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The Kinder Morgan Pipeline: Down(Sized) but not out

The clean energy think-tank, Acadia Center, released a three-part report in June concluding that New England is not facing an energy crisis. And the Maine PUC is investigating whether a publicly-funded interstate pipeline, such as the Kinder Morgan pipeline, is legal.

The potential customer base for the Northeast Energy Direct (NED) natural gas pipeline is not growing the way Kinder Morgan expected, but the company is reacting by down-sizing – not abandoning – the project.

 A map of the proposed route for the Northeast Energy Direct pipeline.
A map of the proposed route for the Northeast Energy Direct pipeline.

On July 24, Kinder Morgan filed the second draft of the required Environmental Report with the Federal Energy Regulatory Commission (FERC). The report highlights the sharply decreased size of the pipeline project, which, if it proceeds as planned, will transport natural gas from the Marcellus Shale in Pennsylvania through Wright, New York, and, ultimately, to Dracut, Massachusetts.

Kinder Morgan plans to reduce the size of its Northeast Energy Direct (NED) main line pipeline from 36 to 30 inches in diameter. The 2.2 billion cubic feet of gas per day that the company had initially planned to transport has been reduced by about 40 percent to 1.3 billion cubic feet per day.

Reducing the diameter of the pipeline will not reduce any of the adverse environmental consequences, however. If the pipeline proceeds, achieving the greenhouse-gas reduction goals of the Massachusetts’ Global Warming Solutions Act, for example, will be highly problematic due to methane leaks and carbon dioxide emissions from the increased fossil fuel burning.

Stagnant Customer Demand

A schematic of the location for the proposed compressor station in Windsor, Massachusetts, east of Pittsfield.
A schematic of the location for the proposed compressor station in Windsor, Massachusetts, east of Pittsfield.

Earlier in the summer, the expected gas demand from an industrial complex near Worcester reportedly failed to materialize. Kinder Morgan consequently dropped plans for a 15-mile lateral pipeline extension to Worcester. Pipeline loops and laterals have also been eliminated in Connecticut.

In addition, Kinder Morgan will reduce the horsepower requirements at four proposed new compressor station locations by about half, including Mid-Station 2 near Windsor (Berkshire County); Mid-Station 3 near Northfield (Franklin County); and Mid-Station 4 near Temple, New Hampshire (Hillsborough County).

What does this scaling back mean and why has it occurred?

Simply put, customers are not coming forward as expected. Kinder Morgan has announced no new gas shippers since last September.

In March, Kinder Morgan issued a press release stating that its Anchor Shippers for NED had been finalized, with agreements collectively totaling approximately 500,000 dekatherms per day, or roughly 500 million cubic feet per day. This was no greater than the amount that had been announced by Kinder Morgan in a September 2014 press release. It includes commitments from National Grid, Liberty Utilities, Columbia Gas of Massachusetts, Berkshire Gas and others.

Asked about the stagnant customer demand, Mr. Richard Wheatley, spokesman for Kinder Morgan, stated, “other shippers will soon be announced” but he could not say when this announcement would be made. Mr. Wheatley also stated that Kinder Morgan “is reviewing all state initiatives, collectively.”

Kinder Morgan appears to be waiting for some New England states –individually or on some regional basis – to enter into long-term contracts for gas for electric generation. Meanwhile, the project is downscaling.

Maine Setback

Maine’s Energy Cost Reduction Act allows the State to enter into contracts to purchase up to 200 million cubic feet per day of natural gas, with the ratepayers picking up the tab on their electric bills.

The State opened a PUC-led Investigation in March 2014 to look into the question of whether a state contract funded by “reasonable assessments on the bills of ratepayers of electric or natural gas utilities” was in the public interest. Kinder Morgan’s subsidiary, Tennessee Gas Pipeline, has been an intervener in the Maine PUC investigation.

When the investigation was first opened, then-Commissioner David Littell questioned the wisdom of the state contract idea. Recalling the Enron debacle of 2001, he warned:

“This is the first time this Commission – or any U.S. utility commission – has considered an electrical ratepayer subsidy to construct new natural gas pipelines. [This proceeding] could involve the largest singular investment by Maine ratepayers authorized in this Commission’s 100-year history. It may involve entering into a contract to buy capacity on an interstate gas pipeline, an endeavor with which this Commission has no legal, technical or economic experience. Large sophisticated parties can make or lose billions of dollars on natural gas contracts, as the nation learned with the collapse of Enron Corporation several years ago.”

On July 15, a consultant hired by the Maine PUC, London Economics, released a report concluding that state contracts would be too expensive, and would not be in the public interest. Only 7 percent of New England’s natural gas was used by Maine in 2014, the report stated. Therefore, the benefits of lowered gas prices would be correspondingly small.

The day after the report was released, July 16, Kinder Morgan issued its size-reduction press release.

According to Harry Lanphear, Administrative Director of the Maine PUC, “the case is proceeding because some feel that the London Economics report is flawed, so we will let them make their points.”

Individual States Continue Working Toward a Natural Gas Pipeline

A natural gas pipeline being constructed in Pennsylvania.
A natural gas pipeline being constructed in Pennsylvania.

A regional plan for New England states to collectively fund a natural gas pipeline had been spearheaded by Maine in 2013, and supported by the members of the New England States Committee on Electricity (NESCOE), a group composed of Public Utility Commissioners from each of the New England States.

Following strong and sustained protests by landowners and environmentalists, however, the State of Massachusetts withdrew from the NESCOE effort last August, leaving the New England-wide effort in disarray. The pipeline seemed to be dead in the water. Now, however, the states of Massachusetts, New Hampshire, and Connecticut are quietly exploring – individually – the legality and feasibility of the same ratepayer-funded pipeline effort that was abandoned last summer.

The Massachusetts Department of Public Utilities (DPU) issued a report on June 15 entitled, “Investigation into the Means by Which New Natural Gas Delivery Capacity May be added to the New England Market, including Actions to be taken by the Electric Distribution Companies.” (Docket D.P.U. 15-37)

In a lengthy Question and Answer section accompanying the report, Tennessee Pipeline Company answered numerous questions posed by the Massachusetts Department of Energy Resources and the PUC about how such a contract scheme would work and acknowledged that it would be unprecedented.

The New Hampshire DPU has undertaken a similar investigation. (Docket IR 15-124)

Gov. Dan Malloy of Connecticut signed a bill into law in June that would allow that state to require electric ratepayers to finance pipeline infrastructure and capacity.

“We’re Not Facing an Energy Crisis in New England”

Meanwhile, although Kinder Morgan continues to assert that the NED pipeline will fill a severe shortfall in New England’s existing pipeline capacity, and will eventually reduce electricity rates, the picture that has emerged is not that simple.

The clean energy think tank, Acadia Center, released a three-part report in June concluding that New England is not facing an energy crisis. According to the report, last winter’s wholesale price reductions for natural gas and electricity (which will filter through to consumers in the next six-month billing cycle) occurred because “incremental reforms of the region’s energy markets allowed us to make better use of existing resources, energy efficiency provided significant relief, and the plunge in prices for liquefied natural gas (LNG) and oil has recalibrated the economics of the region’s power market.”

Last winter’s success in meeting energy needs – despite one of the most severe winters ever recorded – undermines the case for new pipelines, the Center concludes. Conservation Law Foundation has also pointed out that the economics of the energy markets have started to shift, with wholesale electric prices declining by 50 percent over the past year alone.

The Federal Energy Regulatory Commission (FERC) must issue a Certificate of Public Convenience and Necessity under the Natural Gas Act before any interstate pipeline can be constructed. Asked whether other interstate pipelines had been publicly funded, FERC spokesperson Tamara Young-Allen responded, “I checked with our staff and no one is aware of any publicly-funded interstate pipelines under FERC jurisdiction.”

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