In the Pipeline

An interview with Michael Trunzo on pipeline expansion developments

By Keith Reid

The effort to expand the natural gas pipeline infrastructure in the Northeast has been going on for some time. While heating oil and propane marketers have a vested interest in opposing such things, the biggest push back tends to come from such expansion efforts working to bypass the free market and get taxpayers or existing customers (who have limited alternatives) to basically fund their market expansion efforts. And in many cases they are likely funding efforts that will do as much—or more—to serve export opportunities as they will any local need cited.

Several developments on this front featured in the news, most recently.

Kinder Morgan has apparently abandoned it Northeast Direct Pipeline project (in coordination with Tennessee Pipeline Company). As New England Fuel Institute noted they cited an inability to attract sufficient firm capacity commitments from utility companies and other users. The project would have expanded their current pipeline network, bringing natural gas from the Marcellus Shale formation in Pennsylvania through New York State, Massachusetts, New Hampshire and ultimately Maine at a cost to rate payers of $3.3 billion.

Similarly, Williams Companies’ 124-mile Constitution Pipeline was halted by the New York Department of Environmental Conservation over water quality standards issues. The pipeline was to run from Susquehanna County, Pa., into Broome County, N.Y., Chenango County, N.Y., Delaware County, N.Y.

And at the federal level, S. 2012, the Energy Policy Modernization Act, has just passed out of the Senate. Among other things it promises to loosen permitting requirements for new pipeline construction. Fuel Oil News decided to speak with Michael Trunzo, NEFI’s advisor for public policy and industry relations about the state of pipeline expansion today.

FON: What was behind the Kinder Morgan pull back? It was pushed to meet the fuel needs of regional power producers.

Trunzo: From NEFI’s standpoint, we’ve been monitoring the natural gas pipeline expansion projects in the area for a number of years and we have always opined that the petroleum and energy distribution infrastructure meets the needs of the power producers today and moving forward. Traditionally, deliveries have always been able to provide what’s needed for the power producers.

So we said that the Kinder Morgan Northeast pipeline was not needed, particularly if it was being subsidized by the ratepayers of the region. Last year the Massachusetts Atty. Gen. Maura Healy came out with a report that pretty much said the free market can sustain the region’s power energy needs for the next 15 years. If it was a project that was that valuable to the company, they should have been spending their own money to build it. And since that’s apparently not the case, it saves ratepayers and allows the free market to exist in New England the way it should.

FON: Ultimately, in your opinion what is really driving these efforts? They claim a lack of capacity for electrical generation, or home heating prices but then you have these export opportunities.

Trunzo: Some of the governors that were supportive were looking to provide the least expensive electric power production for a region which has ostensibly some of the highest rates in the country. However, as the commodities market changed that whole equation changed. The question of was this done for that one reason—yes, I believe so.

Was it done for the potential to ship LNG overseas? Yeah, I believe that’s another piece of the puzzle that was not spoken about a lot. But Sen. Markey (D-MA) brought that out in his comments in opposition to the [Kinder Morgan] pipeline and honestly discussions that I’ve had with the Department of Energy raised concerns over what the end goal really was. Building a pipeline to have capacity for power production, but ending it in Eastport Maine where there happened to be an export opportunity… was that coincidental?

I think the offshoot of being able to tap the main for residential conversion was part of the general plan, though not necessarily spoken about a lot. But I think that was more apparent when people saw natural gas as the least expensive alternative for home heating, when truly it is not now.

I would think that when these were first hatched, crude oil was around $100 a barrel. So given the price decline of crude–and this winter heating oil and natural gas are close to being on par on a BTU basis–the economics of that alone ultimately made these project questionable.

FON: the Northeast tends to have a strong environmental focus in many ways comparable to that you see in California. Although natural gas is marketed as a “clean” fuel it is still a fossil fuel to many activist environmental groups. How has this played out with pipeline expansion?

Trunzo: Throughout these pipeline expansion projects we forged an interesting relationship, and a nice one, with the Conservation Law Foundation. They’ve been opposing the natural gas pipeline expansions, though for different reasons than us. We look at it from the standpoint of a market economy and our industry being able to provide what is needed, and they and other environmental groups are looking at it more from an anti-fossil fuel position.

But one of the interesting aspects is that as we speak about biodiesel and the increased use of that as a blending agent into heating oil–making it cleaner, greener and more renewable–we found that we have some reasonable allies in the environmental community. There are number of homes that may never have an ability to switch from oil to some other fuel. The ability to make that fuel cleaner and to provide better greenhouse gas emissions across the spectrum is a hallmark moment.

We do have one of the cleanest heating fuels on the horizon for homeowners and even commercial use. If you look at New York City where they currently have a 2% requirement, and they are in the midst of considering a bill to move that 5% this coming winter and up to 20% over the next 15 years or so, New York City has heating oil as the cleanest fuel for home heating in the entire city. Even at low percentage blends heating oil can more than match anything out there.

FON: The Senate bill is fairly large and comprehensive, what are the details of the pipeline expansion component?

Trunzo: It is something that NEFI is concerned about. This is the first comprehensive review of the energy policy in about eight years. This bill generally covers the easing of permitting for pipeline expansion. Basically, it puts some time frames on local jurisdictions for responding to applications as a streamlining process. I think the Congress is looking at ways to ease pipeline expansion, but even with that easing there are still economic and environmental reviews the need to take place. And, I think that will see that some of these are just not viable regardless of the timeframe.

We believe that there needs to be ample review of any of these proposals with due process in place that allows for state governments and local governments to have their say. Just moving something through because the government may not respond in a 90 day is a difficult thing in our eyes. These are very complicated projects where they move through a number of different communities and I think that ample time needs to be provided.

FON: That brings us around to the recent decision with the Constitution Pipeline.

Trunzo: If you look at what happened with New York the Department of Environmental Conservation rejected Section 401 Water Quality Certification for the Constitution pipeline. It had pretty much received almost all of its federal approval through FERC, etc., and this was one of the last items they needed to move forward. And in a nutshell, the pipeline was going to cross 250 streams and some old-growth forest areas and even though the DEC requested them to provide a lot of information they never responded to those inquiries. Did the state hold onto it for close to a year before they rendered an opinion? Yes. Is that too long of a time frame? I don’t know. These are complicated projects so there is a lot of review that has to go into them.

FON: If you look at resistance to these pipeline projects a lot of the times it seems to be driven at the local, grassroots level.

Trunzo: Grassroots, local opposition is been a big factor in many of these projects. Interestingly, when you look at what went on in Vermont with the Gaz Metro pipeline, that was interesting because it had tremendous local opposition but ultimately got approved by the state public utility commission, and even with tremendous cost overruns. But I think there was tremendous support among state officials there to move that project forward. At this point there are a couple of eminent domain cases left to be negotiated, and then that might be free and clear to go. But that was the antithesis of what happens in other places.

FON: What are some of the major pipeline concerns that remain on the table today?

Trunzo: There are obviously a number of pipeline projects in the queue, if you will. But the other major one right now for New England would be the Access Northeast that comes out of Connecticut through Massachusetts and up into Maine.  My understanding is that it is being funded by the companies themselves, and since a lot of it’s going along the current right-of-way I’m not sure it has all of the same environmental issues.

FON: Once a company gets the mainline in place, how easy is it to expand natural gas service to the residential customer?

Trunzo: That is really the big question—the cost of running the pipe from the main through localities, and then from those branches to homes. Thousands of dollars per foot and there are a number of concerns. If somebody does want to hook up to natural gas who pays for those hookups? Not just the extensions off the main, but the line to the home itself. And that’s where natural gas conversions get into a lot of money either for the utility trying to service the home or for the homeowner who may want to use natural gas. The economics of conversions to natural gas and who pays for it is a huge issue.

FON: At the grassroots level, is it easy to get the message out to existing natural gas utility or electrical customers that they might, in some cases, be the ones paying for their neighbors’ conversion costs?

Trunzo: There is a lot of education that needs to be done on how these projects are being paid for, whether that is through tariffs being filed with the public utility commissions in the various states, or through legislation that approves the ability to use state resources for these types of expansions. There is a big cost and most of these are being looked at as being added to the electric ratepayer bill in which everyone pays whether it is for power production or the expansion of residential conversions.

It goes back to where we started–we are a free market economy. And it seems as if there is a move afoot to have these companies avoid operating in that realm while the home heating dealer operates in that realm every year. NEFI has maintained that position in the Quadrennial Energy Review comments we made several years ago, and we were quite pleased when the Massachusetts Attorney General  sort of echoed what we’ve been saying in the independent study she commissioned.

FON: NEFI has fought some big battles over the years, work on energy commodity speculation and as far as David and Goliath battles go how does the stack up? There seems to be some fairly big players on the other side.

Trunzo: I would say we’ve been very effective in that regard. And I believe that stems off of several things. First, we have the issues on our side. We’re not a big financial powerhouse, but when we can marshal our forces and bring out the issue arguments to the forefront people tend to listen. The ability of the New England delegation to represent the interest of the home heating industry has been very strong. We also have great relations in our affiliation with the Petroleum Marketers Association of America. We work extremely closely with them and that state federation across the country brings a lot a clout. And you really need that on some of these issues.