Vermonters join suit over alleged electricity price-fixing
Montpelier resident John Odum and South Royalton's David Leighton, along with their fellow plaintiffs, claim the companies artificially constrained New England's natural gas supply in order to drive up wholesale electric prices.
As a result, the suit states, New England electricity customers paid $3.6 billion more for power between 2013 and 2016 than they would have otherwise.
Electricity prices during those years were about 20 percent higher than they should have been, according to the suit.
"Not since Enron's greedy heyday during the California energy crisis, nearly two decades ago, have American energy markets been manipulated for private profit at such expense to everyday electricity consumers," the suit states.
Odum referred questions to the attorney behind the case, Thomas Sobol, of the firm Hagens Berman Sobol Shapiro LLP, based in Cambridge, Massachusetts. Sobol did not immediately return a call for comment. Odum, who is the Montpelier city clerk, is participating in the suit as a private individual.
The suit comes on the heels of a study that found Avangrid and Eversource reserving large volumes of natural gas pipeline capacity every day during important times of the year, then canceling the sales at the last minute. These purchases occurred on a pipeline critical to New England's wholesale natural gas markets called the Algonquin Pipeline, the study states.
In addition to raising prices, market manipulation also may be falsely bolstering arguments for more pipeline construction in the region, according to one author of the study.
By buying up so much of the Algonquin Pipeline's capacity, the two energy giants blocked gas purchases by other New England energy companies, the suit alleges. This artificial shortage drove up the cost of electricity, as most of New England's generation comes from natural gas-fired plants.
Gaming the market
Avangrid and Eversource, as electricity wholesalers, could profit off their high-priced electricity to a greater degree than was possible through natural gas sales, the study found. Unlike the natural gas distribution market, the New England wholesale electricity market doesn't cap utilities' return at a percentage of the value of their capital.
The potential for manipulation exists in certain cases where companies have multiple roles: selling natural gas, buying natural gas for the electricity generation market, and selling electricity.
Such companies may be able to game a regulated market to realize otherwise impossible profits off an unregulated market, said Charles Mason, a co-author of the study and a professor of petroleum and natural gas economics at the University of Wyoming.
The Canadian company Gaz Metro is another that operates in both gas and electricity markets, as the owner of Vermont Gas Systems and the state's largest electric utility, Green Mountain Power. GMP owns a number of electricity generators, including hydroelectric dams, wind turbines and solar arrays.
But it would be "impossible" for Gaz Metro to profit off the same type of market behavior that the lawsuit alleges, said GMP spokeswoman Kristin Carlson.
Unlike with Avangrid and Eversource, which sold wholesale electricity on a largely unregulated market, in Gaz Metro's case Green Mountain Power is a regulated utility subject to the same rate-of-return limits as Vermont Gas.
However, one of the study's authors suggested that a parent company of Gaz Metro knew of the alleged manipulation of the natural gas supply but did nothing to stop it.
The owner of the Algonquin Pipeline is a Houston company called Enbridge, which owns 40 percent of Gaz Metro.
Enbridge undoubtedly knew what was occurring with the daily pipeline capacity purchases that were withdrawn at the last minute, according to the study.
But Enbridge chose to look the other way, the study claims, because the company could use the artificial supply constraints to argue for building more pipelines. Enbridge has proposed a project called the Access Northeast pipeline in partnership with Eversource Energy.
"It is a near certainty the pipeline operator is aware of the scheduling practices on its pipelines that result in underutilized capacity," the study states. However, it says, pipeline companies make more money selling pipeline contracts than they do from ensuring those contracts actually fill their pipelines with gas. That means "their incentives lead them to favor constructing new pipeline capacity — to sell more contracts — rather than ensuring existing capacity is fully utilized," the study says.
"In New England, this incentive took the concrete form of the proposed Access Northeast pipeline expansion project " the study states.
Mason said that while the pipeline operator must have known about the companies' alleged behavior, he's not convinced Enbridge sanctioned it in order to push forward another pipeline project. Mason said that assertion was made by another of the study's authors.
Enbridge is not the only one calling for more New England natural gas pipelines.
Among the more influential proponents of expanded New England natural gas pipeline capacity is Gordon van Welie, who runs the organization that operates the region's electrical grid, ISO-New England. Van Welie has said repeatedly in recent years that the region is threatened by a shortage of natural gas pipelines.
Mason's study and the lawsuit that followed it haven't changed van Welie's or ISO-New England's positions on the subject, according to a spokesperson for the grid operator.
Neither van Welie nor ISO-NE has the data to evaluate the validity of the suit's claims, media relations specialist Marcia Blomberg wrote in an email. Blomberg also said ISO-New England has no opinion on the suit and that its claims are outside her organization's jurisdiction.
"That said," Blomberg wrote, "ISO New England's concerns about the reliability impacts of natural gas infrastructure constraints have not changed.
"The challenges of maintaining reliability on a power system that is increasingly dependent on natural-gas-fired generators have been apparent in New England since a January 2004 cold snap, and those operating challenges have only intensified since then. The use of natural gas for power generation continues to increase, but the capacity of the region's natural gas infrastructure has not been expanded at the same pace and it is not always adequate to deliver all the fuel needed for both heating and power generation during winter."
For its part, Eversource said the lawsuit spurred by Mason's study is groundless.
"We are aware of the lawsuit and are reviewing it," said Al Lara, a media relations officer with Eversource. "However, the facts remain unchanged: The allegations underlying this lawsuit are untrue and baseless. The expenditure of resources to further these false claims is regrettable for all parties involved."
Avangrid representatives did not respond to a request for comment.
Green Mountain Power is watching the case closely, Carlson said.
If the widespread overpricing the suit alleges turns out to be true, Carlson said, and if GMP recovers any money its customers were overcharged, all of it will go back to the utility's ratepayers.
Representatives at the Public Utility Commission and the Department of Public Service weren't able to say immediately whether their agencies might take action of their own against Avangrid or Eversource.
The chief of Attorney General T.J. Donovan's Public Protection Division, Christopher Curtis, said his office doesn't as a rule comment on investigations the AG's office may or may not be doing. Curtis did say Donovan's office is reviewing the study, and monitoring the lawsuit.
Gov. Phil Scott said Wednesday that he's "not familiar with" the matter. But he added that "obviously the cost of electricity is of great interest to me."
TALK TO US
If you'd like to leave a comment (or a tip or a question) about this story with the editors, please email us. We also welcome letters to the editor for publication; you can do that by filling out our letters form and submitting it to the newsroom.