PUC Staff Recommends Against Subsidizing LNG Storage Projects — LePage Disagrees
Thursday, April 06, 2017 10:18 AM
The LePage administration is lobbying the Maine Public Utilities Commission to approve up to $500 million in taxpayer subsidies to construct liquefied natural gas (LNG) storage facilities in the state. The governor’s latest effort to promote natural gas comes despite the fact that MPUC’s staff, the Public Advocate, the Conservation Law Foundation and local natural gas distribution companies all say it’s a bad idea. Nevertheless, the LePage administration insists that natural gas investment will lower energy costs.
“Net energy billing, biomass subsidies, and renewable energy subsidies put upward pressure on rates (and in some cases, taxes),” wrote acting director Angela Monroe of the Governor’s Energy Office in a letter to the commission. “This constant increase in energy-related costs has become unsustainable for Maine. Lowering and stabilizing these costs is critical to the well-being of the State of Maine. The Commission needs to look for ways to decrease energy costs.”
Last year, the Maine Legislature passed a measure that authorizes MPUC to charge ratepayers up to $25 million per year, or $500 million over 20 years, to subsidize LNG storage facilities on the condition that the projects help bring down energy costs. The law was part of an effort to stabilize electricity and gas prices during peak winter demand times when gas is being used for both electricity and heating fuel. Proponents of the measure argue that LNG storage facilities can potentially reduce energy costs because they can be filled during the summer months when gas prices are lower and be situated near high-energy-demand centers to make gas directly available to large industrial customers.
However, in its brief issued last month, the PUC’s staff concluded that none of the eleven LNG storage bids it has received would qualify for subsidies under state law because the proposals are not commercially feasible, will not substantially enhance LNG storage in the region and will not bring down energy costs. Furthermore, the report noted, at least eight of the bid proposals would likely exceed the subsidy amount that the state has budgeted for.
The PUC also commissioned an independent study by the Chicago-based consultant Navigant, which released a report in Decemeber concluding that the bids would be of questionable benefit to the state. The firm analyzed the bids under two scenarios depending on whether Spectra Energy’s proposed $3 billion Access Northeast natural gas pipeline is built or not. In her letter to the commission, Monroe of the Governor’s Energy Office wrote that Navigant determined that “several of the proposed physical storage proposals produce a substantial net present value benefit under the assumption that the Access Northeast natural gas pipeline project is not constructed.”
“Currently, the Access Northeast project has stalled and shows little prospect for revival in the near term,” wrote Monroe. “Without this project, a physical storage proposal project provides an opportunity for Maine to hedge against future energy price spikes.”
In its report, Navigant did determine that seven of the LNG storage bids could be beneficial to ratepayers if the Access Northeast pipeline isn’t built, but also concluded that “such a finding would be assuming optimistic results” and could be impacted by unforeseen market changes.
“No Compelling Reason” for Subsidies
At the same time, Navigant also concluded that the storage proposal put forward by Northern LNG, the company that brought the LNG subsidy bill to the Legislature in the first place, would not be beneficial to energy consumers under any scenario and would result in a negative return on investment of either $6 or $16 million.
Northern LNG’s proposal stems from a partnership between Boston-based company Energy Management Inc. (EMI) and Montville energy consultant Evan Coleman, which originally proposed to build a subsidized LNG storage facility in Rumford. Since then, EMI and Japanese energy giant JGC, under their joint venture Northern LNG, have announced plans to build the facility in either Rumford or Brewer, contingent on whether the PUC awards them a contract. In 2015, Coleman and EMI also proposed to build a natural gas-fired power plant in Rockland, but put the plan indefinitely on hold after Rockland City Council passed an ordinance to regulate grid-scale power projects in the city.
Public Advocate Tim Schneider, who is representing Maine ratepayers in the case, noted that Northern LNG’s representative said the company’s proposal would incur “a total annual cost of $35.6 million during 2021 to 2040...” but did not explain how it will recover an additional $10 million each year and remain commercially viable given that annual public subsidies are capped at $25 million. Schneider noted that the state’s four major natural gas distribution companies testified “that there is in unacceptable amount of uncertainty and risk with entering into any of the proposed [storage contracts].” Schneider recommended against approving a storage contract.
“No one has shown why this risk should be placed on Maine’s ratepayers,” wrote Schneider and senior counsel Robert Creamer. “It is not surprising that Bidders have struggled to offer a compelling reason to require ratepayers to pay up to $25 million for 20 to 30 years to support a [contract]…. None of the Bidders has provided a market analysis or other study in support of their proposal. Despite asking ratepayers for tens of millions of dollars, the Bidders have provided little meaningful evidence to demonstrate: (1) that there is a need for an LNG storage facility the size of those proposed, which are all considerably oversized for the requirements of Maine’s [local gas distribution companies]; (2) that there is a market for the excess gas that would be stored in the proposed storage facilities; or (3) that a [contract] would provide real value to ratepayers. The Bidders also appear to have done little, if any, planning for how the storage capacity provided by their facilities would be administered and how the gas they store would be accessed by Maine customers during peak demand periods or times of disruption to natural gas infrastructure.”
Northern LNG disputed the Navigant findings in a brief, but did not respond to a request for comment on the other assessments.
The Conservation Law Foundation, which has been highly critical of building new natural gas infrastructure, applauded the PUC staff recommendation.
“Electricity prices are down. Natural gas demand is projected to decline within the next ten years or so, thanks, in part, to our region’s commitment to reducing emissions through, for instance, energy efficiency and increased reliance on renewable sources of energy (think solar and wind),” wrote CLF staff attorney Emily Green. “And what’s more, New England already has all the natural gas infrastructure that we need, as Commission staff acknowledged in their Examiner’s Report. A new pipeline came online late last year, and two more are planned to be in service this fall. So more natural gas is already on its way into the region. We’ve also got plenty of LNG import terminals that receive global shipments. In addition, the gas utility companies themselves already have a number of under-utilized storage facilities.”
The PUC is expected to make a decision on the case later this month. And if the three commissioners get on the wrong side of the governor again, there could be more fireworks ahead. In February, LePage accused PUC Chairman Mark Vannoy of buying into “special interests,” vowed to replace Commissioner Carlisle McLean when her term expires, and said he’d ask the PUC members to “resign in a heartbeat” after they made a decision on solar power rates that he disagreed with. Last year, LePage said that appointing Schneider was “one of the worst, worst decisions ever in my life” because the Public Advocate brokered a compromise with utilities and solar installers to preserve favorable rates for solar power.
However, the PUC commissioners have not always agreed with the findings of their staff. Last year, the commissioners voted to approve subsidies for private, interstate natural gas pipelines despite the findings of its staff and an independent study that it had commissioned.