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Public power ownership of new pipeline could save New England billions, MMWEC's Kaczenski tells conference


From the June 25, 2014 issue of Public Power Daily

Originally published June 25, 2014

By Robert Varela
Editorial Director

New England could avoid up to $7 billion in costs with a Massachusetts Municipal Wholesale Electric Co. (MMWEC) proposal for public power financing and ownership of a new natural gas pipeline into the region, MMWEC’s Edward Kaczenski told attendees at a June 16 session of APPA’s National Conference in Denver, Colorado. MMWEC has submitted a "Consumer Model" proposal to the New England States Committee on Electricity (NESCOE), which has been charged by the region’s governors with implementing a proposal for a new system for financing construction of natural gas pipelines, said Kaczenski, who is director-engineering and generation assets for MMWEC.

The combination of a dramatic increase in New England’s use of natural gas for generation, a drop in liquefied natural gas imports and—most importantly—insufficient pipelines into the region has resulted in rapidly increasing winter energy costs, escalating reliability issues, gas curtailments to power generators during the winter months and an increasing reliance on oil, Kaczenski said. New England’s energy costs were $5.05 billion for winter 2013-2014 in contrast to $5.2 billion for all of 2012, he said. While natural gas prices spiked from $5 to $20 per million British thermal units (MMBtu) in New England, they were very stable ($5 to $7 year-round) in Pennsylvania, only 250 miles away, he said.

The Federal Energy Regulatory Commission’s (FERC's) model for financing new gas pipelines requires full pipeline capacity subscription for a long term on a 24/7 basis and is not compatible with power generators in competitive wholesale markets (such as the ISO-New England markets) where their dispatch and associated fuel usage varies on a day-to-day basis, Kaczenski said. New England governors proposed a new model, with financing through a FERC-approved tariff charged to New England electric customers and collected by ISO-New England. Power generators would pay capacity charges based on their actual usage.

If the governors’ proposal is approved by FERC, MMWEC’s ability to issue tax-exempt bonds and its non-profit status present a unique opportunity to avoid costs, Kaczenski said. Tax-exempt financing would reduce debt service, while non-profit ownership would eliminate a 14 percent return on equity. That could mean up to $7 billion in savings over the long term, he said.

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Meena Dayak
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