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Massachusetts reviews natgas manipulation claim

19 Oct 2017, 7.46 pm GMT

Massachusetts reviews natgas manipulation claim

Houston, 19 October (Argus) — The Massachusetts state attorney general is reviewing a white paper that claims two natural gas utilities in the state may have withheld pipeline capacity in order to drive up prices during times of high demand, an allegation which the utilities have denied.

The white paper, prepared by a group of university researchers working with the Environmental Defense Fund, said that capacity withholding on Algonquin Gas Transmission in Massachusetts increased average gas and electricity prices by 38pc and 20pc, respectively, over a three-year period, costing customers $3.6bn more than they would have had to pay otherwise.

"The allegations in the report are concerning and require careful assessment and analysis," a spokeswoman for Massachusetts attorney general Maura Healey said this week. "Based on our review, we will take appropriate action."

But gas utilities frequently use what is referred to as "no-notice service" to reserve pipeline capacity for later in the day in case it is needed, and will return the capacity if it is not, BTU Analytics chief executive Andrew Bradford told Argus.

"Turning back no-notice happens all the time — not only in the wintertime, all year long," Bradford said. "I feel like there is a gap between the reality of how gas gets scheduled and physically moved all over the US and New England vs. how this exercise looked at it."

The time period reviewed in the white paper includes the winter of 2013-14, when extremely cold weather struck the northern US and spot natural gas prices at Algonquin Citygates soared to as high as $75.24/mmBtu, the highest since Argus began publishing indexes in October 2009 and a level that has not been topped since.

"We demonstrate that such price spikes have been exacerbated by some gas distribution firms scheduling deliveries without actually flowing gas," the paper said. "This behavior blocks other firms from utilizing pipeline capacity, which artificially limits gas supply to the region and drives up gas and electricity prices."

Even though the two utilities discussed in the white paper, Avangrid and Eversource, received no clear benefit from these actions, other parts of their companies may have benefited, the researchers argue. The utilities own large portfolios of electric generation units located in the region, "giving them an incentive" to increase gas prices in order to raise rivals' costs, the paper said.

Avangrid and Eversource denied the allegations, and industry group the Northeast Gas Association called the analysis "misleading and inaccurate."

Avangrid said it rigorously follows all applicable laws and regulations in fulfillment of its obligation to provide reliable service to customers.

Eversource said the report is "a complete fabrication as evidenced by the lack of credibility it has received in the industry."

New England is a uniquely constrained market and grid operators, utilities and power generators are often faced with tough decisions on how to handle soaring levels of demand. Industrial load will be cut, generators will shift from gas to fuel oil or LNG, and other mitigating actions occur frequently during the winter.

The region also has limited natural gas storage compared with other parts of the US, and reluctance on the part of electric generators to contract for firm capacity on pipelines combined with local public opposition has led to limited pipeline infrastructure. All of these factors can lead to the existing pipelines becoming highly constrained in times of cold weather.

Local gas utilities have signed up for and secured firm pipeline capacity to meet customer demand "because they do not want to leave their customers in the cold and it is responsible utility planning," the Northeast Gas Association said. "It is common sense to err on the side of caution in reserving gas supply and to have a safety margin or cushion to cover unexpected operational issues."

Bradford said anyone with a working knowledge of the physical gas market could see that the data the researchers looked at is being misconstrued.

"It is academic overreach to get some headlines," he added.

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