NESCOE Proposes ISO-NE Facilitate Addition of New Electric Transmission Infrastructure & Natural Gas Capacity

Tuesday, January 28, 2014

by Randall Rich & Jared des Rosiers

The New England States Committee on Electricity (NESCOE) has proposed that ISO-New England (ISO-NE) facilitate the addition of new electric transmission infrastructure to access renewable resources and increased natural gas firm pipeline capacity to serve generation load in New England. The cost of both the electric and gas transmission facilities would be recovered from all New England electricity ratepayers with increased transmission bills offset by lower energy costs.  

NESCOE’s January 23, 2014 letter to the ISO-NE, signed by public utility commission commissioners from each of the New England states, seeks ISO-NE action based on the December, 2013 New England Governors’ Commitment to Regional Cooperation on Energy Infrastructure Issues. 

New Electric Transmission

The electric transmission component of NESCOE’s plan would issue one or more request for proposals to develop transmission facilities to deliver between 1200 and 3600 MW of energy into New England from no and/or low carbon emission sources. The recommended lines would be designed to access renewable resources, including hydroelectric power from Newfoundland, Labrador, and Quebec as well as domestic and Canadian wind power. NESCOE’s proposal does not favor any one project or resource, but would result in a “portfolio of projects that would produce region-wide benefits.” Ultimately, according to NESCOE, pricing and consumer protection will determine which projects succeed. Costs would be recovered through the ISO-NE transmission tariff or by merchant projects. The states plan to work with the ISO-NE and transmission owners on cost allocation issues arising under ISO-NE’s tariff.

New Natural Gas Capacity

The natural gas pipeline component of the plan marks the first time an independent system operator would contract for firm pipeline capacity to benefit the power grid and recover the net cost of capacity through ISO-NE’s Regional Network Services rate, shared among New England ratepayers. NESCOE proposes that ISO-NE issue and obtain FERC approval of any necessary tariff changes, as expeditiously as possible, to recover the cost of increased firm capacity into New England to benefit New England electricity consumers.  

NESCOE proposes that the new capacity, including firm commitments by other natural gas market participants such as local distribution companies, total 1 Bcf per day above 2013 levels or 600 MMcf per day more than the capacity proposed by Spectra Energy’s AIM Expansion Project and Kinder Morgan’s Connecticut (CT) Expansion Project. The additional capacity, which should be capable of delivering natural gas to hubs at Ramapo, NY (i.e., AIM), Wright, NY (i.e., CT) or other hubs where multiple interstate pipelines come together for movement of gas into New England, is intended to access abundant gas supplies from the Marcellus and other shale formations and to reduce delivered natural gas prices to levels reflecting little or no “basis differential” from the Henry Hub in Louisiana, which is the recognized basis for U.S. natural gas prices. NESCOE and the New England governors believe that increasing firm natural gas capacity into New England by 20 percent will help alleviate pricing disparities. The capacity should be available no later than the winter of 2017-18. As with the electric transmission component of its proposal, NESCOE does not favor any one project. For example, in addition to the Spectra and Kinder Morgan offerings, the Trans Canada’s Portland Natural Gas Transmission System has proposed an expansion from Quebec into Maine. 

As natural gas-fired power plants have replaced coal- and oil-fired units, increasing natural gas use in New England to 4.5 Bcf per day, power plant owners and developers in New England have not participated in pipeline expansion projects or acquired firm pipeline transportation for their natural gas supplies because of the inability to fully recover the cost in the competitive wholesale electricity market where the ISO-NE dispatches generators on a least-cost basis.  As a result, although other regions of the country have seen lower natural gas prices due to increased shale-gas production in Appalachia, on the coldest days, New England power generators are exposed to daily spot natural gas prices and left to compete with other regions, such as New York City, for peak gas supplies at prices that significantly exceed the cost of gas purchased on a longer term basis. Recovering the cost of pipeline expansion capacity through the ISO-NE tariff appears designed to address generators’ cost recovery concerns and moderate peak prices in New England. 

About Pierce Atwood

Pierce Atwood LLP, one of New England's leading law firms, and the largest in northern New England, provides a broad range of energy-related legal services including practice before state public utility commissions and FERC. Pierce Atwood was the lead counsel in the Maine Power Reliability Program -- the development, regulatory approval, and construction of nearly 440 miles of transmission line, six new substations, and upgrades to more than 40 existing substations.