Energy Obstructionism Can Be Not-So-Green

“The environmental battles over energy infrastructure expansions will continue to ramp up…. The bottom line from these examples is that the risk of energy projects is creeping higher and that will filter into energy company spending – hurting both the nation’s future energy supply and its profitability for the companies.”

Energy availability is often ignored until it isn’t available. Whether that is a grid power outage, such as those in 1965 and 2003 that blacked out the Northeast region of the country, or the loss of power at your home or work, the issue of insuring adequate energy availability isn’t a high priority for most people until you don’t have it. Ask the residents of south Australia who suffered a blackout last week.

Two interesting examples – one on each coast of the U.S. – demonstrate how the battle over energy infrastructure expansion may limit future energy supply. In one case, the battle is over transmission lines for a wind farm in Oregon, while the other involves a natural gas pipeline project in the Northeast.

West Coast Green Fight

In the West Coast case, environmentalists are fighting over the federal government’s approval of transmission lines to cross federal land that would facilitate bringing wind power to market from a new wind farm. Environmentalists fighting clean energy? 

This battle reminds us of a federal legal struggle between government mandates requiring an Oregon dam operator to manage its water flow in such a way as to insure preservation of a federally-protected fish, when by doing so it could not comply with a different mandate to deliver green power to California.  In this case, the fish won, but California’s residents and the Oregon dam operator lost.

Northeast Gas Fight

In the Northeast, the supply of natural gas for generating electricity is constrained by the inability of utilities to secure adequate long-term supplies. As a result, during the winter when electricity consumption and natural gas heating demand peak, the utilities are forced to activate other fossil fuel-powered plants.

That means using coal and petroleum powered plants creating dirtier air.  A solution conceived by the Massachusetts Department of Public Utilities (DPU) was to interpret its mandate to allow electricity utilities to levy a charge on their customers to help fund the construction of natural gas pipeline expansions that would bring long-term gas supply to them and reduce the winter price spikes.

Last week, the Massachusetts Supreme Court ruled on a case brought by environmental groups challenging the DPU’s mandate interpretation under the state’s 1997 Restructuring Act that separated the utility services of generation, transmission and distribution, and deregulated the generation component in the interest of competition. That Act does allow long-term contracts for supply, but the price to be paid is subject to department review. It was that provision that the regulators relied on for approving long-term contracts, but the plaintiffs disagreed and the court sided with them.

David Ismay, the lead attorney for the Conservation Law Foundation who filed the suit, said:

This is an incredibly important and timely decision. Today, our highest court affirmed Massachusetts’ commitment to an open energy future by rejecting the Baker administration’s attempt to subsidize … the dying fossil fuel industry.

Further, he made the point that this shifted the burden onto the companies, who he perceives as being leery of funding new pipeline construction “without having long-term contracts in place.”

This decision will impact the Access Northeast expansion plan of Spectra Energy (SE-NYSE) as Maine had a similar plan in place but required the approval of the other five New England states. Rhode Island, where the battle over Spectra’s pipeline expansion is wrapped up in an ongoing war over building a new gas-fired power plant in Burrillville, has a similar provision that is likely to fail without other state agreements.

Based on the court ruling, Spectra said it was “extremely disappointed” and would need to “reevaluate our path forward – consistent with the court’s decision – to provide the infrastructure so urgently needed by New England’s electric consumers.”

That assumption is being challenged by the Massachusetts Attorney General who had a study done showing that through demand management and more renewables, the state didn’t need more gas capacity. One project that will not be built was the planned LNG regasification facility for Massachusetts with 6.8 billion cubic feet of gas storage as Spectra had acknowledged it was uneconomic without the contractual support.

The environmental battles over energy infrastructure expansions will continue to ramp up. The impact of the Massachusetts legal decision is not positive for the Marcellus gas basin, which could further hurt the recovery in natural gas consumption and hold back the recovery in natural gas prices.  The bottom line from these examples is that the risk of energy projects is creeping higher and that will filter into energy company spending – hurting both the nation’s future energy supply and its profitability for the companies.