Pipeline* - Local Natural Gas Distribution Companies - Natural Gas in New Hampshire Part 3

In my last post, I finished off by introducing the two local natural gas distribution companies (LDCs) here in New Hampshire that deliver natural gas to residential, commercial, and industrial customers through their distribution networks. As a reminder, I again present the map below  which shows the service areas of these two LDCs.

Source: NHPUC

The first and largest of the NH LDCs, with about 89,000 residential, commercial, and industrial customers as of 2012, is EnergyNorth which does business under the Liberty Utilities umbrella. Liberty Utilities has the franchise for the distribution of natural gas up the Merrimack corridor to the Lakes region—where they tap into a branch of the Tennessee Gas pipeline—and the tiny Berlin “island”, where they draw off the Portland Natural Gas Transmission System Pipeline that crosses the northern part of the state. EnergyNorth was, for many years, a standalone natural gas distribution company, but has recently been through several ownership changes. In 2000, it was acquired by Keyspan. In 2006, National Grid, a UK utility company, acquired Keyspan. National Grid then sold EnergyNorth to Liberty Utilities in 2012. Liberty Utilities is itself part of a much larger, multifaceted energy company, Alqonquin Power and Utilities Corporation. Alqonquin owns hydroelectric, wind, and solar generating facilities, and well as water, natural gas, and electricity distribution businesses in the US and Canada. Alqonquin Power and Utilities is headquartered in Oakville, Ontario, and is listed on the Toronto Stock Exchange. Liberty Utilities also has a smaller business distributing electricity to about 43,000 customers in the west and south regions of NH.

The other natural gas LDC is Northern Utilities, which operates under the Unitil name. This is a smaller natural gas and electricity distribution company with operations in Maine, NH, and Massachusetts. In NH, their gas distribution business is limited to the sea-coast area where they draw of the Granite State Gas Transmission pipeline which runs up the coast to Portland, Maine.   In 2012, they had about 30,000 natural gas customers. Northern Utilities Company has also been through many ownership changes. It was purchased by Bay State Gas in 1979, which  merged with NiSource in 1999. NiSource then merged with the Columbia Energy Group in 2000 and, in 2008, Northern Utilities was purchased by Unitil. Like Liberty Utilities, Unitil is also in the electricity distribution business in NH. Unitil is a publically traded corporation listed on the NYSE and is headquartered in Hampton, NH.

There are two aspects to the business of the LDCs. The first is creating and operating the natural gas distribution pipeline and the other is providing the gas that the customer uses. This is the reason that NH natural gas users are charged separately for natural gas distribution services and for the natural gas commodity itself (see Jumping Jack Gas for a typical breakout of a NH natural gas bill).  Establishing and operating a gas distribution network is a complicated, expensive,  and highly specialized business so these utilities have the sole right to distribute natural gas in a specified area - a monopoly - on condition that it is done cost-effectively, safely, and that the service is reliable. As a consequence of the monopoly awarded to these companies, they are tightly regulated by the New Hampshire Public Utilities Commission. (For a primer on public utilities, see What’s It All About, Alfie?)

In NH, the natural gas business is partially deregulated. Only the large industrial and commercial customers can choose their natural gas supplier from competitive suppliers. Residential users have no choice and are obligated to purchase their natural gas from their local distribution company. The LDCs therefore distribute natural gas supplied by others in the case of commercial industrial customers or supplied directly by themselves directly for residential customers.

Operating a natural gas distribution company is a challenging business. As we were reminded again by the gas explosion in New York last month that killed eight people and leveled two buildings, handling, transporting, and safely delivering a combustible fuel takes special technology and unique precautions. When the pipelines leak and the leaks go undetected or unreported, the consequences can be disastrous. The LDCs have a safety-first approach and are very concerned about running a safe distribution system. They react rapidly to reports of natural gas leaks. We, as citizens, also bear some responsibility for natural gas safety and we should promptly report leaks when we smell that distinctive natural gas smell. All excavation projects, including simple home projects like planting trees and shrubs, should be first cleared by a call to the Dig Safe hotline at 811 so that they can come out and mark where your utility lines run. Nothing quite spoils a gardening or home construction project like puncturing a natural gas line: you really don’t want to be that guy who caused the whole neighborhood to evacuate on a Sunday morning! 

Source: Flickr - Eugene Peretz

One of the prevailing safety issues is that the original gas distribution piping was made of unprotected cast iron or bare steel buried underground. After years of underground exposure, these pipelines slowly corrode and, in areas where soil moisture is high or the conditions are highly corrosive, corrosion can be severe and leaks can occur. The picture below shows a piece of highly corroded pipe removed from a natural gas distribution network in NH. The LDCs have active programs in place to replace steel pipe with newer and safer high tech plastic piping, but this is an expensive endeavor with costs of the order of $1.5 million per mile. Over the years, the utilities have replaced a great deal of their networks with plastic distribution pipelines. The latest pipeline report indicates that only 155 miles (8.2%) of the 1875 miles of piping in NH is still made of iron. Compare this to NYC, where 60% of distribution mains are still made of cast iron or bare steel and where some of the lines are over 100 years old.

Corroded Natural Gas Pipeline from Nashua, NH Area

Source: NHPUC Filing

These LDCs are an important component of the business infrastructure for NH and, like all other businesses, they are looking to grow and to earn a return on their investment. However, they face some unique challenges. From my research and discussions with some of the LDCs and other folks who have been in the natural gas business for a long time, I got an improved understanding and appreciation for their business and challenges. Here are some of the interesting things I have learned:

• LDCs make their money from the distribution of natural gas and not from the sale of gas. The natural gas is passed through to their customers on a dollar-for-dollar basis. They are not allowed to mark up the price of natural gas that they purchase and resell. In the case of commercial and industrial customers, they simply transport gas provided by a competitive supplier.
• Because the LDCs are regulated utilities with a monopoly in their service area, any rate changes to their services need to be approved by the regulators at the NH Public Utilities Commission. 
• In the rate-setting process, several factors are taken into account, the key one being the investment the LDCs have made in distribution equipment and facilities (pipelines, compressor stations, trucks, etc.) as well as the working capital used to operate their business. These investments are collectively known as the rate base. Expenses such as payroll, administration, and taxes are also taken into account. Because LDCs are for-profit business, they are allowed to earn a return on their distribution services, however, the rate of return is capped by the regulators, and is typically in the range of 9 to 10% on the equity invested.
• Rate-setting is a complicated business and rate cases presented by utilities are expensive and lengthy endeavors requiring a great deal of review and analysis by both the LDC and the regulators.
• Growing the natural gas distribution business is expensive and challenging. The reasons are complex, but an important aspect is that within the networks, the LDCs have already been very successful in signing up natural gas customers. In their service areas, which is considered to be within 100 ft of natural gas main, the LDCs have already signed up about 80% of potential customers. This significantly limits potential growth in their customer base from within their existing distribution network. Growth needs to come from expanding the network.
• At the same time as the natural gas utilities are trying to grow their businesses, there is a negative impact on natural gas usage due to energy-efficiency measures  in homes and the “natural” turnover and replacement of aging heating units, such as dryers and stoves, to more efficient units.

As public utilities, the LDCs are required to submit annual reports to the NH Public Utilities Commission. These reports make for compelling reading. Here are some interesting details that I gleaned from an examination of the 2012 annual reports (2013 reports are not yet available):

• These are capital-intensive business with profitabilities of the order of 5%.
• Revenues per customer are ~$900 per year and net income per customer is only about $50/year, which is not a great deal.
• The bulk of their costs are associated with the purchase of natural gas (about 60% of their overall expenses).
• Other costs include typical operations and maintenance costs, depreciation, administration and debt service expenses.
• The LDCs keep a small supply of liquefied natural gas at storage facilities on hand to assist with supply shortages. Some will even use propane when natural gas is in short supply and some LDCs have even purchased storage capacity at underground storage locations located in other parts of the US to ensure gas supply during periods of high demand.  

A question often asked is why the natural gas utility cannot provide natural gas to your home. The main reason is that there may not be a natural gas main pipeline nearby. The service area for a natural gas company typically lies within 100 ft of a mainline: anything further becomes too expensive. Expansion of service area by the laying down of new distribution piping is expensive and consideration must be given to the costs of pipeline extensions, housing density, and the probability of signing up new customers. Moreover, regulators are very sensitive to the “socialization” of expansion plans so they do not want network expansion plans funded by rate increases for existing customers. New pipelines, which cost about $1 million per mile, have to be paid by new customers. As noted earlier, the income per natural gas customer per year is low so capital recovery and return on investment requires a very long period. It is for this reason that expansion in natural gas service areas is a slow, measured, and carefully evaluated process.

Laying new natural gas distribution pipelines. 

In my next post, I will take a closer look at retail natural gas pricing in New Hampshire, which turns out to be a fairly complicated matter.

In the meantime, remember to turn off the lights before you leave the room and call Dig Safe at 811 before starting to dig.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

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[*Pipeline – A great 1960’s surf music instrumental by the Chantays. I have always have loved the way this tune kicks off with that distinctive riff. You just know there are good things to come. Here is Pipeline, covered by Stevie Ray Vaughn and surf guitar god, Dick Dale.] 

End of the Line* - Natural Gas Transmission Pipelines in New Hampshire - Natural Gas in New Hampshire Part 2

One of the major sources of energy in New Hampshire is natural gas. Natural gas has also been a major disruptive force in the energy markets throughout the US. Just five years ago, we were importing significant quantities of natural gas into the US and foreign deliveries of liquefied natural gas, such as that shown below, to storage depots located in Boston harbor were the order of the day.

Liquefied Natural Gas Tanker Making Its Way Through Boston Harbor Near Charlestown

Source: http://www.boattest.com/resources/view_news.aspx?NewsID=663

In 2008 fracking technology kicked into high gear and we were able to release the vast resources of previously inaccessible natural gas and oil located in shale deposits in Texas, Pennsylvania, North Dakota, and other places.

Natural gas is typically transported by major interstate pipelines that run across the US. As I noted in my previous post, these steel gas pipelines are 20 to 42 inches in diameter and are buried underground along 100 ft rights of way. Compressor stations along the pipelines maintain the gas pressures, which can range from 200 to 1500 pounds per square inch. The natural gas is then directed to distribution points where it passes through a gate station. Here it becomes the responsibility of the local distribution company which then drops the pressure, adds the odorant that gives natural gas its distinct smell, and directs the gas through lower pressure and smaller 2 to 8 inch mainlines to homes and business. Service lines branching off the distribution mainline bring the gas directly into homes or businesses.

Natural gas can also be compressed and transported as compressed natural gas,  CNG,  or even liquefied at very high pressures to form liquefied natural gas, LNG, which can be transported by rail, truck, or ship (as shown in the picture above). In fact, CNG and LNG are interesting and growing options to get natural gas to areas where there are no natural gas pipelines (but that will be a topic for a future blog). In this post, we focus on natural gas transported in pipelines.

As shown in the figure below, the US has an impressive network of natural gas pipelines snaking their way across the country, especially across the central corridor from the Great Lakes down through Texas and the Gulf Coast region. The gas pipeline network is particularly dense in the areas where the natural gas is found, such as Texas, Oklahoma, Louisiana, and Pennsylvania.

 Source: EIA

The figure above and the accompanying figure  below, which shows more detail for New England, indicate that the natural gas network is rather more spread out in the Northeast. Massachusetts and Connecticut are reasonably well serviced but this pipeline network somewhat peters out for the northern New England states. When it comes to natural gas pipelines, New Hampshire and Vermont are literally at “the end of the line”.*

Source: ICF/ISO NE 

In NH there are only four natural gas pipelines. The most important for NH residents is the Tennessee Gas Pipeline (TGP) which is owned by Kinder Morgan and which brings gas from Texas, Louisiana, and the Gulf of Mexico into New England. This pipeline crosses New York state and the length of Massachusetts and distributes gas across a large part of MA. This pipeline has several tributaries, one of which branches off near Lowell in Massachusetts and heads north into NH along the communities near the Merrimack River and reaching as far as the Lakes region.

In the northern part of the state,  the Portland Natural Gas Transmission System (PNGTS) pipeline (shown in light blue in the map above) brings in gas from Canada from the Trans-Quebec and Maritimes pipeline systems. This pipeline drops down from Canada along the VT/NH border and then crosses the northern part of the state into Maine where it heads for the seacoast to join up with the Maritimes and Northeast (M&N) pipeline. The PNGTS pipeline, owned by two Canadian gas companies, TransCanada and Gaz Metro, is not a distribution pipeline to deliver gas to NH. Instead it is a transmission pipeline focused on bringing Canadian natural gas to some major paper mill operations in Maine and natural gas-fired generation operations in New England. After this connects with the M&N pipeline in Westbrook, ME, it drops down through the Maine and NH seacoast area, dropping off natural gas in the Portsmouth area on its way to Dracut and Haverhill, MA, to bring Canadian natural gas to the area north of Boston. The section of the pipeline from Westbrook, ME, to Dracut, MA, is a joint venture between PNGTS and M&N.

Source: PNGTS

In NH, the PNGTS pipeline has three metering stations, one in Pittsburg, another in Groveton (the now defunct site of the Groveton and Washau Paper Mills), and an important one in Berlin. At this station, natural gas is tapped off the PNHTS pipeline and distributed in the local Berlin area by Liberty Utilities, which accounts for a lone island of natural gas supply in the northern part of the state. The Gorham paper mill also accesses natural gas from this pipeline and it is the cheap fuel from this pipeline that is large part of why this paper mill is still a viable operation. However, increases in natural gas prices this past winter caused the paper mill to curtail operations and lay off workers. The metering stations represent potential distribution points for natural gas and plans are afoot to use the Groveton and Gorham sites as a distribution point for LNG.

The third pipeline that impacts New Hampshire is the 730-mile long M&N pipeline that brings in natural gas from New Brunswick, the Sable, and Deep Panuke natural gas deposits offshore of Nova Scotia as well as from the LNG storage and re-gasification facility in St. John, New Brunswick. This pipeline is jointly owned by Spectra Energy, Emera, and Exxon Mobil. It connects with the PNGTS in Westford, Maine and, as mentioned above, it then shares the pipeline with PNGTS to head south along the Maine and New Hampshire seacoast on its journey to Dracut. It also branches off and delivers gas to Methuen and Beverley, MA. Its original function was to bring Canadian natural gas from the Maritimes to Atlantic Canada and New England, however, with gas production from Maritimes offshore deposits declining and increased natural gas consumption in the Maritimes states, there could in the future be a shortage of natural gas in the Canadian Atlantic states. In a remarkable reversal, consideration is now been given to reversing the flow of natural gas along parts of this pipeline to bring gas from the Pennsylvanian natural gas deposits up through New England and then sending it north to Maine and perhaps even into Atlantic Canada.

The fourth pipeline is the Granite State Gas Transmission (GSGT) pipeline that runs from Haverhill, MA, up to Portland, ME. This pipeline is owned by Unitil and, for most of its journey, runs in parallel with the PNGTS and M&N shared pipeline, as can be seen from the map below. This pipeline picks up gas from the hubs in the Haverhill area (from either the PNGTS,  M&N, or the TGP pipelines) and then sends it north up the seacoast to Portland, Maine, where it supplies the Unitil distribution network along this area.

Source: GSTS

With knowledge of these four pipelines, it is now straightforward to understand which communities in NH have natural gas, as shown on the map below. As noted, we have the lone northern island of natural gas supply in Berlin where the gas is delivered by PNGTS pipeline. We also have the seacoast communities in dark blue, where the gas is supplied by the GSGT pipeline, and then we have the communities along the Merrimack corridor that tap into the tributary of the TGP pipeline. [There is a single small propane distribution network in Keene which is shown in grey.]

Source: NHPUC

The seacoast area is the service area of Unitil and the Merrimack corridor, and the lone dropoff point in Berlin is serviced by Liberty Utilities. These are the only two local distribution companies  in New Hampshire that deliver natural gas to residential, commercial, and industrial customers through their distribution network.

My next post will take a closer look at these local natural gas distribution companies, but, in the meantime, it is important to be aware that, even though I am looking at natural gas from a NH perspective, we need to appreciate that natural gas consumption and supply is very much a regional matter. All natural gas is imported into New England. It comes in from Texas, Pennsylvania, Canada, and the Maritimes and its supply is very limited by the size and number of pipelines. Natural gas is very much like electricity—difficult to store and much of its use is on demand. When there is insufficient natural gas, electricity production is compromised and the lights could go out.

So until my next post, do your part to keep the lights on by remembering to turn off the lights when you leave the room.

Mike Mooiman

Franklin Pierce University

mooimanm@franklinpierce.edu

Click on this link to receive email notifications for Energy in New Hampshire updates

(End of the Line* - A great tune from the band The Travelling Wilburys that really lived up to its “supergroup”  labeling. Featuring George Harrison, Tom Petty, Jeff Lynne, Roy Orbison, and Bob Dylan, the group’s two albums remind us of what happens when a lot of musical talent and a great deal of superb songwriting come together.)