PUC Study Determines LNG Subsidies of Little Benefit
Thursday, January 19, 2017 11:59 AM
Several companies competing for subsidies to build a liquefied natural gas (LNG) storage facility have suffered a setback with the recent release of a new study concluding that none of the bids would be beneficial to electric and gas customers.
The analysis by California-based consultant Navigant, which was commissioned by the Maine Public Utilities Commission (MPUC), came in response to a new law that authorizes the MPUC to charge ratepayers up to $25 million to subsidize LNG storage facilities. The law is part of an effort to stabilize electricity and gas prices during peak winter demand times when gas is being used for both electricity and heating fuel.
Proponents of the measure argue that LNG storage facilities can be filled during the summer months when gas prices are lower and be situated near high-energy-demand centers in order to potentially reduce costs and increase reliability by making gas directly available. Navigant evaluated 11 proposals by six different companies, which ranged from piping the fuel from an existing LNG facility in New Brunswick or trucking in the fuel to building new storage tanks near local gas-fired power generators.
The cost-benefit analysis, which projected the impact of the bids on energy customers from 2022 to 2052, evaluated the bids based on two scenarios. One scenario included the construction of Spectra Energy’s proposed $3 billion Access Northeast natural gas pipeline and the other assumed that it is never built. Spectra’s controversial pipeline, which also aims to ease regional winter peak congestion by serving New England natural gas-fired plants, has also been angling for subsidies from Maine customers. But the Massachusetts Supreme Judicial Court struck a blow to the plan last summer when it blocked state regulators from charging consumers for the private pipeline. Spectra has since announced that it is delaying the project.
Navigant ultimately concluded that none of the bids “appear to present positive and economically desirable net benefit analysis results under a ‘with Access Northeast’ scenario.” And while it determined that seven of the bids could be beneficial to ratepayers if the Access Northeast pipeline isn’t built, “such a finding would be assuming optimistic results” and could be impacted by unforeseen market changes.
The report noted that although New England relies on natural gas for nearly half of its installed electrical generation, Maine makes up only 1 percent of the total demand for natural gas in the Northeast. It added that winter peak prices are driven much more by regional demands in the Northeast and Mid-Atlantic states, “so even the largest LNG storage facility represents only a small fraction of the regional supply that is used to meet Northeast demand on winter days.” The report also noted that annual natural gas prices have dropped dramatically since spiking in 2014.
“This is an important observation because it underscores a further conclusion that modest changes in gas supply in Maine are in turn a relatively small addition to supply to the entire ISO and will have little-to-no impact on Maine [Locational Marginal Pricing],” the authors wrote.
Tim Schneider, Maine’s Public Advocate, said his office is still crafting testimony on the LNG case, but he noted that one of the chief arguments against massive investment in gas pipelines was that high peak-demand prices only occur during a few hours of the day so that a large pipeline wouldn’t be needed year-round.
“You really needed some kind of incremental storage that would just be there for those few hours,” said Schneider. “I think we were surprised that they didn’t find any price benefit associated with having gas storage because I think the argument is that on those certain days, the market gets really tippy and just small additional increments of pipeline capacity could have a dramatic price impact in terms of electricity prices. But Navigant didn’t find that and we’re not really sure why.”
The legislation creating the LNG subsidy mechanism was brought forward in 2015 by Boston-based company Energy Management Inc. (EMI) and Montville energy consultant Evan Coleman, in an effort to get public support to build an LNG storage facility in Rumford. Since then, EMI and Japanese energy giant JGC, under the joint venture Northern LNG, have announced plans to build the facility in either Rumford or Brewer, contingent on whether the PUC awards them a contract.
However, Navigant determined that the proposal put forward by Northern LNG would not be beneficial to energy consumers under any scenario, resulting in negative return on investment of either $6 or $16 million. A spokesman for Northern LNG did not respond to a request for comment. In 2015, Coleman and EMI also proposed to build a natural gas-fired power plant in Rockland, but have since put the plan indefinitely on hold. The PUC is expected to make a decision on the LNG storage proposals by June.