An environmental group is contending that utilities Eversource and Avangrid drove up electric and natural gas rates over several winters by buying up shipment capacity on a major pipeline that they ultimately did not use.
The Environmental Defense Fund said both utilities routinely reserved big deliveries of natural gas on the Algonquin pipeline system for frigid days, but then sharply reduced those orders too late in the day for others to use that capacity.
Those orders had the effect of driving up wholesale prices for natural gas during peak winter heating periods and in turn increasing the costs of electricity generated by gas-fired power plants.
The two utilities “engaged in behavior that would tend to have the largest impact on prices,” said N. Jonathan Peress, a senior director at the New York-based environmental group. “That implies they knew their efforts would have some sort of pricing impact that would provide them with some commercial benefit.”
Representatives for both utilities denied they did anything improper. Instead they said the utilities’ actions were in the best interests of their natural gas customers, to ensure they had sufficient fuel for heating and other purposes on especially cold days.
“Our sole motivation is to plan conservatively to meet our customers’ needs,” said James Daly, vice president of energy supply for Eversource, the largest utility in New England. “It’s a very serious issue if you run short.”
When Eversource knows it no longer needs the full gas capacity it ordered, Daly said, the company tries to release it back to the market as soon as possible, with the hopes of receiving some sort of payment for that pre-ordered capacity.
Avangrid is a Connecticut-based company that owns eight electric and natural gas utilities in the Northeast. Spokesman Michael West said: “For us, it’s about making sure our customers have complete and reliable service under all conditions.”
The Environmental Defense Fund worked with academic researchers to study the utilities’ use of the Algonquin pipeline over a three-year period ending in mid-2016, based on reports the pipeline’s owner filed with federal regulators. The study’s authors said they found that on 37 cold days, the changes the utilities made to their orders from the pipeline effectively tied up about 7 percent of the Algonquin system, compared to an average of 3.5 percent across the three-year span.
Changes of this size, they said, had a significant impact on wholesale gas prices, which rippled through to the wholesale electricity market because roughly half of New England’s power is generated by natural gas-fired plants.
The report’s authors say they found electricity prices were about 20 percent higher than average due to the withheld gas capacity, adding up to some $3.6 billion more in inflated electricity costs over the three years, with roughly half of that taking place during the particularly cold winter of 2013-2014.
“It’s obvious they engaged in this pattern of conduct on a consistent basis which strongly suggests . . . that they determined they had a commercial benefit to removing that capacity from the market,” Peress said.
The researchers said they could not say for sure what motivated the utilities’ actions. But Vanderbilt University economics professor Matthew Zaragoza-Watkins, one of the report’s authors, said there could be a possible benefit to the power-generating plants each company owns.
Power plants are a small part of both companies’ overall New England business. Avangrid has some wind turbines, for example, as well as an oil-fired plant in Connecticut that gets turned on at peak times.
‘It’s obvious they engaged in this pattern of conduct on a consistent basis.’
Eversource has five fossil fuel-fired plants and nine hydroelectric plants, all in New Hampshire, that the company is in the process of selling. Daly said New Hampshire regulations prevent Eversource from earning a profit on electricity sales when power prices are high.
The report lands at a time when New England’s energy industry remains embroiled in a debate about how much extra pipeline capacity the region needs, particularly on cold winter days.
Environmentalists have fought big pipeline proposals from Algonquin owner Spectra Energy, now part of Enbridge, and Kinder Morgan.
Eversource had been working with Spectra on a pipeline expansion project known as Access Northeast, although that project was put on hold in June.Jon Chesto can be reached at email@example.com. Follow him on Twitter @jonchesto.