Proposed NESE gas pipeline in New York: A bad bargain for ratepayers and taxpayers

National Grid proposes construction of a new gas pipeline that is estimated to cost at least $1 billion to build. National Grid claims that the proposed pipeline is needed to meet a growing demand for gas heating in cold weather, but its claim has no factual support, as detailed in this report.

This Northeast Supply Enhancement (NESE) pipeline would ship fracked gas from Pennsylvania to downstate New York for burning. The contract for its use would require ratepayers in Long Island, Brooklyn, Staten Island and most of Queens to pay $193 million a year for 15 years.

The pipeline would provide profits for its developer, the Williams Companies, Inc., based in Tulsa, Oklahoma, and related construction would provide profits for National Grid. But the ratepayers face a substantial risk. National Grid does not disclose what will happen if construction costs are higher than predicted—a common phenomenon in large construction projects. Also, this expensive ratepayer-funded structure could soon become obsolete, and ratepayers will be left with paying for an asset that provides no service.

The project required a Clean Water Act water quality certification for construction. During the first two rounds of environmental hearings in New York, National Grid’s proposal was rejected by the State Department of Environmental Conservation. The company responded by unilaterally declaring a moratorium on all new development. Inexplicably, it even refused to restore existing but suspended service. The New York State Public Service Commission (PSC) ordered National Grid to remove its unauthorized moratorium and to produce a report to evaluate long-term energy needs in its service area and alternatives to the pipeline. The PSC order is an attempt to find a constructive way to settle this matter. National Grid’s proposed report was issued for public comment in February 2020, and it must be finalized by June 2020.

The Institute for Energy Economics and Financial Analysis (IEEFA) has examined this proposed report and concludes that the pipeline is not needed for the following reasons:

• National Grid is not facing an urgent, pending, unmet demand. Ratepayers are being asked to foot the whole bill for a pipeline that will be used principally during very cold winter days.
• Conditions of extreme cold weather “peak demand” occur on only a few days out of the year, and experts report that the average number of days per year of below-freezing weather, locally, has been declining. A Con Edison study finds that overall warmer winters could lead to a 33% decrease in gas sales by 2050 and a 49% decrease by 2080.
• More flexible, targeted non-pipeline methods exist to manage and reduce peak demand.
• National Grid’s projections of increasing demand are higher than Con Edison’s, out of step with local and national trends, and unlikely to occur.
• The COVID-19 pandemic’s adverse impact on economic activity is substantial. The extent of this impact over the next several years is likely to have a dampening effect on demand, and as new demand arises, it is likely to encounter a market in which consumers have additional choices beyond natural gas.
• Future economic growth in New York does not depend on soaring use of natural gas. New York leads the country in industrial energy efficiency and its comparatively strong record in commercial and residential efficiency is about to become more robust due to new laws.

Strategic planning for energy efficiency and peak demand reduction to ensure coverage is reasonable, but, given these considerations, capital construction is not. The public dialogue is not about whether sufficient supply exists to meet current need. It does. The dialogue is about how to meet the needs of future economic growth in the region. The data confirms that there is no need for this pipeline. Weather trends, population patterns, existing efficiency measures, proven innovations to reduce consumer usage and rate-setting tools make clear that a no-pipeline alternative is sound policy that will have an affordable outcome for consumers.

Asking New Yorkers to pay for a $1-billion pipeline that is not needed is not responsible. Twenty years ago, National Grid and the Williams Companies’ case for a pipeline would have faced little public or institutional opposition, but time and innovation have rendered this proposal a monument to the past. Future economic growth in New York can and should be achieved using the best practices we have now, not outdated remedies. National Grid should move forward with a sustainable program designed with projections more in line with current real-world conditions.