Court rules ratepayers not on the hook for pipeline costs

Beyond Coal and Gas Images via Flickr The court's ruling would make building pipelines, such as this shale gas pipeline in Pennsylvania, more difficult for companies to build.

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By State House News Service

The Supreme Judicial Court dealt a blow on Wednesday to Gov. Charlie Baker's efforts to increase the flow of natural gas to the region, ruling that utilities cannot ask electric ratepayers to help finance the construction of gas pipelines.

The decision immediately threw the future of a proposed major new gas pipeline project -- Access Northeast -- into question, and will force the Baker administration to rethink its energy strategy as it prepares to execute on a new law authorizing the purchase of large-scale hydropower and offshore wind resources.

In a opinion written by recently retired Justice Robert Cordy, the state's top court said the pipeline tariff would "reexpose ratepayers to the very types of risks that the Legislature sought to protect them from" with a 1997 law restructuring the electricity market.

The ruling marked a significant win for environmental groups and policy leaders on Beacon Hill who have argued that additional natural gas capacity is not required to meet the region's energy demand, and would run counter to the state's goals of decreasing reliance on fossil fuels and reducing greenhouse gas emissions.

The Department of Public Utilities in October 2015 concluded that it had the authority under existing law to approve long-term contracts by utilities like Eversource and National Grid for the purchase of natural gas capacity that would allow for the cost of pipeline construction to be passed on to ratepayers.

By creating a financing mechanism for expanded pipeline capacity, energy officials were seeking to improve access to cheap gas and limit the state's exposure to price spikes during period of high consumption when expensive power on the spot market has to be purchased to meet demand.

Engie Gas & LNG, which ships liquefied natural gas into the Boston area, and the Conservation Law Foundation challenged the new rules in court.

"We continue to believe that Massachusetts and New England's natural gas capacity needs can be met most efficiently by existing LNG infrastructure available to the region, diversifying the region's portfolio into renewables, and continuing to encourage and reward energy efficiency and energy storage," ENGIE Gas & LNG said in a statement.

A spokesman for Baker's energy and environmental affairs office said the administration continues to believe that additional natural gas capacity will be needed to meet demand without raising costs for consumers.

"Massachusetts has some of the highest electricity rates in the nation and without additional gas capacities and a diverse energy portfolio, the trends will continue to rise overtime," Energy and Environmental Affairs spokesman Peter Lorenz said.

The Department of Public Utilities on Wednesday suspended all evidentiary hearings regarding contracts for gas capacity until it can fully review the decision.

The Supreme Judicial Court, in siding with the plaintiffs, ruled that the DPU must regulate electric and gas utilities separately, and found that imposing a tariff on electric ratepayers to subsidize the construction of a new pipeline would contradict the intent of the Legislature in the nearly two-decades-old utility deregulation law.

"The department's interpretation of the statute as permitting electric distribution companies to shift the entire risk of the investment to the ratepayers is unreasonable, as it is precisely this type of shift that the Legislature sought to preclude through the restructuring act," Cordy wrote in the court's opinion.

Spectra Energy, which had partnered with Eversource and National Grid on the Access Northeast pipeline project, said it was "extremely disappointed" with the court's decision.

"This leaves Massachusetts and New England in a precarious position without sufficient gas capacity for electric generation during cold winters," said spokesman Arthur Diestel, on behalf of of the pipeline's sponsor Algonquin Gas. "The lack of gas infrastructure cost electric consumers $2.5 billion dollars during the Polar Vortex winter of 2013 and 2014. While the Court's decision is certainly a setback, we will reevaluate our path forward and remain committed to working with the New England states to provide the infrastructure so urgently needed for electric consumers."

Attorney General Maura Healey and Senate President Stanley Rosenberg, who both opposed the tariff plan, celebrated the decision.

"Requiring electric ratepayers to pay for new natural gas pipeline capacity effectively shifts the risks associated with building these projects to ratepayers, contrary to the state's policies of the past two decades," said Healey, who had taken the rare step of supporting the plaintiffs in the case over a state agency that she would usually be defending in court.

Rosenberg, noting that the Senate had unanimously voted to more clearly ban pipeline tariffs, said he believes the SJC "got it right."

"Existing law prohibits passing the cost of building new pipelines onto ratepayers. When the Massachusetts Senate debated the energy bill this session, the Senate voted 39-0 to prohibit utility companies from passing the cost of building new infrastructure on to ratepayers. To do otherwise would have been unprecedented and contrary to the best interests of the Commonwealth. Ratepayers deserve to have confidence that the matter is settled, and now they do," the Amherst Democrat said in a statement.

House and Senate lawmakers considered explicitly banning the pipeline tax during its recent debate over a major renewable energy procurement bill, but ultimately left the Senate-backed ban out of the final compromise legislation signed by Baker last week.

The Conservation Law Foundation's lead attorney on the case, David Ismay, said the court made an "incredibly important and timely decision" to reject the Baker's administration's "attempt to subsidize the dying fossil fuel industry."

"The course of our economy and our energy markets runs counter to the will of multi-billion dollar pipeline companies, and thanks to today's decision, the government will no longer be able to unfairly and unlawfully tip the scales in their favor," Ismay said.