Researchers identified a pattern in which local natural gas utilities scheduled deliveries on New England's Algonquin Pipeline and then down-scheduled late in the gas day, which effectively decreased supply on the line and thus increased gas and power prices, costing customers $3.6 billion over the study period.
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"We noticed there was a difference in the data between the amounts of gas being reserved a day ahead of time and the volumes that were actually delivered," Matthew Zaragoza Watkins, assistant professor of economics at Vanderbilt University and one of the study's authors, said in a statement Wednesday.
A team of economists from the Environmental Defense Fund, University of California, Santa Barbara, University of Wyoming and Vanderbilt University found patterns of withholding gas at a subset of delivery nodes operated by Avangrid and Eversource, the only two companies operating on the pipeline with "substantial assets and operations in both the gas distribution market and the electricity generation market," the study said.
EDF sponsored the study, titled "Vertical Market Power in Interconnected Natural Gas and Electricity Markets." The study covered the period from August 1, 2013, through July 31, 2016.
Importantly, the researchers did not find that laws were broken. Inasmuch as approximately 50% of Independent System Operator -- New England's power generation fuel is gas, the researchers argued that electricity prices were about $10/MWh, or 20%, higher on average over the three-year study period due to capacity withholding. Natural gas price increases "will be strongly amplified through the wholesale electricity markets," the researchers said in a Wednesday presentation.
Gas supplied 40% of ISO-NE's total generation October 5-9, according to Platts Analytics data.
The Algonquin Gas Transmission system that runs along the US East Coast through New England is unique because there is no storage on the pipeline, which often leads to or exacerbates capacity constraints.
There are several bottlenecks, starting at the Stoney Point compressor station, that lead to flow restrictions due to requested nominations exceeding AGT's operational capacity, which AGT data showed they did on Wednesday, for instance.
ADJUSTMENTS MADE ONCE SUPPLY SEEN ADEQUATE: EVERSOURCE
Eversource called the report a "complete fabrication," perpetuated by "anti-pipeline proponents who are trying to make the case that pipeline shortages in New England are due to capacity withholding," Tricia Taskey Modifica, an Eversource spokeswoman, said in an email Wednesday.
"Once we are satisfied that we have adequate supply to reliably meet our system needs, we routinely adjust our pipeline nominations in accordance with the rules -- this typically occurs after the night/morning load draw towards the end of the gas day," she said.
Avangrid has yet to fully analyze the study, but it "has not benefited financially by any movement in the wholesale electricity pricing market in New England," according to an official statement emailed Wednesday.
"All of AVANGRID's renewable 101 MWs of wind generation in New England are under long-term power purchase agreements at stated prices and its 200 MWs of dual-fueled peaking generators are under a full cost of service regulation model and contract."
Avangrid added that the 101 MW of renewable generation had no affiliation with its Connecticut and Massachusetts gas companies during the study period, because they were owned by separate companies until Avangrid was formed in December 2015.
RESEARCHERS OFFER SOLUTIONS
The researchers contended that as gas consumption for power generation grows, gas-fired generators will increasingly compete with legacy pipeline heating fuel customers for scarce capacity. This competition can impact corporate incentives -- particularly for companies operating in both gas and power markets -- in unforeseen ways.
As a result, it will be even more critical to efficiently harmonize rules for trading and transporting gas for both heating fuel and power generation.
To that end, EDF suggested that gas markets should offer pricing flexibility similar to the way wholesale power markets operate. Power generators should be able to buy gas in hourly or even 15-minute blocks, as opposed to the steady 24-hour increments, scheduled a day ahead, offered now.
"Pipeline market reforms that facilitate more flexible contracting mechanisms, more frequent scheduling cycles, and act to prevent capacity withholding, or impose a cost for capacity withholding ... will serve to better align the gas transport and electricity markets," the study said.