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Eversource power, gas projects poised to shape New England energy future

The future of New England natural gas and power markets may soonpivot on two Eversource Energy-backedprojects.

To the dismay of a natural gas consumer group and merchant generators,the Access Northeast natural gas transportation project and the Northern Pass electrictransmission project are shaping up as the two winners from multiple proposals toaddress gas and electric price spikes caused by constrained gas supply.

Eversource, one of New England's largest utility companies, ownsa 40% interest Access Northeast, which looks stronger after Kinder Morgan Inc. decided to suspend development of the other major New England pipelineproject, Northeast Energy Direct. Eversource is working on the up to 925,000 Dth/dAccess Northeast pipeline and storageproject with partners SpectraEnergy Corp and NationalGrid plc.

Eversource's proposed high-voltage, direct-current Northern Passtransmission project also becomes more important after the suspension of NortheastEnergy Direct. The 192-mile project would deliver 1,090 MW of electric power fromHydro-Québec plants inCanada to New Hampshire and the New England electric grid.

Eversource stock will depend on the success of these two projects,Macquarie Research analysts said, and trouble with "quasi-competing" projectsNortheast Energy Direct and the Muskrat Falls hydro project in Canada were positivedevelopments for the Eversource ventures.

"We're big believers that New England will move forwardwith major investments in transmission lines and nat gas pipelines, and that [Eversource]is well positioned with [Northern Pass] and [Access Northeast] thanks to key developmentand supply partnerships," the analysts said.

In a May 5 earnings call, Eversource executives said they wereconfident that permittingfor the Northern Pass project was on track for a construction start in late 2016or early 2017.

Although the Eversource projects appear better off afterthe collapse of the Kinder Morgan pipeline proposal, Eversource, like its partnerSpectra Energy, said it never saw that proposal as a direct threat.

"We never considered Access Northeast in competition withthe Northeast Energy Direct project, as Access Northeast is being built specificallyfor New England's electric generation," Eversource Energy spokesman Al Larasaid on May 10. "Access Northeast is designed to maximize our direct pipelineconnections to the region's power plants through right-sized improvements to the[Algonquin Gas Transmission LLC]system."

Struggle in state regulatoryproceedings

Stumbles by competing projects do not guarantee the race forEversource, and state regulatory proceedings that would allow electric distributioncompanies to sign up for gas transportation capacity on pipeline expansions suchas Access Northeast have attracted opponents.

The New England Power Generators Association, a group representingNew England merchant generators who support a competitive wholesale electricity market, continues to fight the statedecision that would allow electric utilities to pass the costs of firm pipelinecapacity to consumers.

Others have taken the fight to the Supreme Judicial Court ofMassachusetts. In a May 5 report, Washington Analysis LLC analysts Tim VandenBergand Rob Rains said the court's justices appeared receptive to oral arguments againstthe Massachusetts Department of Public Utilities decision made by the ,LNG company ENGIE andthe Conservation Law Foundation. The parties argued the agency was prohibited bystate statute from approving gas transportation contracts for electric distributioncompanies.

Rains and VandenBerg said they thought it was likely the courtwould deny the department's order. "Overturning the DPU orderwould benefit New England generators like [CalpineCorp.], [Dynegy Inc.],[Exelon Corp.], [], and [], who opposenew natural gas entering the market and suppressing wholesale power prices,"the analysts said.

New England generatorsin 'strong position'

New England Power Generators Association President Dan Dolansaid the cancellation of Northeast Energy Direct will not stop his group's ratepayer-supported utilitiesbacking gas projects that would put merchant generators at a disadvantage.

The collapse of Northeast Energy Direct, which Dolan attributedto Access Northeast taking the support of both Eversource and National Grid utilities,would have little effect on the region. "I actually don't thinkit changes things for New England overall," Dolan said in an interview. "Therewere more than 500,000 Dth/d of firm contracts on Kinder Morgan. Those contractscan find a home elsewhere, on Access Northeast and others. That market demand willsimply shift to some other pipeline proposal."

New investments in pipelines and power facilities will make thingseven easier on generators, Dolan said, but his members do not want electric distributioncompanies to have a lock on those pipelines.

"As we look at the overall system, from a reliability anda market perspective we are in a very strong position," Dolan said. "Regardlessof what happens with the NED pipeline, electric generators are still responsiblefor meeting their supply obligations and doing so without any excuse for non-performanceunder the new capacity market design.

"We will continue to meet those obligations," he said."We are continuing to see record-low pricing within the wholesale market, evenwith the tightness that exists on both the fuel supply and the power generationside."

Eversource has formed its plans with the idea that New Englandwill support Access Northeast and the decision of the Massachusetts Department ofPublic Utilities, as well as similar proceedings in most of the region's states.Lara said ISO New England Inc.has made clear the region needs more gas pipeline capacity, and the New Englandstate governors support solutions that will relieve regional energy constraints,including investments in gas infrastructure.

"Access Northeast makes a compelling case for meeting thatneed while providing billions of dollars in savings for consumers which will morethan account for the investment," Lara said.

Consumer group wants morepipe than just Access Northeast

Supporters of Northeast Energy Direct project, such as the Coalitionto Lower Energy Costs, said the disappearance of the gas pipeline project was exactlywhat Eversource wanted.

Tony Buxton, general counsel and spokesman for the Coalitionto Lower Energy Costs, said in an interview after the Northeast Energy Direct suspensionthat Eversource had used its political clout to limit the amount of gas pipelinecapacity in the region. Buxton said his group is looking for other pipeline expansions,but the possibility of another major project seems unlikely after the fall of NortheastEnergy Direct. The coalition represents Massachusetts labor unions, businesses andindividuals. Buxton, a partner with Preti Flaherty and chair of the firm's energyand utilities practice group, has represented Kinder Morgan in New England, buthe said Kinder Morgan has issued statements on Northeast Energy Direct and he wasspeaking only on behalf of the coalition.

The winnowing of pipeline proposals will bolster support forEversource's Northern Pass transmission project as an alternative to bring downelectric power prices and, according to the coalition, cost consumers more thanif New England power plants could get more gas through a second pipeline.

"It's entirely possible that the cost of Northern Pass willwipe out any savings from the Access Northeast project," Buxton said. Eversourcehas estimated the cost of the transmission project to be about $777 million.

Buxton's colleague, attorney Benjamin Borowski, said NorthernPass will help bring the cost of power in New England into the neighborhood of $60/MWh.With Northeast Energy Direct in placealongside Access Northeast, Borowski said, the gas supplies on the two pipelinescould have brought that price down to $20/MWh. "But New England can hit $90/MWh,so suddenly $60 looks good," he said.