E2 New England. 28 Banks Street. Cambridge, MA April 6, 2016

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1 April 6, 2016 E2 Secretary Mark D. Marini and Hearing Officer Laura Koepnick Massachusetts Department of Public Utilities One South Station, 5th Floor Boston, MA Re: Comments on D.P.U , petition of Eversource Energy for Approval of Gas infrastructure Contracts with Algonquin Gas Transmission LLC (Access Northeast Project) On behalf of the Chapter of E2, a national, nonpartisan group of business leaders, investors, and professionals from every sector of the economy, thank you for the opportunity to comment on this vitally important issue that will affect our energy future for decades to come. We write to urge you to deny approval of these pipeline contracts. As you know, consistent with established G.L. c. 164, 94A standards, any contract must be shown to be in the public interest. Considerations to make in applying this standard include the need for additional gas capacity and showing that there is a material net benefit to electric customers. This petition fails to meet either of these criteria for the following reasons: 1. New natural gas pipelines are unnecessary because we have adequate capacity 2. This project subjects electric ratepayers to unprecedented financial risks 3. There are more cost effective solutions 4. Environmental costs and risks are too high 5. Massive new gas infrastructure places our clean energy economy at risk About E2 Environmental Entrepreneurs (E2) is a national, nonpartisan group of business leaders, investors and professionals from every sector of the economy who advocate for smart policies that are good for the economy and good for the environment. Our members have founded or funded more than 2,500 companies, created more than 600,000 jobs, and manage more than $100 billion in venture and private equity capital. For more information, see or follow us on Twitter A unique opportunity We are at a pivotal moment in building a long-term reliable energy system that is efficient, lowcost, and low-carbon. Many of s oldest and dirtiest power plants have been retired, NY 10011, CA CA

2 or are likely to be retired shortly. Experts estimate that will need to replace about 6,300 MW of new capacity 1 by 2020, an amount equal to about 20% of current capacity. This presents a unique opportunity for our state and region. The decisions we make today will determine our future for decades. We can either continue with our outdated 20 th century dependence on imported fossil fuels or take control of our energy destiny, reduce price volatility, and lower greenhouse gas emissions by embracing an integrated 21 st century system based on energy efficiency, distributed generation, energy storage and smart grid technology. Here are the reasons why these contracts are not in the public interest. 1. New natural gas pipelines are unnecessary The most up to date analysis shows that we have adequate capacity The studies cited to support new pipelines are based on faulty assumptions, outdated information and have many caveats. The recent independent study completed by the Attorney General s office determined that, Under existing market conditions there is no electric sector reliability deficiency through This result reflects both the declining longterm forecast of peak winter demand and the increasing availability of new non-gas resources, including dual-fuel capable units that can generate on oil during peak winter periods. 2 Even under stressed conditions the potential shortfall is truly minor. There are 26 hours of deficiency spread out over 9 total days, with only 2 days and 4 hours with a total deficiency greater than 2,000 MW in the 2029/30 winter in any scenario. Furthermore, if prices do fluctuate and are high on a few of the coldest days, the AG s study notes that there are other more cost-effective measures to increase supplies than building multi-billion dollar pipelines at ratepayers expense. New pipelines would increase our over dependence on natural gas In 2014, Massachusetts used natural gas to generate 59% of its electricity 3 and supply about 50% of its home heating needs. 4 New pipelines would significantly exacerbate the problem of lack of fuel diversity. Because of our heavy reliance on natural gas, its price typically sets the price for wholesale electricity. A more broad based portfolio of energy resources would relieve the price pressure exerted by natural gas. Rather than being due to insufficient gas infrastructure, electricity prices are rising precisely because of our over dependence on this single source of energy. This addiction to natural gas, a commodity well known for its severe price volatility, places the state s ratepayers in a high-risk position and creates a strategic risk as gas supplies inevitably diminish over time. Market reforms are already lowering prices and increasing supply We have seen several changes in the energy landscape in recent years. Despite dire predictions and some of the worst winter weather on record, prices did not rise in Enhancing Capacity Markets to Improve Resource performance and Investment in, Robert Ethier; Restructuring Roundtable; 2 Power System Reliability in :Meeting Electric Resource Needs in an Era of Growing Dependence on Natural Gas, p. iii, at NY 10011, CA CA

3 Overall, from December 1 to March 20, 2015 prices were down 45% compared to a year earlier without any new pipeline capacity. 5 The price declines were due to several factors such as incremental market reforms; pay-for performance and winter reliability programs instituted by ISO-NE; and increased use of low priced LNG. Massachusetts residents bills are well below average for the US Eversource cites high winter electricity prices in Massachusetts and attributes them to natural gas delivery capacity constraints. Their analysis disregards the fact that electric bills for Massachusetts homeowners were the 22 nd lowest in the nation and below the average for This project subjects electric ratepayers to unprecedented financial risks The size and cost of natural gas pipelines either already underway or in the planning stages for Massachusetts is staggering. Name Northeast Energy Direct (NED) Access Northeast Ownership/Participa ting companies Kinder-Morgan; Tennessee Gas Eversource (40%), NGRID (20%) & Spectra (40%) Capacity Cost Location/Route Schedule/Stage 2.2Bcf/d 1Bcf/d; in increments Estimates: $3-5B 7 Northern MA, Southern NH $3B 8 CT, RI, Southern MA; will be mainly on existing footprint. Planned completion date 2018 Expected completion date Nov Table T5.a; 7 See 8 See NY 10011, CA CA

4 The combination of the Access Northeast and Northeast Energy Direct (NED) projects could result in expenditures of $8 billion or more. Industry experts are already worried that pipeline capacity could outstrip shale gas production, leading to unused capacity and abandoned infrastructure in the near future. 9 Some years down the line when we likely no longer need these pipelines, the cost of these stranded assets will be born by ratepayers, rather than the private sector, because ratepayers are being asked to finance these pipelines. If it is determined that there is insufficient gas capacity, it should be procured by gas-fired generators through ordinary market channels as a cost of doing business, rather than as a subsidy from ratepayers. The financial risks to ratepayers are many. For example: The cost of natural gas will inevitably rise over time The gas will be used for export, rather than for local and regional consumption These multi-billion dollar big dig pipeline projects will be late and over budget Let us consider each of these risks. The cost of natural gas will inevitably rise over time Using EIA data, industry expert Bill Powers predicts, America s shale gas resources and reserves have been grossly exaggerated and today s level of shale gas production is unsustainable. 10 He goes on to state, the shale gas boom is rapidly maturing and we are quickly approaching a point where shale gas production heads into decline. In fact, the majority of shale gas basins in America are already exhibiting declining production. Looking at the actual data, petroleum experts found that industry claims of profitability of shale gas production at $4 per thousand cubic feet (Mcf) were not credible. Forecasts of low long-term oil and natural gas prices are almost certainly wrong: It costs more than that to get the stuff out of the ground. 11 Once all the costs are figured in, gas wells drilled were not profitable. Today s prices are even lower, at $2/Mcf, leading to cries of anguish throughout the industry. 12 The gas will be used for export, rather than for local or regional consumption The next few years will likely witness the largest increase ever of LNG global export capacity. 13 Increasing our natural gas capacity -- far more than we could possibly use even on a few cold winter days -- makes it almost inevitable that the gas in the pipelines will be destined for export. The price differential between export and domestic prices make that an irresistibly tempting likelihood for natural gas producers. Prices of natural gas in Europe and Japan are 3 to 4 times higher than domestic prices The Popping of the Shale Gas Bubble 2014, Forbes, Despite Drilling Decline, U.S. Natural Gas Falls To $2; Forbes, October 15, 2015; 13 Falling Short: A Reality Check for Global LNG Exports, Leonardo Maugeri, December 2014; NY 10011, CA CA

5 There are already three proposed LNG export terminals in Eastern Canada that intend to export natural gas from the reversed Maritimes and Northeast pipeline. According to Massachusetts Senator Ed Markey, a new LNG export project in Nova Scotia confirms his view "that the ultimate goal of some natural gas pipeline proposals" is to "use as a throughway to export U.S. natural gas to Canada and ultimately to overseas markets" instead of helping residents. 14 If the gas from the proposed pipelines ends up going abroad, our ratepayers will be subsidizing projects that should be funded by the private sector and would actually contribute to increasing domestic prices for natural gas. These multi-billion dollar big dig pipeline projects will be late and over budget How many large-scale, multi-billion dollar gas pipeline projects come in on time and close to budget? Ernst & Young conducted a comprehensive review of 365 mega projects costing over $1 billion in the oil and gas industry. 15 They found that for multibillion dollar pipeline projects in North America, 64% had cost overruns; 50% had schedule delays and the average budget overrun was an unacceptable 41%. Those are not good odds for Massachusetts ratepayers. 3. There are more cost effective solutions to meet our energy requirements According to our Attorney General s Study, a diversified portfolio of clean energy solutions would ensure system reliability and predictability and provide the most cost effective response to the state and region s energy requirements. These solutions would: Avoid building costly new pipelines and creating stranded assets Reduce price volatility Reduce emissions Maintain the Commonwealth s leadership in clean energy. Our energy system as a whole and electric system in particular is entering a transformative period, as consumer-centric changes and smart energy management systems reduce reliance on highly centralized energy infrastructure. Before we ask ratepayers to support billions of dollars in new infrastructure, needs to look carefully at all choices, on both the supply and demand side. Local and regional distributed and renewable resources should play a key role in meeting energy and electric power requirements Spotlight on Oil and Gas Megaprojects; Ernst & Young; NY 10011, CA CA

6 Among the many sources that are more cost-effective and cleaner than new pipelines are: Distributed Renewable Generation Declining equipment costs are driving significant installations of distributed generation, and an additional 3,000MW (mostly solar PV) is likely to come on line in by Combined Heat & Power CHP facilities can significantly reduce electricity demand with only modest increases in gas consumption, and one study commissioned by the states identified over 6,400MW of CHP potential that exists across the region. 17 Renewable Thermal A 2014 Massachusetts law offers incentives for use of renewable heating technologies such as solar thermal, air- and ground-sourced heat pumps, and high efficiency, sustainably sourced biomass. The payback for these technologies is projected to be about 3 times higher than their costs, with renewables potentially reaching 30-32% of overall thermal energy use in the state by Other non-traditional alternatives -- Demand/response; demand-side management; new utility scale storage; and micro-grids are fields where Massachusetts companies are now in the lead. These can enhance reliability; meet peak demand; and add resiliency to the system. Offshore wind -- More than 742,000 acres off the shores of Massachusetts have been offered for commercial wind energy development - the nation s largest competitive lease sale to date for offshore wind energy. According to an analysis prepared by the U.S. Department of Energy s National Renewable Energy Laboratory, if fully developed, the area leased could support approximately two gigawatts of commercial wind generation, enough electricity to power over 700,000 homes. 19 Clean energy imports: wind energy plus hydropower Canada has substantial hydroelectric resources, which have very low emissions and are available at relatively low cost without the need for renewable energy subsidies. Several proposals are under consideration that would pair Canadian hydropower with wind resources from Maine or and could bring in up to 2,400 megawatts of clean energy. Repair gas pipeline leaks Massachusetts antiquated gas pipelines are extremely prone to leaks, which are not only dangerous but also waste valuable gas resources and cost ratepayers many millions of dollars. The gas leaked in and around Boston alone would be enough to heat as many as 200,000 homes each year and is valued at a $90 million loss per year. A Harvard study measured about 300,000 metric tons of natural gas leaks about 2.7 percent of all natural gas delivered to the region ICF, 2013 Implications of Demand Side Management Programs for Natural Gas Use In, available at: pdf NY 10011, CA CA

7 Imports of LNG Contrary to some previous assumptions about LNG pricing and availability, evidence points to a continuing strong supply for the region. Distrigas of Massachusetts LLC, through its affiliate GDF SUEZ Gas NA, LLC, has entered into a series of contracts to sell approximately 9.5 billion cubic feet (Bcf) of LNG to gas utilities to help meet peak demand for natural gas in the 2015/2016 winter and beyond. They have signed a 10-year agreement with one utility, providing a reliable source of natural gas without the need for new infrastructure. There is no reason why this new supply will not continue to provide price relief in the coming years, after which more diverse supply sources would likely come online. 4. Environmental costs and risks are too high and not in the public interest Under the Massachusetts Global Warming Solutions Act, the state has a legally binding commitment to reduce GHG emissions 25% below 1990 levels by 2020 and 80% below 1990 levels by Though we have made considerable progress, we need to take significant additional steps to meet the 2020 goal. It is undeniable that even with current usage of natural gas we would be unable to meet the 2050 goal. The new gas pipelines proposed today are intended to be in use for decades to come, using up the entire GHG budget in the year Furthermore, the pipeline routes jeopardize environmentally sensitive conservation land, well water, and reservoirs. Pipeline risks and costs include fragmenting wildlife habitat, spreading invasive species, cutting down forests, devastating wetlands, and taking permanently protected land by eminent domain in violation of the state constitution. 5. Massive new gas infrastructure places our clean energy economy at risk Spending billions on massive new fossil fuel infrastructure will put 6,000 employers and 100,000 clean energy jobs at risk by sending a damaging signal to the market that we are no longer serious about clean energy. The Massachusetts clean energy sector is booming. Now an $11 billion industry that accounts for 2.5% of the gross state product and employs nearly 100,000 workers, it is poised for accelerated growth. It can play a central role in meeting our energy needs. Massachusetts is ranked number 2 only behind California -- in the CleanEdge Cleantech index; number 1 in energy efficiency; and number 1 in per capita energy investment. Other states and cities are vying for leadership. California is on track to meet its RPS goal of 25% renewable energy by 2016 and 33% by 2020 and recently committed to 50% renewables by Burlington, Vermont, the state's largest city, recently became the first city in the, NY 10011, CA CA

8 country to use 100 percent renewable energy for its residents' electricity needs and Greenfield, Texas just announced that it intends to run entirely on renewable energy in just two years. Investing billions in new gas pipelines will leave much less money available for newer, advanced technologies of the future that will guarantee a lower cost, low carbon future. That money would be better spent on additional regional and local clean energy resources. Summary In conclusion, we urge you to reject the call for new gas infrastructure because it does not meet the department s criteria of being in the public interest. New pipelines have not been shown to be necessary; they are not the most cost effective solution; they subject businesses, investors and consumers to unnecessary economic and environmental risk; and there are better, cleaner, lower cost solutions available. Thank you for consideration of the E2 business perspective on these issues. Please contact Berl Hartman at or at berl@berlhartman.com if you have any questions. Sincerely, E2 Directors: Geoff Chapin Founder, Next Step Living Dan Goldman President & CFO GreatPoint Energy Berl Hartman Director, E2 Nancy D. Israel Principal Law Office of Nancy D. Israel David S. Miller Executive Managing Director, Clean Energy Venture Group Don Reed Environmental Consultant Tedd Saunders Executive Vice President & CSO Saunders Hotel Group, NY 10011, CA CA