Frequently Asked Questions

 

Q:     Why has the Coalition to Lower Energy Costs been formed?

A:     New England is experiencing a serious crisis in skyrocketing energy costs caused entirely by inadequate gas pipeline capacity.  In Massachusetts, for example, citizens and businesses paid $1.9 billion more for natural gas and electricity in 2013 than they would have if the natural gas pipelines coming into New England from New York were not constrained, or bottlenecked.  This pipeline problem has existed for several years, but has now grown to unbearable levels and will continue until New England allows approximately two billion cubic feet per day of new natural gas pipeline capacity to be built.  Electricity and gas ratepayers are now seeing huge increases in their bills for the first time.  CLEC intends to help consumers understand and help fix the causes of these cost increases and to ask that public officials support the building of necessary pipeline capacity, including at least 800 million cubic feet per day to be delivered in a pipeline coming from near Albany, NY to Dracut, MA.  

 

Q:    Why is it necessary for citizens to speak up when the harm to consumers is so obvious in Massachusetts and New England?

A:    Some public officials may believe that those citizens who oppose additional gas pipeline construction represent a majority of the public, perhaps because the opposition has been vocal.  However, an August, 2014 Boston Globe public opinion poll of over 600 Massachusetts citizens showed that 52% of those surveyed support the expansion of a gas pipeline from near Albany, NY to Dracut, MA while only 28% oppose  the expansion.  Nearly every demographic group supports the expansion, including a majority of those in Western Massachusetts.  One of CLEC’s objectives is to make sure this public opinion is recognized by public officials and implemented.  

 

Q:    Who opposes building two billion cubic feet per day of additional pipeline capacity into New England from New York?

A:    TThe best known opponent is the Conservation Law Foundation (“CLF”), which has opposed natural gas pipeline and coal-to-gas power plant conversion projects throughout New England in recent years (as well as nuclear, large-scale hydro, oil, coal, and LNG).  Ironically, CLF led the revolution in energy policy in New England around 2000 that intended to cause and caused the building of over 20 highly efficient natural gas-fired power plants in New England.  CLF did this to cause older, polluting coal and oil plants to be shut down and replaced by the gas plants.  We are now in the final stages of the closure of most New England oil and coal plants which, as CLF predicted, is causing substantial improvement in New England air quality.  However, without the two billion cubic feet per day of additional natural gas pipeline capacity, New England’s existing natural gas-fired power plants do not have enough gas to operate throughout the Winter.  Ironically, the shortage of pipeline capacity has led to the resurgence of coal and oil, as the coal and oil power plants that should be displaced by gas have become essential again to New England.  CLF claims the solution is more oil, LNG, and even coal in Winter, as the natural gas generators New England constructed in the past 15 years go idle or are underutilized.  

 

Q:    Who is most severely impacted by the shortage of natural gas pipeline capacity?

A:    The shortage of natural gas pipeline capacity hurts every New England consumer of natural gas or electricity.  When pipeline space becomes limited, the price of transmittal of the gas commodity gets bid up through market forces.  Obviously, direct purchasers of natural gas, like large manufacturing facilities, pay an immediate premium.   Homes and businesses, however, get their natural gas through their local utility.  The price they pay is usually averaged out, but utilities are beginning to increase their prices to reflect the high costs that they have had to pay for gas in 2012, 2013, and especially 2014. 

The electricity side is more complicated but more important because everyone in New England pays for electricity.  In the New England wholesale electricity market, a natural-gas-fired generator is the “marginal generator” for the vast majority of the year, which means it is the last generator that is ordered to turn on to meet all electricity demand in New England.  The costs incurred by that generator, primarily fuel costs, represent the market-clearing price that all generators running at that time in New England receive for their electricity.   Thus, when the price of natural gas rises from $4 to $78/MMBtu, and the marginal generator’s costs increase by $74/MMBtu, every single generator in New England receives an equivalent price increase.  Roughly, such an increase works out to the cost of a single kilowatt hour rising from 4 cents to 78 cents.

As with natural gas utilities, most New England electricity consumers get electricity through their local utility.  They pay retail rates, which are partially insulated from wholesale price fluctuations through long-term contracts.  However, as Massachusetts electricity consumers are beginning to find out, their rates are going up dramatically, and will for several more years just to reflect the substantially higher costs of winter 2012-13 and 2013-14.

In short,   those most hurt by the shortage in natural gas pipeline capacity are low-to-middle income consumers and businesses, who simply cannot afford higher utility bills.  Additionally, those fiscally and environmentally responsible people who decided to convert from oil to natural gas (because it is cleaner and so much cheaper) are hit doubly hard, on the gas and electricity side.

 

Q:    How much will energy costs increase?

A:    A good example is the recent rate increase by National Grid, the utility that delivers electricity to millions of Massachusetts citizens.  National Grid announced that a 500 kilowatt hour per month consumer would see a total increase in their bill of 37%.  While these figures are accurate, they tell only part of the story.  The part of a National Grid consumer’s bill that is increasing is the energy or kilowatt-hour (KWh) charge, not the delivery part of the bill.  The increase in the energy charge is actually 96%, which when averaged with the delivery component of the bill produces a net increase of 37%.  But, the reality is the energy charge rose from almost $.09/KWh to more than $.16/KWh.  Not to pick on National Grid, (because it’s not National Grid’s fault that wholesale electricity prices have ballooned), but here’s what a typical fixed-rate customer can expect to see if she uses 627 KW of electricity a month, as is reported by the Energy Information Administration:

Previous fixed rate (5/1/14 – 10/31/14): $.08277/KWh * 627 = $51.90 per month on energy only.
New fixed rate (11/1/14 – 4/30/15): $.16273/KWh * 627 = $102.03 per month on energy only.

When you add all of the other charges, your total utility bill could look like this:

National Grid Delivery Charges	Example January 2015 Delivery Charges
Customer Charge = $4.00/month	$4.00
Distribution Charge = $.03697/KWh up to 600 KWh; $.04359/KWh after 600 KWh	$22.18 + $1.18
Transmission Charge = $.02304/KWh	$14.45
Transition Charge = $.00106/KWh	$.66
Energy Efficiency Charge = $.01004/KWh	$6.30
Renewables Charge = $.0050/KWh	$3.14
National Grid Energy Charges	Example January 2015 Energy Charges
Energy Charge = $.16273/KWh	$102.03
	TOTAL: $153.94

Other Massachusetts consumers can expect similar increases in their energy charges and substantial increases in natural gas charges from their local distribution company.

Q:    How do we know we need at least 2 billion cubic feet per day of additional natural gas pipeline capacity?  Will a smaller amount still cut costs?

A:    The two billion cubic foot per day amount is the minimum necessary to fully meet New England’s existing need for natural gas for heating homes and businesses and generating electricity throughout the Winter.  When New England has adequate gas pipeline capacity, we will not pay any “tax” for natural gas and our energy costs will be more like those of places such as New York and Pennsylvania.  The “tax” is called the “basis differential,” which is a fancy term for the premium consumers have to pay to get necessary natural gas through the existing inadequate pipelines.  The two billion cubic feet number results from extremely conservative studies of existing demand and does not rely on any projections of future increases in demand for natural gas or electricity.  (New England remains the most oil-reliant region of the Nation, and thousands of consumers in every state are seeking to switch from expensive and polluting heating oil to cleaner, cheaper, natural gas.)  Any increase in natural gas pipeline capacity helps to reduce the tax or basis differential, but the most sensible course of action is to build enough capacity to meet our existing needs and avoid the human and economic harm of skyrocketing gas and electricity prices.  

The studies estimating the need for two billion cubic feet to meet existing need make a number of assumptions about current natural gas and electricity supplies which, if too conservative, means the two billion cubic feet estimate is substantially too low.  For example, these studies assume a continuation of the receipt of 350 million cubic feet per day of natural gas from the Sable Island and Deep Panuke fields off Nova Scotia.  Nova Scotia Power has recently announced that these fields are rapidly depleting and will provide little or no gas as of 2016.  Further, New England has 8,000 megawatts of older coal and oil plants on the verge of retirement and shutdown out of a total available capacity of 33,000 MW.  Such retirements and shutdowns would further increase the need for gas-fired electricity generation as at least partial replacements.  Ironically, however, these plants may not be able to shut down without additional pipeline capacity to meet the needs of existing natural-gas-fired generators.  Essentially, the grid operator, ISO New England, may deem these economically “at-risk” plants essential to maintain electric reliability, and offer them expensive contracts to stay in business.  Our costs will rise more.   

 

Q:    Why can’t New England meet its needs with energy efficiency and renewable generation?

A:    The estimated need of 2 million cubic feet per day of new natural gas pipeline capacity assumes continuing increased investment in energy efficiency and renewable generation in New England.  New England spends almost a billion dollars a year on energy efficiency now and those amounts are increasing in several states.  If you look at ISO New England’s “queue,” which reflects generation projects under development, 44% of the over 5,000 MW proposed is wind power.  Further, New England, and especially Massachusetts, is increasingly turning to rooftop solar panels. Additionally, renewable generation from northern New England and Canada is planned and hopefully will succeed.  Despite these positive trends, most renewable energy requires natural gas power plants to be available when the wind stops or the sun does not shine.  ISO New England needs to know when and where it will get its electricity, at all times.  ISO New England strongly believes we need substantial new pipeline capacity.

CLEC supports an “all of the above” energy strategy, but the strategy must include the additional two billion cubic feet of gas pipeline capacity with at least 800 million cubic feet per day provided by the proposed line from Albany to Dracut for both cost and grid reliability purposes.  

 

Q:    Won’t other pipeline expansions such as Spectra’s proposed AIM and Atlantic Bridge projects provide all the gas we need?

A:    All increases in gas pipeline capacity will help, including Tennessee Gas Pipeline Company, LLC’s Northeast Energy Direct Project, Spectra’s Atlantic Bridge and AIM projects and others.  But, the strategy advocated by some — of taking “small bites”—will not meet the need for two billion cubic feet of capacity and solve the reliability concerns resolved by the Tennessee pipeline from near Albany, NY to Dracut, MA. 
The risk of taking a “small bite” is that it won’t even maintain the already unacceptable status quo.  For example, if New England increases gas pipeline capacity by several hundred thousand cubic feet per day to serve local gas distribution companies (“LDCs”) rather than gas-fired power plants, there will be some small benefit to electricity generation for a few years until growth in heating demand served by the LDCs uses the full LDC purchases.  Furthermore, additional new capacity may be needed just to fill the void left by diminishing Canadian gas supplies.  If growing demand for heating are combined with lost Canadian supply, New England may be worse off, even with several hundred thousand cubic feet per day added to the system in the next several years.  Should we be telling consumers to stop converting from oil to natural gas?!  Two LDCs in Western Massachusetts have been forced to declare a moratorium on connecting new retail gas customers because of the gas pipeline bottlenecks.
Those advocating for the “small bites” additions to gas pipeline capacity may do so in the hope that consumers will be “satisfied” if their rate increases are cut by one-quarter or one-third rather than completely eliminated.  CLEC believes this is untrue and that New England consumers want to pay approximately as much for energy as their fellow citizens across the country, almost all of whom pay no “tax” or basis differential.  That’s why the two billion cubic feet per day minimum capacity increase is essential. 

 

Q:    Can’t we rely on market forces to cause natural gas pipeline capacity to be built?

A:    This problem has existed and increased in intensity for nearly ten years, and there is no evidence that market forces are causing natural gas pipeline capacity to be built.  Natural gas pipelines require contracts with credit-worthy entities, such local natural gas utility companies (known as local gas distribution companies, or LDCs), which are guaranteed the right to recover the cost of pipeline capacity in their rates by regulatory authorities such as the Department of Public Utilities in Massachusetts.  Natural gas power plants have long been deregulated and thus have no regulatory authority to guaranty their recovery of gas pipeline capacity contract costs.  ISO New England has repeatedly confirmed that there is no market-based solution to this problem.  New England’s current six governors have also confirmed this by their agreement through the New England States Committee on Electricity (NESCOE): that the best available solution would be a regional purchase of up to two billion cubic feet of natural gas pipeline capacity financed through a rate or tariff charged by ISO New England.  However, the NESCOE agreement stalled when necessary Massachusetts legislation was defeated by a coalition of existing power generators and certain opponents of natural gas and hydro electric energy, including the Conservation Law Foundation.  

Some generators may receive a windfall when electricity prices are high.  Their irrational argument that electric ratepayers shouldn’t “subsidize” natural gas pipelines, ignores that some generators are receiving windfalls (or subsidies) from electricity consumers.  There is no subsidy in paying for new gas pipeline capacity; there is a huge net benefit to electricity consumers.  We’ve explained above how natural gas directly affects wholesale electricity prices, and how pipeline constraints have added billions in extra costs to electric consumers.   The question is basically this: would you pay a small amount to immediately save a huge amount?  CLEC would!

 

Q:    Some groups like the Conservation Law Foundation say that building more natural gas pipelines will make New England rely on natural gas for one hundred years or more.  Is this true?

A:    This assertion makes no sense.  Energy technologies are constantly evolving as we seek greater efficiency, lower cost and fewer climate and air pollution impacts.  Natural gas has one-half the CO2 of oil and 10% of the particulate emissions, so it is vastly superior to oil and coal, especially for a region like New England that has been historically the most oil-reliant region of the Nation.  Thus, New England is far better off switching rapidly from oil to natural gas for heating homes.  When technologies mature, their benefits may cause people to leave natural gas.  In the meantime, New England can avoid millions of tons in emissions of CO2 and air pollution, and cut homeowners heating costs by at least one-third.  Unfortunately, some gas utilities in Massachusetts have been forced to declare a moratorium on signing up new customers until they can be sure new pipeline capacity will be built to make more gas available. 

New England is already exceeding the goals of the Regional Greenhouse Gas Initiative, through which the New England states committed to dramatically reduce emissions which cause climate change.  A lot of this has been caused by switches from oil and coal to natural gas.  We have a way to go, however, as nearly one-third of Massachusetts homeowners still heat with oil.  Further, we’ve made these great strides by building the over 20 natural gas-fired power plants originally advocated by the Conservation Law Foundation.  We have not built the gas pipeline capacity necessary to heat homes and fuel those power plants throughout the Winter, however, and it makes a great deal of sense to build that capacity to meet our existing needs.  A typical natural gas-fired power plant may last thirty-years, nowhere near one hundred.  The cost of the gas pipeline capacity we need will be saved by consumers in a maximum of two or three years, as 2013 and 2014 have shown.