Report: Natural Gas Companies Artificially Constrained Supply, Costing New Englanders Billions

Maine Public | By Fred Bever

Published October 12, 2017 at 6:40 AM EDT

New England electricity consumers paid billions of dollars more than necessary over a three-year period. That’s the conclusion of an academic analysis sponsored by a national environmental group that suggests that natural gas suppliers withheld fuel capacity needed for electric generation at key moments on the coldest days — to the benefit of the companies' affiliates.

But some industry players and observers are skeptical at best, while one utility named in the report is calling it an outright fabrication.

The report’s lead author, Vanderbilt University energy economist Matthew Zaragoza-Watkins, says that on hundreds of occasions over the three-year period, gas suppliers Avangrid and Eversource reserved a certain amount of natural gas pipeline capacity and then, at the very end of the day, decided not to use it. That artificially constricted supplies on cold days when gas was most in demand, he says.

“They had reserved it like a table at a restaurant and then that table sat empty all day long, and then at the last minute they said, actually, we never needed that table anyway,” he says.

When gas is in high demand and supply is constrained, its spot-market price goes up. And by Zaragoza’s analysis, that makes nongas-fired electricity — from coal, oil and wind or solar resources more competitive. And that, he says, benefited nongas generators, including those owned by affiliates of the two gas distributors, Eversource and Avangrid.

“When it’s more expensive for gas-fired powered power plants to run, everybody earns higher revenues. And what that resulted in over the three-year span of our data was about a 20 percent higher price on average for electricity, or about a $3.6 billion dollar transfer from electricity customers to generators.”

“This report was published earlier this year and was a complete fabrication,” says Tricia Modifica, a spokeswoman for Connecticut-based Eversource, reading from a prepared statement.

Modifica says the analysts don’t understand gas and electricity markets.

“The pipeline capacity we reserve is done so to meet the needs of our customers and no other purpose. We do not engage in any behavior to artificially constrain capacity. Our focus and actions are driven by responsibility to ensure our customers have enough gas because we can’t run the risk that they are left out in the cold,” she says.

A spokesman for Avangrid also says the company is following all rules and regulations and did not receive any windfall through its gas procurement practices.

And the report’s author and its sponsor, the Environmental Defense Fund, say they have no evidence that state or federal rules and regulations were broken. Instead, they say, their analysis highlights the need for regional and federal regulators to create more effective and transparent market structures.

EDF spokesman Jon Coifman adds, however, that the report does raise questions about whether New England’s gas supply issues are as dire as they’ve been painted by would-be pipeline developers, including Eversource.

“Nobody is arguing that New England doesn’t have tight capacity right now. The question is how tight is that capacity, and what’s the best way to meet it at the lowest cost?” he says.

Several industry observers say they are perplexed by the report and question its assumptions. Most say they need more time to digest the full report before weighing in.

In Maine, the advocate for consumer interests, Barry Hobbins, says that at the least, it raises issues that regional and federal regulators should review.

“What we don’t need is even the appearance of manipulation of quantities and prices, especially during the winter season,” he says.

The report’s authors, meanwhile, say they soon will submit it to a scientific journal for peer-review.

This report comes from the New England News Collaborative, Eight public media companies coming together to tell the story of a changing region, with support from the Corporation for Public Broadcasting.