(Bloomberg) -- The highest court in Massachusetts struck down a bid by electric utilities to charge ratepayers for new natural gas pipelines, dealing a blow to their efforts to boost supplies of the fuel and avert shortages.
The Massachusetts Department of Public Utilities cannot approve contracts that force electric utility customers to subsidize gas pipelines, according to a ruling by the Supreme Judicial Court of Massachusetts on Wednesday. The court vacated an order from the department that authorized the contracts, which it said would unfairly expose ratepayers to higher costs.
The ruling will hamper efforts by Massachusetts to expand its gas pipeline network to avoid a repeat of price surges that have come to haunt the New England region during severe winter cold snaps. It also throws into question a plan by Eversource Energy and National Grid Plc to help Spectra Energy Corp. build the $3 billion Access Northeast natural gas pipeline project.
Spectra “is extremely disappointed with the decision,” Arthur Diestel, a company spokesman, said in an e-mail. “We will have to reevaluate our path forward -- consistent with the court’s decision -- to provide the infrastructure so urgently needed by New England’s electric consumers.”
The ruling leaves the region in a “precarious” position without enough gas capacity for electric generation during cold winters, Caroline Pretyman, a spokeswoman for Eversource Energy, said by e-mail. Eversource fell as much as 2.3 percent before erasing losses.
Massachusetts, like other gas-reliant New England states, faces bottlenecks on its system that raise the risk of supply shortages and price spikes when power plants ramp up demand on the hottest and coldest days. Gas-fired plants generated more than 60 percent of New England’s power Wednesday, according to the data from the regional grid operator. To ease the problem, the state decided last year that electric utilities could fund new links through higher rates.
“We are going to have a problem if we don’t have an infrastructure that is expanding as fast as our reliance on gas-fired generation,” Lawrence Makovich, an analyst at IHS Markit based in Cambridge, Massachusetts, said by phone.
Power suppliers including NextEra Energy Inc. and Public Service Enterprise Group Inc. asked federal energy regulators to block utilities from funding pipelines in July. They said the projects would flood the region with gas, depressing power prices for generators.
Engie SA, which owns a gas import terminal in the state and challenged the utility commission’s order, said the ruling “means electric ratepayers should not be required to bear the risk of these multi-billion dollar contracts,” according to spokeswoman Carol Churchill.
Massachusetts Attorney General Maura Healey welcomed the decision, saying cleaner and cheaper options were available than building expensive pipelines. "The court’s decision makes clear that if pipeline developers want to build new projects in this state, they will need to find a source of financing other than electric ratepayers’ wallets," Healey said in a statement.
Efforts to build new pipelines into the region have been derailed by power generators’ unwillingness to take on year-around costs for securing capacity in a competitive power market as well as environmental protests. Kinder Morgan Inc. scrapped its $3.3 billion Northeast Direct project because of regulatory uncertainty and inability to sign up customers, a critical step to secure financing and returns on a project.
“Massachusetts has some of the highest electricity rates in the nation and without additional gas capacities and a diverse energy portfolio, the trends will continue to rise over time,” Peter Lorenz, a spokesman for the state’s Executive Office of Energy and Environmental Affairs, said by e-mail.
The cases are Engie Gas & LNG LLC v. Department of Public Utilities, SJC-12051, and Conservation Law Foundation v. Department of Public Utilities, SJC-12052, at the Supreme Judicial Court of Massachusetts.
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