Analysis: Energy companies’ practices may have cost N.E. $3.6B

A NEW ACADEMIC PAPER alleges that energy companies have artificially limited natural gas supplies to New England through their purchasing practices. / BLOOMBERG FILE PHOTO/DANIEL ACKER
A NEW ACADEMIC PAPER alleges that energy companies have artificially limited natural gas supplies to New England through their purchasing practices. / BLOOMBERG FILE PHOTO/DANIEL ACKER

PROVIDENCE – A new academic analysis of the natural gas and electricity markets in New England accuses energy firms of artificially limiting the gas supply to the region, costing consumers $3.6 billion over three years.

The report, conducted by researchers at the University of California, Santa Barbara, the University of Wyoming and Vanderbilt University in conjunction with the Environmental Defense Fund, alleges a behavior called “down scheduling,” in which the companies would reserve pipeline capacity for a large order of natural gas and then would “sharply reduce those orders at the last minute,” resulting in an increase in the average gas and electricity prices by 38 percent and 20 percent, respectively, over a three-year period from 2013 to 2016.

By altering the amount of natural gas ordered after scheduling, the report alleges, the Algonquin Pipeline was not operating at peak capacity, and therefore driving up costs in the region.

The two companies the report examines, Eversource Energy and Avangrid, have denied they were intentionally manipulating gas flow, according to a comprehensive report breakdown by Utility Dive on Wednesday, even calling the academic analysis report “irresponsible.”

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“Our gas distribution business is carefully regulated and the gas supply we purchase for our customers is a strict pass through cost – meaning we don’t benefit from higher prices derived from withholding. Again, this is well understood in the industry and is further evidence that the report is not credible,” said Rhiannon D’Angelo, a spokeswoman for Eversource.

The Northeast Gas Association said in a statement on Thursday that, “The report authors’ claim that some natural gas and electric utilities in New England are systematically reserving excess natural gas pipeline capacity on the coldest winter days in order to increase the prices charged by a small portfolio of electric power plants is false and, frankly, ridiculous.”

The research was based on analysis of Eversource’s and Avangrid’s delivery nodes on the Algonquin Pipeline, measuring the amount of gas scheduled to be sent through to New England, and the amounts actually sent to New England. The report’s abstract says by operating in this manner, the companies effectively blocked “other firms from utilizing pipeline capacity” and “artificially limit[ed] gas supply.”

The report also notes that New England states’ regulation also prevented significant profiteering in this manner through revenue-sharing rules for excess contracts. This generally ensures a fixed rate of return for companies that deliver energy to a state, returning a majority of profits to the taxpayers.

The researchers said, however, the rise in costs could benefit the companies in other ways, such as making power plants in the area more valuable to sell by raising the going rate for electricity.

“We do not engage in any behavior to ‘artificially constrain capacity.’ Our focus and actions are driven by our responsibility to ensure our customers have enough gas – we can’t run the risk that they are left in the cold,” added D’Angelo.

Chris Bergenheim is the PBN web editor.

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