Energy Leaders Debate Role of FERC, States, Gas demand, and Renewables in Determining Future of New England LNG Facility

Last week the federal Energy Regulatory Commission (“FERC”) hosted a bevvy of New England state regulators and energy industry stakeholders to discuss potential solutions to electricity and natural gas-related challenges facing New England.  One question loomed large throughout the day-long forum:  Should the Everett Marine Terminal, a liquefied natural gas (“LNG”) facility, stay in operation after the principal contract supporting it expires, and if so, who should fund it?  For years framed as an electricity reliability issue, the tenor of the ongoing debate changed recently after ISO New England published preliminary results of a study suggesting a low risk of electricity shortfalls in the near-term if Everett is retired.  The discussion between and among FERC commissioners, state regulators, and energy company leaders focused heavily on when regulators should allow Everett to retire, what metrics they should rely on in making that determination, and which regulators and customers could or should be tasked with funding Everett’s continued operation until then.

The ISO New England study, which it conducted jointly with the Electric Power Research Institute, evaluated a variety of potential severe winter weather scenarios modeled on actual historical weather events, and considered scenarios with and without Everett, and with and without the New England Clean Energy Connect (“NECEC”), a transmission project that once constructed could bring up to 1,200 megawatts of clean hydropower to New England from Canada.  The study preliminarily concluded that energy adequacy risks would be similar with and without Everett, and would be meaningfully mitigated by incremental electricity imports made possible by the NECEC.

An uncomfortable matter that FERC and state utility commissions will have to confront soon, and which they discussed in varying degrees of generality at the forum, is that FERC regulation has been supporting the continued operation of Everett for years in the form of a reliability-must-run (“RMR”) contract that provides cost-of-service compensation for the Mystic gas-fired generation facilities in Massachusetts.  That RMR contract allows Mystic to recover most of the costs of operating the Everett facility from New England ratepayers, and it expires at the end of May 2024.  If ISO New England’s preliminary study conclusions are sound in the short-term and yield similar long-term projections—a question ISO New England says it hopes to answer in the next phase of its study—the clear implication will be that New England does not need Everett to meet its electricity needs.

But in the short and medium term, New England needs more than electricity.  It also needs natural gas for other uses, like heat.  An essential question for regulators to consider next is whether Everett is needed to ensure reliable access to heat during cold New England winters and, if so, which regulators and which market players should be responsible to keep Everett in business.  Answering this question will require a multifaceted understanding not only of the current natural gas needs of customers in the various New England states, but also how those needs are likely to evolve as New England works toward ambitious climate and decarbonization goals, a key piece of which is the electrification of both residential and commercial heating.  It may also need to involve action by state regulators since they, not FERC, have jurisdiction over the rates and charges paid to natural gas distribution companies.  Some may wonder if FERC might yet have a role in the post-RMR contract era for Everett, either through ratemaking related to natural gas interstate pipelines, over which FERC does have jurisdiction, or through other electricity market-related ratemaking strategies.  Time will tell, although that time is quickly running out.

FERC has not yet announced a further convening of a third New England gas-electric forum, but given that the June forum concluded with more questions than answers, further discussions on the topic to be facilitated by FERC can be expected.

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