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Energy Cos. Group Sees Looming New England Supply Crunch
DOW JONES NEWSWIRES - November 9, 2005
By Jon Kamp

CHICAGO -- A consortium backed by several large energy companies warned Wednesday that New England faces looming energy shortages, and that policymakers need to resolve opposition problems that are making it tough to add energy projects in the region.

Demand for both power and natural gas could exceed available supplies and delivery capacity in the region within two years, the New England Energy Alliance said, citing a report it commissioned on local energy needs. The alliance doesn't advocate any specific projects or back any pending regulatory matters, but is urging changes for an environment where local opposition has successfully shot down key planned projects and slowed investment, said Carl Gustin, the alliance's president.

Major projects "have simply run into objections on almost a routine basis from local opponents," Gustin said in an interview. "Right now it's very difficult to get any kind of project sited."

The alliance said in a release that such uncertainty is "chilling necessary new investment." Gustin noted that there are no new power plants planned in New England despite the looming power needs, and cited high-profile battles over liquefied natural gas terminals as an example of the tough climate for energy developers.

Several New England LNG projects have been proposed in recent years to serve a region that depends heavily on natural gas, but has tight import capability. Only one LNG project, the Weaver's Cove terminal in Fall River, Mass., has gained Federal Energy Regulatory Approval, and it still faces federal legislative challenges and heavy local opposition.

"There's been too much outright opposition to LNG, to specific projects," Gustin said. "We're basically at a logjam."

Weaver's Cove Energy, an alliance member, is a joint venture between Amerada Hess Corp. (AHC) and Poten & Partners.

New England's potential energy supply crunch is a well-known issue, although the alliance's study sees a closer supply-demand imbalance than some other studies. Federal Energy Regulatory Commission Chairman Joseph Kelliher has noted on multiple occasions that New England could be headed for major problems if power plant development doesn't start keeping pace with growing demand.

New England's power grid operator is now pushing a controversial plan that would change the way power generators are compensated to encourage development where it's most needed. The alliance doesn't have a specific opinion on that plan, since some members support it and others oppose it, but they do have a common interest in making it easier to build, Gustin said.

"We do believe that some of the market uncertainties that are inhibiting investment need to be resolved," he said.

FERC opened the door in late October for the ISO New England grid operator and other parties to hold settlement talks over the compensation plan, which has drawn criticism amid concerns it could raise retail power rates. FERC has encouraged parties to develop an alternative plan.

The alliance's report was prepared by Analysis Group Inc. in Boston and was directed by Susan Tierney, former Assistant Secretary of Policy at the U.S. Department of Energy. She said in the press release that energy shortages could soon be "acute," and said policy makers need to aggressively act now to head off future problems.

The report encourages investment in LNG import capability, high-voltage power lines, power plants and renewable energy projects. The report also recommended making energy efficiency a priority.

The alliance also released an opinion poll showing that New England voters view energy supply and prices as a top priority. Of the eight states with the highest consumer energy prices, five of them are in New England, according to the report.

High prices can lead to heavy scrutiny when utilities and other energy companies try to invest in new projects. Executives from multiple utilities attending an industry conference in Florida this week predicted heavier regulatory scrutiny amid rising customer bills.