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Massachusetts DPU: EDCs Can Contract for Gas Pipeline Capacity

October 7, 2015 By Cheryl Kaften

The Massachusetts Department of Public Utilities (DPU) issued an order on October 2 that established a framework for the state’s local electric distribution companies (EDCs) to procure dedicated natural gas pipeline capacity.

Under the filing, D.P.U. 15-37, the department found that it had the authority to review and approve long-term contracts (of greater than one year) between EDCs and pipelines for capacity that will be used to fuel power generation – an essential step in guaranteeing that electric generators will have the fuel needed to provide power to New England customers at economical rates.

In its order, the DPU asserted that such contracts would be consistent with the Bay State’s utility Restructuring Act of 1997 – provided that an EDC “is able to demonstrate that entering into a contract would result in cost savings for EDC ratepayers and otherwise satisfies the standard of review for approving EDC gas capacity contracts….”

In its comments on the order, the Massachusetts Department of Energy Resources (DOER) stated that the DPU had the discretion to apply the public interest standard “as it deems appropriate,” and recommended that the department require EDCs to show:

  • The need for additional pipeline capacity;
  • That the proposed contract is the best of reasonably available alternatives, based on an evaluation of price and non-price factors;
  • That the pipeline capacity contracted is sufficient to meet the need; and
  • That there is a material net benefit to electric customers from the contract.

Regarding an EDC’s resource objectives, DOER noted that an EDC “has an obligation to take any action within its control, as allowed by statute, to maintain the reliability of supply to its customers at least cost, including soliciting and entering into contracts that would reduce price spikes driven by gas capacity constraints.”

Such costs will take on greater importance now, because, under the new order, they potentially could be passed on to customers. The DPU found that passing on the costs was permissible under the state’s deregulation law, although it has not been done to date.

Although the new order was challenged by environmentalists – who feared that the contracts would lead to more pipelines throughout the commonwealth – there is evidence that this may be a growing trend. Massachusetts was not the first New England state to consider such a move. In September, the staff of the New Hampshire Public Utility Commission (PUC) said in a report on potential approaches to mitigating high electricity prices (Docket IR 15-124), “New Hampshire EDCs have authority to enter into gas capacity contracts for the benefit of gas-fired generators, if such a proposal were to be made by a New Hampshire EDC.”

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