Regional New England energy policy needed, council says

Natural gas consumption is up 140% in New England, compared to a 3% increase nationally during the past three decades, but the region remains the most oil dependent in the US, the New England Council said in a new assessment of the regional energy market.

By the OGJ Online Staff

HOUSTON, Aug. 23 -- Natural gas consumption is up 140% in New England, compared to a 3% increase nationally during the past three decades, but the region remains the most oil dependent in the US, the New England Council said in a new assessment of the regional energy market.

Despite improvements in energy efficiency, New England's energy demand, especially electricity and natural gas, will continue to grow, requiring a regional approach to energy policies, the council said.

"With the digital economy and the shift from oil to natural gas as the fuel of choice for power generation, we see no indication that this trend will abate," said James Brett, CEO of the nonprofit alliance of schools, hospitals, and private industry.

"For economic growth to be sustained, the energy issues and challenges facing New England should be addressed through regional energy policies. We learned in the 1970s and 1980s, and we see it in California today, that balancing energy supply and environmental quality requires a long planning horizon. Once demand outstrips supply, the solutions can take years to achieve and the damage to the economy and the environment can take even longer to correct."

In addition to doubling energy efficiency since the 1970s and a 26% decline in petroleum use over the same period, the report noted the region made progress in other areas, including:

-- Natural gas supplies have increased substantially, and the capacity of the region's natural gas pipeline system is up 30% over the past 3 years.

-- Renewable resources now account for 15% of the region's electricity fuel mix, higher than the national average.

-- With the construction and start-up of 10,000 Mw of new power plants, electric generating capacity is projected to be adequate and could result in downward pressure on prices.

-- Air quality has improved with almost all areas of the region now meeting federal health-based standards.

Nonetheless, the region faces a variety of challenges, according to the report. The lack of petroleum refinery capacity within the region, as well as declining capacity nationwide, will continue to decrease the flexibility of the supply of refined petroleum products such as gasoline and distillate heating oil to the region.

Noting a 10-20% decline in inventory during the past decade, the report recommends use of incentives to stimulate heating oil inventories and storage capacity as a hedge against tight supplies and price spikes.

It called dual fuel permitting for most natural gas-fired power plants "essential" to assure electricity grid reliability and as a hedge against price spikes. Yet, the report noted, permitting requirements vary significantly from state to state and even between localities within a state. The inability of power plants to obtain dual fuel permits could have adverse effects, the report warned.

Among the other policy recommendations in the council's report are the following:

-- Transmission capacity needs to be increased in the region. In the first year of restructured electricity markets, transmission congestion costs reached $120 million. Currently, 15 projects are proposed through 2010. If completed, they would significantly enhance electricity transmission infrastructure. In addition, a "mega project" has been proposed to run an undersea electric line from Nova Scotia to Boston and New York City. But the projects face numerous regulatory and permitting hurdles.

-- Action needs to be taken to spur development of wholesale and retail electricity markets with increased reliance on market-based pricing.

-- The region's nuclear electricity generating capacity needs to be retained to help maintain fuel diversity, and the federal government must meet its responsibility for disposal of nuclear waste.

-- Environmental regulations and implementation of rules needs to be coordinated regionally to avoid unintended consequences, including the premature shutdown of needed electricity capacity and excessive reliance on certain fuels.

Brett said implementing these recommendations will require closer coordination in the six-state region by policymakers. "This is also important to the region because of actions in Washington, DC," he said, including the prospect of federal legislation and Federal Energy Regulatory Commission actions that will have a major impact in the region.

More in Economics & Markets