Eversource, Avangrid artificially constrained gas pipeline capacity for years, report argues

Researchers estimate withholding of pipeline capacity cost New England electricity customers $3.6 billion over the past three years. Eversource called the report a “complete fabrication.”

by Gavin Bade, Utility Dive
Oct. 11, 2017

A new academic analysis argues gas utility subsidiaries of Avangrid and Eversource have artificially constrained gas pipeline capacity in New England for years, driving up natural gas and electricity prices and potentially violating federal laws.

The systematic withholding of pipeline capacity, particularly on the coldest days, has cost New England electricity consumers $3.6 billion in higher prices over the past three years, according to “Vertical Market Power in Interconnected Natural Gas and Electricity Markets,” a new white paper posted by the Massachusetts Institute of Technology on Wednesday.

A group of university researchers working with the Environmental Defense Fund found that local gas distribution utilities owned by the two holding companies regularly scheduled more gas than they needed on the Algonquin Pipeline in Connecticut and Massachusetts, only to cancel some of the orders later in the day — too late for the pipeline space to be resold.

This practice, referred to as down-scheduling, “essentially locks up some pipeline capacity,” said Matthew Zaragoza-Watkins, an assistant professor at Vanderbilt University and co-author of the report. On the worst days, including during the Polar Vortex of 2013-2014, up to 7% of Algonquin’s capacity could be artificially constrained.

“When you relate that back to gas-fired generators, that’s about 28% of the gas that would be demanded,” Zaragoza-Watkins said.

This “capacity withholding,” researchers wrote, “increased average gas and electricity prices by 38% and 20%, respectively, over the three year period we study.”

Eversource officials called the report “a complete fabrication” and denied engaging “in any behavior to underutilize capacity to ‘artificially constrain capacity.'”

“The pipeline capacity we reserve is done so to meet the needs of our customers, no other purpose,” Media Relations Manager Tricia Taskey Modifica wrote to Utility Dive. Avangrid did not return requests for comment.

It does not appear either company broke any contract laws or market rules with their behavior, researchers said. But if the report’s findings are accurate, industry lawyers say they could amount to violations of federal law — and become one of the biggest price manipulation scandals since the California energy crisis.

“If this analysis is correct, honestly, this isn’t a whole lot short of Enron,” said Andy Weissman, senior counsel at the Washington, D.C., law firm Pillsbury. “If customers really paid $3.6 billion as a result of withheld capacity … that is a big time scandal that is going to lead to huge litigation.”

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