The Malloy administration’s ratepayer financed methane (natural gas) infrastructure build-out has become a self-justified Ponzi scheme that both exploits the utility ratepayers of Connecticut and creates serious environmental and energy liabilities for the state going forward.
To backtrack: in 2011, the Malloy administration, succumbing to the moral hazard of new, cheap methane gas extracted and piped in from the fracking fields of Pennsylvania, together with the always opportunistic local natural gas distribution companies (Eversource owned Yankee, CNG, and SCG) collaborated to produce a puff-piece of a study, put out by the cheer-leading Department of Economic and Community Development, that touted methane as the cure all for Connecticut’s energy dilemmas.
Foremost, and fundamentally, among the claims was that the long term savings, both individually and collectively, from converting heating oil customers to methane would pay for the massive infrastructure expenses involved in making the fuel switch from oil to gas. These ratepayer costs include switching furnaces, new lateral lines to get the gas to new customers, and capacity purchases in interstate lines, among others. The ratepayer, according to the plan, would end up ahead because of the presumed continuation of the price spread between then relatively expensive oil and natural gas subsidized by environmental destruction in Pennsylvania.
This price spread, together with concomitant thousands of conversions of homes and businesses, would put the ratepayer ahead in the long run-according to DECD study and subsequent legislation and mandates resulting from it.
These were irresponsible assumptions. As we all know, the fickle price of oil has actually dropped dramatically and shows no sign of rising. Consequently, the essential gas/oil price spread is gone and the conversions, accordingly, have dropped below levels needed to pull off the original plan– despite costly adjustments to the regulatory framework to incentivize home and businesses to switch from oil to gas.
Instead of rethinking the plan at this juncture, as is mandated in laws and orders implementing the methane build out in the state’s energy plan (2011 CES), the administration and its bureaucratic extensions, the Department of Energy and Environment (DEEP) and the Public Utilities Regulatory Authority(PURA) have essentially doubled down on the original expansion plan in irrational stubbornness.
They persist in the aforementioned, expensive and risky incentivizing of methane conversion, in the form of extended ‘hurdle rates’ (project revenue pay back periods), reduced premiums (CIACs) from individuals needing expensive construction to get the gas, and the diversion of side deal revenue (non margin credits) from ratepayers, in the form of credits, straight back to the utilities to offset the expense of the gas expansion.
Furthermore, PURA has upped the ante recently by the granting of pre-approvals, to the utilities, to sign precedent agreements for capacity purchases on existing and proposed interstate methane pipelines. These under-scrutinized pipeline purchases, on the part of the utilities, underwrite and make possible the construction of these disruptive and dangerous projects which, readily undertaken by transnational giants like Spectra and Kinder Morgan, will permanently risk state wetlands and degrade our air with the associated toxic spewing compressor stations that are needed to push the increased volume of gas along.
The Office of Consumer Counsel (OCC), in their brief to PURA has conceded that these new pipeline capacity purchases, especially in their most recent ‘pre-approved’ form, shift investment risk to the ratepayers from the utility companies in an unprecedented “paradigm shift.” The OCC, in the brief, ends up tepidly endorsing the capacity purchases, amounting to billions, nonetheless. One can sense the cognitive dissonance in the writing, as the office tries to accomplish its mandate of looking out for the ratepayer and, at the same time appease PURA and the administration-parties who are clearly intent on squaring this circle whatever the cost to the ratepayer and environment.
It’s never too late to change course, though.
The administration, paying heed to hard won experience, can begin to get back on track by adjusting the state energy plan (due for scheduled revision soon anyway). The first task should be to dial back gas-favoring regulatory changes imposed by the last CES. This would obviate any more risky interstate pipeline capacity purchases and let much needed fresh air back into the state energy discussion.
There should also be an accompanying moratorium on the construction of methane power plants such as the one at Oxford. These facilities are just another contrived, desperate attempt to rationalize the failed methane expansion.
Let’s face reality, give the ratepayer and the environment a break, and reopen the energy future discussion, in brave and bold fashion, at DEEP and the Governor’s Council on Climate Change.