Remember that line from the movie “Field of Dreams” in which Ray, played by Kevin Costner, hears a mysterious voice one night in his cornfield saying, “If you build it, they will come.” This is the same assumption used in much of the economic analysis to justify the Kinder Morgan Northeast Energy Direct gas pipeline: “Build it and they will come.” The problem is, if they don’t come, the potentially devastating losses will be borne by New Hampshire electric ratepayers.
Construction of the NED pipeline is estimated at something in excess of $5 billion. Once constructed, Kinder Morgan will receive income from transportation fees on any gas it’s contracted to deliver and reservation fees, which provide space on the pipeline for those who may choose to order natural gas.
In order to guarantee construction of the pipeline, and at the behest of the New England governors, the Public Utilities Commission is considering a new idea – one that has never been tried before – that would allow electric utilities to sign 20-year agreements to reserve space on the gas pipeline and add the costs to electric ratepayers’ monthly bills.
The underlying logic allowing electric utilities to reserve space on a gas pipeline goes like this: Electric rate payers will pay the reservation fees for the natural gas, which the electric utility will resell to gas-powered electricity producers – which so far have refused to contract for any of Kinder Morgan’s natural gas. In addition, it is hoped that the availability of natural gas will result in new gas-powered electricity producers. This, in turn, will increase the supply of electricity, resulting in a reduction of electric rates over time.
The problem is that electric ratepayers will bear all the risk with this “Build it and they will come” logic.
The cost of the 20-year reservation fee agreement will be billed to electric ratepayers. If this arrangement results in more electric generation, it is likely rates will decrease – or increase more slowly. If, however, electric utilities are unable to sell gas, or sell gas for industrial uses or overseas, the electric ratepayers are still responsible for the 20-year reservation fee agreement. It is possible that electric ratepayers will be paying reservation fees for gas that is never used to generate electricity.
In a September 2015 report on this topic, the PUC estimated that the New Hampshire portion of this reservation fee would be $36 million per year for 20 years. That’s $720 million on the backs of New Hampshire electric ratepayers – individuals and businesses.
As the PUC evaluates the idea of allowing electric utilities to reserve space on the pipeline, perhaps they should let the free market sort out how, and if, this project is funded. If the pipeline is commercially viable, let non-regulated companies (e.g., not the regulated electric utility companies) contract for 20 years of reservation fees, without putting it on the backs of New Hampshire ratepayers.
New Hampshire electric ratepayers already bear the burden of what, in hindsight, seem like lousy deals. We are paying for $700 million of stranded costs related to the Seabrook shutdown. We are looking at $450 million of stranded costs associated with the Bow scrubber. We have a power purchase agreement that locks us into a 20-year agreement costing $120 million for the Berlin biomass plant. Let’s not add an additional $720 million of reservation fees that may – or may not – be used for the generation of electricity.
We don’t mind paying for infrastructure needed to deliver power, but we don’t want to pay for a pipeline that may – or may not – reduce electric costs. If it is such a good deal, let the shareholders of the electric utility or pipeline companies pay for it.
Frank Edelblut is a
Wilton Republican state representative for Hillsborough District 38.