FERC Finds No Evidence of Gas Withholding in New England

No evidence exists that New England local gas distribution companies engaged in practices to withhold natural gas pipeline capacity on the Algonquin system to drive up gas or power prices in the region, Federal Energy Regulatory Commission (FERC) staff revealed.

FERC on February 27 closed an inquiry after conducting an “extensive review” of the allegations—which it said it took “very seriously”—made by authors from the Environmental Defense Fund (EDF), the University of California at Santa Barbara, the University of Wyoming, and Vanderbilt University in an October 2017 working paper.

The white paper alleges that “severe, simultaneous price spikes” experienced in New England’s wholesale natural gas and electricity markets have been “exacerbated by some gas distribution firms scheduling deliveries without actually flowing gas” rather than by limited pipeline capacity serving the region, as has been commonly thought. It points, specifically, to “clear patterns of withholding” at a subset of delivery nodes operated by Avangrid and Eversource, two firms that have both gas distribution and power generating assets in the market.

The paper’s authors, Levi Marks, Charles F. Mason, Kristina Mohlin, and Matthew Zaragoza-Watkins, estimated that capacity withholding increased average gas prices by 38%, and power prices by 20%, over a three-year period of study, which began in August 2013 and ended in July 2016, resulting in a $3.6 billion hike paid by customers in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. The paper acknowledges that while the “studied behavior” may have been within the firms’ contractual rights, it underscored the need to improve regulation and coordination of gas and power markets in New England.

A Flawed Study

But on February 27, FERC staff, which said it reviewed public and non-public data to investigate the allegations, said it determined the study was “flawed and led to incorrect conclusions about the alleged withholding.” The agency provided few other details. It added: “FERC’s Office of Enforcement’s Division of Analytics and Surveillance routinely monitors wholesale natural gas and power markets to look for potential market manipulation and any other inappropriate behavior.”

Eversource Energy, which delivers power, gas, and supplies water to about four million customers in Connecticut, Massachusetts, and New Hampshire, told POWER that FERC’s findings confirm the company’s long-standing assertion that “the defamatory claims made by the EDF were uninformed and inaccurate.”

The company in December put EDF on notice that it would pursue legal action if the environmental group didn’t halt its “false and defamatory statements” regarding Eversource’s gas-purchasing practices. As it publicized a cease-and-desist letter addressed to EDF—which it underscored was an “extraordinary step” for the company—Eversource said the white paper was “completely unsupported by any legitimate data.”

On February 27, Eversource also made public an analysis performed by consultant firm Levitan & Associates that concludes “EDF’s allegations are uninformed, baseless, and quixotic.”

According to Richard Levitan, principal of Levitan & Associates, during the several months in which it analyzed the allegations made by EDF, the consulting firm identified “critical areas” where EDF failed to account for “the basic principles underlying Eversource’s obligation to its customers. Namely, that the company is required to have sufficient gas resources on hand to address weather fluctuations, back-stop delivery failures by third-party suppliers, and meet other demand uncertainties so that customers do not suffer the loss of gas supply during the coldest periods,” he said in a statement released by Eversource.

However, while FERC’s finding extricates the regulatory agency from the matter, the U.S. District Court for the District of Massachusetts could take it up. In November 2017, New England residents filed a class-action lawsuit in the federal court, stating that Eversource and Avangrid caused them to incur $3.6 billion in overcharges.

“Reduced natural gas supply, caused solely by the Defendants’ last-minute downward order adjustments, resulted in spot market natural gas prices that were 38% higher than they would otherwise have been on average,” the lawsuit states. “During the cold winter months, Defendants’ conduct resulted in spot market natural gas prices that were nearly 70% higher than they otherwise would have been.”

Constraints in New England

FERC has acknowledged the price hikes, but it notes in staff reports that the region is highly dependent on natural gas as its predominant fuel for generation owing to retirements of coal, oil, and nuclear plants. The region’s retirement of the 620-MW Vermont Yankee nuclear plant in December 2014, the 1,500-MW Brayton Point coal plant in Massachusetts in May 2017, and the 738-MW Salem Harbor coal and oil plant in June 2014, along with expansions of the natural gas pipeline network have boosted natural gas’s share in the region from 18% of total system capacity in 2000 to 45% in 2018. Wholesale power market operator ISO-New England anticipates gas will make up an even higher share by 2025 of 56%.

According to FERC, during cold weather, natural gas generation competes with other natural gas uses for adequate supplies from limited pipelines, which are “often run at or near capacity.” ISO New England has sought to allay supply crunches with its Winter Reliability Program. The program, which the grid operator has run for five years but will next year replace with new pay-for-performance capacity rules, provides an incentives for gas generation to maintain oil reserves as a standby fuel during winter.

Still, infrastructure constraints must be tackled to overcome supply crunches, Eversource spokesperson Caroline Pretyman told POWER.  “Until we increase the capacity of existing pipelines that deliver clean, domestic natural gas into New England, we will continue to face a situation that ISO-New England considers to be a significant threat to regional electric service reliability,” she said. Eversource believes in a diversified portfolio to meet the region’s current and future energy needs, and the company is working closely with partners to develop projects that will add significant supplies of offshore wind, hydro, and solar power to the regional energy mix, she added.

“For the foreseeable future, however, increasing the availability of natural gas to power traditional electricity generating plants is crucial to maintaining electric service reliability, stabilizing prices, and reducing greenhouse gas emissions,” she said.

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)