert Scott, however, was dubious. Mr. Scott sent an email to Mr. Esty on October 11 requesting “a couple of minutes together so that I could share some of New Hampshire’s concerns regarding the socialization of transmission costs.”
Connecticut prevailed, however. An email dated October 16 from New Hampshire PUC Analyst George McCluskey to former New Hampshire PUC Commissioner, Michael Harrington, stated, “Esty got help from National Grid’s Ron Geratowski in persuading NH of benefits of infrastructure package.”
Meanwhile, the gas and electric industries were fully aware of NESCOE”S interest in developing energy infrastructure. NESCOE’s Gas-Electric Focus Group, composed of representatives from the gas and electric industries, state officials, ISO-NE representatives and others had been meeting periodically, from October 2012 to October 2013 to discuss long-term solutions to the region’s gas-electric needs. This Group also reviewed and was invited to comment on the Black & Veatch Gas-Electric study that was released on August 26, 2013. Tennessee Gas Pipeline and Spectra both commented on the study in October.
A flurry of NESCOE activity ensued in late fall of 2013. Managers and Staff discussed pipeline implementation and authority issues; NESCOE’s legal counsel prepared an analysis of the funding scheme, and Commissioner Welch organized conference calls with Spectra Energy, Kinder Morgan, Portland Natural Gas Transmission System, and TransCanada, all of which already had projects in various stages of consideration.
In December, the New England Governors formally announced their “Commitment to Regional Cooperation on Energy Infrastructure Issues.” The document states, in part, “The Governors commit to work together, in coordination with ISO-New England and through NESCOE to…ensure that the benefits and costs of…pipeline investments are shared appropriately among the New England States.”
That the pipeline plan moved forward at breakneck speed in fall of 2013 and winter of 2014 is evident from numerous communications. Commissioner Welch’s February 6 email to NESCOE Managers and staff states, “NESCOE /NESCOE counsel [will] be moving very quickly to work on possible language for a tariff.” And at one point, NESCOE President, Ann G. Berwick, also Chair of the Massachusetts Department of Public Utilities, said to Commissioner Welch in an email, “Whoa, whoa. I haven’t had a chance to look at this,” and “…I was not in the loop on DOER’s [Department of Energy Resources] communication… This is not an indication of any…absence of communication among MA energy agencies – just that everyone is moving too fast.”
On January 8, 2014, Kinder-Morgan sent letters to townships along its proposed route, informing them that the company would begin contacting landowners in the coming weeks to arrange to survey properties.
In late January, NESCOE made a formal request to ISO-NE, operator of the New England power grid, seeking “technical support and assistance with tariff filings related to electric and natural gas infrastructure in New England.” Specifically, NESCOE requested support in developing a tariff for the cost of construction of new, or expansion of existing, pipelines, and support in obtaining FERC approval of the ratepayer tariff.
Forced to Pay for an Unpopular Pipeline?
Referring to the financing scheme, Commissioner Welch said in the Portland Press Herald’s January 23 issue, “’It’s an unprecedented and remarkable approach…but it reflects the fact that the price of natural gas drives the price of electricity in New England.”
Both Kinder Morgan and FERC were uneasy about having end-use retail customers – residential and business ratepayers – assume the costs of construction of the Northeast Expansion pipeline – now called Northeast Energy Direct. An email sent by a New Hampshire PUC energy expert to Commissioner Scott on January 30, 2014 stated, “Kinder Morgan’s biggest concern [about ratepayer-financing for building the pipeline] is sovereign risk – the ability of regulators (I guess in this case FERC) to change their minds and terminate the tariff [for ratepayer-funding of pipeline construction].”
As notes from a late January 2014 meeting between NESCOE representatives and FERC Commissioners indicate, FERC was indeed squeamish about the financial arrangement. During the briefing given by NESCOE to FERC Chairman Cheryl LaFleur, Commissioner Tony Clark, Commissioner Phillip D. Moeller and others, numerous questions were raised.
Chairman LaFleur was concerned that ratepayer funding could necessitate amending the Federal Power Act to legally authorize the electricity tariff for the gas pipeline. She also expressed concern that private investors in the marketplace were unwilling to fund the resources necessary for reliability.
Commissioner Tony Clark stated, “While I don’t want to shoot it down out of hand, it is not self evident that funding a pipeline through transmission rates [and paid by electricity consumers] comports with the Federal Power Act.” And a FERC staff member pointed out that the proposal was akin to building a railroad with electric rates to facilitate coal delivery to a coal plant. Despite these warnings, however, NESCOE and Kinder Morgan proceeded with the pipeline.
Will FERC Follow Its Own Directives for Pipeline Approvals?
Under the Natural Gas Act, no pipeline can proceed without FERC’s approval in the form of issuance of a Certificate of Public Convenience and Necessity. FERC’s “Statement of Policy” issued on September 15, 1999 sets forth standards for FERC to follow in deciding whether to grant a Certificate of Convenience and Necessity to a pipeline company applicant.
The Commission must consider “the enhancement of competitive transportation alternatives, the possibility of overbuilding, the avoidance of unnecessary disruption of the environment, and the unneeded exercise of eminent domain.” FERC requires separate examination of: 1) the impacts on landowners and surrounding communities; and 2) environmental impacts.
Elaborating on this, FERC states that if project sponsors who are proposing a new pipeline are able to acquire all, or substantially all, of the necessary right-of-way by negotiation prior to filing the application, and the proposal is to serve a new market, such a project would not need any additional indicators of need and may be readily approved if there are no environmental considerations.
But if a project did not acquire all or substantially all of the necessary right-of-way by negotiation, and there is widespread landowner opposition, would FERC deny the application for a Certificate of Public Convenience and Necessity? FERC does not say, but logically, such a project would need significant “additional indicators of need” and would NOT be “readily approved.”
In the case of the Northeast Direct pipeline, only “about half” of the 1,650 affected property owners have granted Kinder Morgan permission to survey their properties, according to Richard Wheatley, Kinder Morgan’s spokesman. Moreover, 28 of the 40 towns along the route have passed resolutions opposing the pipeline according to the web site, nofrackedgasinmass.org.
In addition, there are serious environmental impacts posed by the pipeline, which would, as currently planned, traverse numerous wetlands, forests, parklands, and lands held in trust. Moreover, methane leaks from natural gas production, processing and distribution are likely to gravely undermine the goals of the Massachusetts Global Warming Solutions Act.
Applying FERC’s standards to the Kinder Morgan project, the company will take about half (by its own estimate) of the needed land from landowners by eminent domain in judicial proceedings and the project will have serious, irreversible environmental impacts. If FERC were true to its policies, the pipeline would likely not meet muster.
However, FERC has virtually never turned down a pipeline applicant. In the words of a group promoting pipeline safety, called “Pipeline Safety Trust, “in a quick and not exhaustive check, we were unable to find a single FERC denial of an application for a Certificate of Public Convenience and Necessity for an interstate gas transmission line. The message is: FERC rarely denies an application.”
Data FERC recently submitted to Congress was provided by FERC spokesperson, Tamara Young-Allen, but is a bit murky: Since Oct. 1, 2006, FERC has received 803 applications for natural gas pipelines. Of those, Ms. Young-Allen said, 451 have been authorized, 94 are pending, two have been rejected outright because they did not meet FERC standards, and 250 have been denied or withdrawn. Ms. Young-Allen did not, however, have a breakdown of the 250 figure, although she noted that some pipeline projects are withdrawn when they fail to line up enough customers.
Early in August, it looked as if the pipeline had run into a snag.
Three members of the Global Warming Solutions Act Implementation Advisory Committee had quit abruptly in late July, feeling that their criticisms of the Governor’s energy package were being ignored.
“We’ve seen a reversion to outdated approaches when we know that there are other ways to meet our energy goals, ”said one of the three, Peter Shattuck, an official with Environment Northeast.
Another, George Bachrach, President of the Environmental League of Massachusetts said, “Governor Patrick has been moving these two projects – the natural gas pipeline and hydropower from Canada – relentlessly down the track.”
But after summer-long protests by townships, homeowners, and conservation groups culminated in a July 31 rally on Boston Common, Governor Deval Patrick suddenly stopped the train.
“We are updating the analysis” of the pipeline,” said Krista Selmi, spokesperson for the Massachusetts Executive Office of Energy and the Environment.
NESCOE issued a statement on August 1: “At today’s NEPOOL [New England Power Pool] meeting, NESCOE requested an extension of the current. NEPOOL schedule for consideration of proposed tariff mechanisms in connection with the Governors’ Infrastructure Initiative [so that] Massachusetts state officials [can] evaluate options…”
Kinder Morgan Pre-Filing
Massachusetts may be tapping the brakes on the pipeline, but that hasn’t slowed down Kinder Morgan. On September 15, Kinder Morgan filed a letter application with FERC requesting approval of its pre-filing process, which, according to the company, will allow it to identify and resolve environmental problems before it formally files an application for a Certificate of Public Convenience and Necessity.
The pipeline project has reached agreement with key local natural gas distribution companies throughout New England to transport approximately 500 MMcf/d of long-term firm transportation on the Northeast Energy Direct Project. These include the Berkshire Natural Gas Company, Columbia Gas of Massachusetts, Connecticut Natural Gas Corporation, Liberty Utilities Corp., National Grid, and Southern Connecticut Gas Corporation.
“Kinder-Morgan is also continuing negotiations with other potential shippers and customers,” said Mr. Richard Wheatley, spokesman for Kinder Morgan.
The Company also acknowledges in its pre-filing application that some potential end-use customers transporting gas may be liquid natural gas exporters.
In its Pre-Filing Application, Kinder Morgan included the Northeast Energy Direct Project Timeline, which appears below. Moreover, the Pre-filing includes a document, with topographical maps, describing county-by-county impacts of the Project. This can be found on the web site No Fracked Gas in Mass.org under “latest news and blogs.” All other Northeast Energy Direct Pre-Filing documents can also be found on the web site as well as information on how to use FERC’s web site.
Which New England states will continue to proceed with the pipeline, and which states will, rather, commit to alternatives – energy efficiency measures, demand reduction, renewable fuels, and adjustments in existing market practices – to make up the energy shortfall on peak winter days and to lower New England’s high energy prices? It is clear that if the pipeline proceeds, it will be infrastructure that endures for generations. Moreover, the availability of natural gas from the pipeline will almost certainly undercut efforts to develop and market alternatives to fossil fuels.
On August 14, Maine’s Republican Governor, Paul LePage, fired off an angry missive to Governor Deval Patrick, saying, “It has come to my attention that the Commonwealth of Massachusetts has decided not to continue additional gas capacity for New England. “This is a colossal mistake.”
Kinder Morgan subsequently announced in a September 17 news release: “Tennessee Gas Pipeline Company Files Historic Natural Gas Capacity Proposal to Benefit the State of Maine and its Consumers.” The announcement cited the Maine Energy Cost Reduction Act as authority for the Maine PUC to execute a contract for up to 200 million cubic feet per day of pipeline capacity for up to 20 years.
With regard to the NESCOE effort, the Company’s president for East Region Natural Gas Pipelines, Kimberly Watson, stated, “Although a regional effort among the six New England governors to arrange for large regional purchases of gas pipeline capacity has stalled, this contract, which benefits the state of Maine, will fit seamlessly with the commendable regional effort of the governors. We hope that effort continues.”
Heather Hunt, Executive Director of NESCOE, made a presentation on September 8 called “Energy in the Northeast,” for Law Seminars International. The agenda for the meeting included the subtitle: “Potential use of electricity tariff [collected from ratepayers] for natural gas pipeline cost recovery.”
In the power point presentation – a blistering, data-filled defense of NESCOE’s past activities on the pipeline – Ms. Hunt said, regarding future actions, “State officials are talking to each other to explore ways forward on regional solutions,” but “Massachusetts is conducting a study of Massachusetts state-level solutions in light of its state policies.”
On September 25, NESCOE gave the same presentation to the United States Department of Energy’s Electricity Advisory Committee.
Meanwhile, on September 16, Maeve Vallely Bartlett, Secretary of the Massachusetts Office of Energy and Environmental Affairs, sent a strong letter to the Secretary of the Federal Energy Regulatory Commission in Washington, D.C. In summary, Ms. Bartlett stated that the interests of the Commonwealth include:
- Ensuring a full analysis of the need for the project in Massachusetts and regionally;
- Ensuring a full environmental review and consideration of environmental permitting requirements for the proposal; and
- Ensuring a full examination of the proposed routing and seeking ways to minimize the impacts to important natural resources managed by the Commonwealth through its land management and wildlife agencies, as well as other property dedicated to conservation, farming and forestry purposes.