CONCORD, N.H. — On Aug. 17, the Massachusetts supreme court vacated a ruling by the state’s Department of Public Utilities that would have permitted electric utilities to charge ratepayers for pipeline capacity – and then sell the gas to generators. This could be the swan song for the last major natural gas pipeline expansion project on the table for New England.

One of the failures in our electricity markets is that there is no mechanism that gives generators an incentive to subscribe to firm natural gas capacity.

ISO-New England, which produces power via generators throughout the region, will soon launch its “Pay-for-Performance” program, designed to penalize generators that cannot operate (usually for lack of fuel supply) during tight supply/demand periods. The program will also reward generators that can operate at critical times.

Even with this pending carrot-and-stick program, however, no natural gas generators signed up for capacity on either of the major proposed pipelines – Spectra’s Access Northeast and Kinder Morgan’s Northeast Energy Direct.

While the merits of ratepayer financing of pipelines are debatable, the Massachusetts ruling ostensibly quashed the prospects of any pipeline expansion that could ease the volatility of natural gas and electricity prices in the region. This will be especially true in winter, when local distribution companies, which do subscribe to capacity, are using the most gas for home heating. Any new natural gas plants will still provide power in the summer, but will do nothing to ease our wholesale electricity price volatility, which is not good for New England’s families and businesses.

As much as high electricity prices are a problem, volatility is just as big a concern. Many businesses, especially seasonal ones, find it difficult to contract for reasonable long-term rates and have been forced to buy on the volatile spot market.

This makes it difficult to make capital or hiring plans, and can put entire businesses at risk during an especially cold winter or hot summer. As well, when suppliers secure electricity for homeowners, volatility forces them to charge families more to cover the potential price extremes in the real-time market.

The Massachusetts ruling leaves New England with only one choice when it comes to future baseload power that can smooth winter volatility – imported hydroelectricity from Canada. Significant barriers to entry exist for new coal, oil and nuclear plants, and now also expanded gas pipeline capacity.

Fortunately, there are several proposed projects that will bring imported hydroelectricity to the New England grid. Ultimately, we will need all of them, as the plants traditionally supplying us with baseload power and stable prices are closing under the strain of distorted markets and policy initiatives favoring intermittent and unreliable renewables.

One transmission project, New England Clean Power Link, has received its state permits from Vermont, and its presidential permit has been recommended by the Army Corps of Engineers. Yet one wonders if publicly released cost estimates are understated as the project has yet to reach any agreements with generators to lease capacity on its transmission line.

Of the proposed hydroelectricity projects in the region, only one, Northern Pass, has a generator agreement to supply power on its transmission line. However, it still needs approval from the New Hampshire Site Evaluation Committee.

After the project’s developer dramatically altered its route and agreed to bury lines through the White Mountain National Forest, a final Site Evaluation Committee decision on Northern Pass should be made by next summer. While there has been opposition to overhead transmission lines, the cost of additional burial, if mandated by the state, could make the project financially unfeasible, and the repercussions will have a serious impact on the future of our grid.

Policymakers and bureaucrats went to great lengths to deregulate New England’s electricity markets by forcing vertically integrated utilities to divest of their generation assets. The prohibition of investor-owned utilities from owning generation was supposed to make our markets competitive and less costly.

Unfortunately, lawmakers and regulators have followed that with policies like renewable portfolio standards, which subsidize renewables, and the winter reliability program, which subsidizes oil and gas generators. This has led us right back to a quasi-regulated marketplace, price volatility and (worst of all) a frighteningly limited baseload supply situation.

In a perfect world, truly competitive electricity markets would result in participants competing to provide consumers with the lowest-cost electricity. Unfortunately, we don’t live in a perfect world. In the world we live in, large-scale hydro, particularly Northern Pass, is looking absolutely essential for the survival of New England’s electricity system.

– Special to the Press Herald