A cornerstone of Governor Charlie Baker’s energy policy suffered a setback Wednesday when the state Supreme Judicial Court rejected his bid to make electricity customers help pay for the steep costs of building new natural gas pipelines.
While environmentalists hailed the court decision, the Baker administration said it could undermine the effort to bring more cheap natural gas to a region long burdened by high energy costs. On particularly cold winter days, much of the area’s natural gas from domestic sources gets used for heating instead of generating power, often leading to electricity price spikes.
“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,” Peter Lorenz, an administration spokesman, said in a statement.
The state’s two major electric utilities, Eversource Energy and National Grid, had teamed up with pipeline operator Spectra Energy on a $3.2 billion pipeline project known as Access Northeast. State regulators had set up a system for the utilities to recoup some of the pipeline costs from electricity customers, but the proposal was challenged in court before the size of those charges was determined.
“I think it would be very difficult for Spectra, Eversource, and National Grid to find funding for their project and convince [federal authorities] there’s a need for it when roughly half of their intended customer base walks out the door,” said David Ismay, a senior attorney at the Conservation Law Foundation, which had sued to stop the Baker administration’s proposal.
Attorney General Maura Healey’s office normally represents the administration in legal challenges. But in this case, Healey opposed Baker’s plan, and her office did not represent the governor in court. On Wednesday, she issued a statement saying her position was vindicated.
The Baker administration’s plan would have effectively shifted the burden of costly pipeline projects to electricity customers, she said, contrary to state policy of the past two decades that pipeline companies and natural gas utilities should bear those risks.
“The Court’s decision makes clear that if pipeline developers want to build new projects in this state, they will need to find a source of financing other than electric ratepayers’ wallets,” Healey said.
The SJC decision raises new questions about the next steps policy makers should take to rein in energy costs. Over the past two decades, New England has become increasingly reliant on natural gas to both generate electricity and to heat homes.
To some extent, that paid off when large reservoirs of domestic natural gas supplies were tapped during the fracking boom. The network that imports that gas into New England, however, is constrained, prompting costly new pipeline proposals, such as Access Northeast.
One of the pipeline proposals that could have benefited from the Baker administration’s charge was canceled earlier this year by natural gas company Kinder Morgan in the face of stiff opposition from residents of affected communities. Unlike the Kinder Morgan pipeline, almost all of Access Northeast would be built in existing utility rights-of-way.
With the ruling, a spokesman for Spectra Energy said his company is weighing its options.
Eversource spokeswoman Caroline Pretyman said the court ruling leaves the region in a precarious position, without enough pipeline capacity to adequately supply gas-fired power plants on particularly cold winter days. She said Access Northeast could eventually net New Englanders about $1 billion a year in savings.
“The project would also displace oil and coal-fired generation with cleaner-burning natural gas — reducing regional emissions and improving the environment,” Pretyman said in a statement. “We will re-evaluate our path forward and remain committed to working with the New England states to provide the infrastructure so urgently needed to ensure reliable and lower-cost electricity for customers.”
National Grid issued a similar response to the court decision.
With its decision Wednesday, the high court sided with CLF and French energy conglomerate Engie, which imports liquefied natural gas into the Boston area. Both challenged the state Department of Public Utilities’ decision last year to allow the costs of long-term contracts for natural gas coming through proposed pipelines to be passed on to electric customers.
The Supreme Judicial Court agreed with their argument — that state law doesn’t allow utilities to make electricity customers bear the costs of long-term contracts for natural gas. The court ruled that doing so would undermine the intent of a 1997 law that deregulated the state’s electricity market.
The pipeline charge would “reexpose ratepayers to the types of financial risks from which the Legislature sought to protect them” with the 1997 law, the court wrote in its decision.
Ismay noted the SJC made clear that natural gas and electricity are separate markets, even though Eversource and National Grid operate subsidiaries in both of them.
Senate President Stanley Rosenberg also weighed in, noting the state Senate recently unanimously voted for a measure that would ban these kinds of charges. The provision was not adopted by the House of Representatives.
“Ratepayers deserve to have confidence that the matter is settled, and now they do,” Rosenberg said.
One of the most hotly debated points was whether the charges could have provided electric ratepayers with significant savings over time. James Bride, a Cambridge-based energy consultant, said he considered the Baker administration’s proposal to be a costly solution.
“Ultimately, New England does need more natural gas, but I don’t see why new pipes can’t get built the way they always have, with commitments from natural gas utilities,” said Bride, president of Energy Tariff Experts.
But Ian Bowles, a former energy secretary with Governor Deval Patrick, said Baker had the right goal of getting more natural gas to the state, especially because parts of the state have moratoriums on new natural gas hookups.
The court rejection of the pipeline charge will lead to more price volatility “and all the uncertainties and negatives that come along with that,” said Bowles, now a managing director in a Boston firm, WindSail Capital Group, that helps arrange financing for energy startups. “And you have homeowners that want gas who aren’t going to get it.”