PITTSBURGH—There are at least 99 problems in delivering sufficient natural gas to meet winter demand in New England, but pipeline capacity constraint is not one of them. Or at least it shouldn’t be.

That was the message delivered—along with barely concealed sighs of frustration—by two experts to attendees at Hart Energy’s recent Marcellus-Utica Midstream Conference & Exhibition.

The true culprit in the region’s woes, they contended, is the scarcity of power generation companies that have signed up for new capacity.

“Our gas industry argues vociferously that it’s really not capacity constraint because our local gas distribution companies [LDCs] have the capacity; they have had it and they’re going to continue to have it as they grow,” said Thomas M. Kiley, president and CEO of the Northeast Gas Association. “The power generators don’t sign up, so in a really, really cold stretch of days, by that third day, they can be in a significant situation.”

ISO New England, a regional nonprofit that operates the power grid, has responded by developing a winter reliability program that includes some dual-fuel operators that use oil and coal.

“You can imagine how appealing that is to the environmentalists,” Kiley said.

The source of public discontent derives from the “polar vortex” that brought bitter cold to New England during the winter of 2013-2014. About half of gas-fired generators in the region couldn’t run and chilled consumers were introduced to new models of economic dynamics and economic regulation.

“There was plenty of gas,” said Kurt Krieger, principal with the Steptoe & Johnson LLP law firm. “It was just that the LDCs’ economic model at the time didn’t support them signing up for firm transport capacity and we needed to get gas to those plants to operate.”

Since then, regulators like the Federal Energy Regulatory Commission (FERC) have started changing some of the economic regulations. The regional transmission organizations now have pay-for-performance tariffs and compensation to ensure that they would be compensated for investing in pipeline capacity and for supply, and penalized if they do not invest in capacity and a shortage materializes.

“You can imagine the anger of our industry in the Northeast—which I have to assume would be equally shared by you—when the general media, as things get dicey, report that due to a gas supply shortage, ISO is getting ready for rolling blackouts,” Kiley told attendees.

The Northeast’s longtime reliance on heating oil is slowly eroding, although current low oil prices have slowed the conversion rate to gas, Kiley said. However, conversions are continuing simply because while oil is cheap at the moment, gas is cheaper.

“I think a lot of consumers look at the long term and understand the benefits of natural gas vis-à-vis oil and are, in fact, signing up,” he said.

But the role of natural gas as a clean-burning, affordable, needed fuel in the Northeast is countered by an environmental movement fiercely opposed to fossil fuels in principle. FERC approvals of pipeline construction permits almost automatically end up in the U.S. Court of Appeals, D.C. Circuit.

“I do see [FERC staff] having to work extremely hard through the certificate process to defend their actions, defend their professional review of environmental impacts,” Krieger said. “They know now that two things are going to happen. They know that:

  • “any decision they write, if they decide that a project needs an environmental assessment as opposed to an environmental impact statement, they know that that’s going to be challenged before the agency moves forward; and
  • “they know that if FERC certificates a pipeline project, notwithstanding the thorough job that the agency might have done on environmental review, they know that the decision is going to get appealed to the D.C. Circuit.”

Landing in court delays construction of a pipeline, but it doesn’t necessarily doom it.

“If you look back at FERC’s track record before D.C. Circuit, which is an extremely talented legal circuit,” Krieger said, “FERC has done an excellent job when it comes to environmental issues at certificating pipelines.”

Joseph Markman can be reached at jmarkman@hartenergy.com.