Why New England’s power situation is precarious. (Did you guess pipelines?)

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Quick Take:  I sit on advisory boards with various executives from the electric power sector. Recently they've been telling me about a disturbing discovery from this year's Polar Vortex winter. The gating factor in the Northeast is not the number of power plants. Nor the capacity of the power lines. It is the capacity of the region's pipelines. And now the Secretary of Energy is out delivering the warning. – Jesse Berst

 

U.S. Secretary of Energy Ernest Moniz delivered a blunt message to New England last week, according to a story in the Daily Hampshire Gazette. “In much of the country the talk is about the energy revolution, the abundance of energy that we have," he told a Connecticut audience of energy executives, regulators, environmentalists. “But yet if we come here, it’s not a discussion of abundance. It’s a discussion of, in particular, infrastructure constraints."

 

The challenge is getting fuel to the region's natural gas-powered plants. Bringing in natural gas is constrained by the shortage of pipelines. During the severe winter, natural gas prices soared to more than $120 per million British thermal units from about $5 in the summer. The spike was due to strong demand, a lack of pipeline systems, and inadequate storage.

 

Why did natural gas prices jump to such extremes? A recent newsletter from Luthin Confidential Associates offers this explanation: "Federal regulations treat pipelines as common carriers and limit the profits of pipeline owners. But once that capacity gets "rented" by investors and speculators, the sky is the limit on what they can add to local gas pricing for the use of the pipe."

 

The problem will soon get even worse. Many coal plants are due to be retired soon. Meanwhile, pipeline improvements are years away, causing Moniz to warn that New England will be in a "precarious position" for a few years.

 

Indeed, those much-needed pipeline improvements may be delayed even further by protests from environmental groups. For instance, the director of Environment Northeast urged policymakers to cut demand via greater energy efficiency rather than approving new pipelines or electric transmission lines.

 

Jesse Berst is the founder and Chief Analyst of SGN and Chairman of the Smart Cities Council, an industry coalition.

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