SJC: Utilities can’t bill customers for pipeline construction

  • Workers install a shale gas pipe line in Zelienople, Pa.

For the Gazette
Wednesday, August 17, 2016

Thanks to a high court ruling Wednesday, electricity customers can no longer be asked to help cover the costs of building private gas pipelines.

The Massachusetts Supreme Judicial Court’s unanimous decision, in a case brought by the Conservation Law Foundation, would instead require electric utilities to shoulder the financial risks of those projects.

The Conservation Law Foundation brought the case against the state Department of Public Utilities to stop what it dubbed a “pipeline tax” on consumers. ENGIE, a company that operates a liquefied natural gas terminal in Everett, Massachusetts, also sued to block the tariffs.

The ruling was a setback, however, for Republican Gov. Charlie Baker's administration, which had viewed the financing mechanism as a means of increasing natural gas capacity and stabilizing electricity prices.

In April, the attorney general’s office filed a brief in support of the plaintiffs, arguing that the DPU did not have authority under existing state law to allow electric distribution companies to enter into ratepayer-backed natural gas transportation contracts.

The DPU has been reviewing proposed contracts by Eversource and National Grid with Algonquin Gas Transmission for its Access Northeast pipeline expansion project through central and eastern Massachusetts. Both contracts were based on the department’s October 2015 ruling.

The filings were suspended within minutes of the court decision, said David Ismay, the lead Conservation Law Foundation attorney on the case, who added that the ruling “affirmed Massachusetts’ commitment to an open energy future by rejecting the Baker administration’s attempt to subsidize the dying fossil fuel industry.”

“Access Northeast lost their biggest customer,” Ismay said.

Not only did the court decide that the DPU had erred in its interpretation of the statute, it also said it went against the purpose of the 1997 utility restructuring act that was meant to ensure that investors, rather than ratepayers, shouldered the financial burden of enormous capital projects, Ismay said.

“It can’t be squared with the restructuring act, which deliberately pushed all the risks associated with generation to the private market,” Ismay told The Recorder. “Everything associated with generation is on the private market, and what we’re going to do is get those markets to deliver enough electricity at the right time to us, and we’ll buy it on the wholesale market.”

The Conservation Law Foundation, among others, argued that there is no need for additional gas pipeline capacity in the region, and the market had borne that out.

“A lot of us had a suspicion,” Ismay said, that one or more pipeline projects were proposed simply “to get it through the region to sympathetic LNG export facilities in Canada.”

Passing it on

In his opinion, Justice Robert Cordy wrote that the DPU’s order was “invalid in light of the statutory language and purpose” on the state’s utility industry restructuring act, because it “would undermine the main objectives of the act and re-expose ratepayers to the types of financial risks from which the Legislature sought to protect them.”

Attorney General Maura Healey said in a statement that the decision affirms that electric distribution companies can’t use ratepayer money to foot the bill for natural gas pipelines.

“Requiring electric ratepayers to pay for new natural gas pipeline capacity effectively shifts the risks associated with building these projects to ratepayers, contrary to the state’s policies of the past two decades,” Healey wrote.

Whether pipeline companies could pass their development costs to electricity users through their power generating company customers was an issue in the recent controversial Kinder Morgan Northeast Energy Direct pipeline through Franklin County.

In its unanimous decision Wednesday, the court said state regulators made a mistake in approving the tariffs and authorizing utilities to sign long-term contracts for natural gas generating capacity.

The justices said passing the costs on to ratepayers would violate the intent of state laws regulating electric companies.

“The SJC got it right,” Senate President Stan Rosenberg said in a statement. “When the Massachusetts Senate debated the energy bill this session, the Senate voted 39-0 to prohibit utility companies from passing the cost of building new infrastructure on to ratepayers. Ratepayers deserve to have confidence that the matter is settled, and now they do.”

Rep. Stephen Kulik, D-Worthington, said of the court action, “I think it’s a really good decision, the right thing for ratepayers and for energy policy.” Kulik had previously advocated against the electricity customers’ tariff for gas infrastructure being included in energy legislation.

As an outgrowth of a New England-wide plan more than two years ago for a regional tariff to pay for pipelines and transmission lines, Kulik said, “I blame the utility commissioners for starting this dialogue. It’s over today.”

The decision was cheered by other environmental groups.

“This is certainly the decision we hoped for and what we expected, given what the law actually says,” said Kathryn Eiseman, president of Pipeline Awareness Network – NE. “Thanks go not only to the parties that brought the appeal, but to our legislators — Representative Kulik in particular — for making sure that the law wasn’t amended to nullify this decision.”

Peter Lorenz, a spokesman for the state Executive Office of Energy and Environmental Affairs, said the administration respects the court’s decision but believes the state needs more natural gas capacity.

“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,” Lorenz said.

The Conservation Law Foundation had also appealed the DPU’s approval of long-term supply contacts for the NED project, which became moot when the project through eight Franklin County towns was discontinued because of an insufficient market for the gas.