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The Massachusetts Supreme Judicial Court ruled that retail electricity consumers should not be forced to bear the risks of new natural gas pipeline construction in the state.

(The Republican File)

BOSTON -- The Massachusetts Supreme Judicial Court on Wednesday struck down a mechanism where electrical ratepayers would foot the bill for natural gas pipeline expansion in the state -- an arrangement that fossil fuel foes have dubbed "the pipeline tax."

The state's highest court heard oral arguments in the closely followed case in May.

The ruling, penned by Justice Robert Cordy before his retirement, hands victory to the Conservation Law Foundation, which has opposed the growth of pipelines, and to Engie Gas & LNG LLC, which imports liquefied natural gas, a competing fuel, into New England. The parties last fall filed separate petitions naming the state's Department of Public Utilities.

Cordy wrote that the mechanism would undermine the objectives of the state's 1997 utility restructuring act and expose ratepayers to financial risks that lawmakers sought to eliminate two decades ago.

The restructuring law broke up vertically integrated energy monopolies and forced electric utilities to sell their power-generating assets. The law created a competitive market for electricity.

Last year the administration of Gov. Charlie Baker, through its Department of Energy Resources, asked the Department of Public Utilities to investigate a mechanism where electrical utilities could help provide stable financing for natural gas pipeline capacity.

The DPU in October stated it has the authority to approve long-term contracts by Massachusetts electric companies for interstate natural gas pipeline capacity. The utilities would be authorized to re-sell natural gas to the market, including the power sector, through a third party.

The contract costs would be recouped from electrical ratepayers through a tariff. Utilities under Eversource and National Grid opened dockets with the DPU seeking such capacity on Access Northeast, a line that would serve a cluster of New England power generators.

Utilities had also sought capacity on Northeast Energy Direct, a line 420-mile once proposed by Kinder Morgan. The Texas company withdrew plans for NED in May.

Unlike natural gas utilities, electric generators are unwilling or unable to enter into longterm pipeline contracts, instead preferring to buy natural gas on the spot market. However, pipeline operators are unwilling to build more capacity without such long-term contracts in place.



State energy officials had characterized the situation as a "mismatch" of needs and incentives that requires a "solution," wrote Cordy.

"We conclude that the Legislature did not intend to authorize the department to approve the contracts contemplated in its order, but rather intended, with limited exceptions, to regulate the gas and electric utilities differently," the SJC ruling stated.

The Conservation Law Foundation celebrated Wednesday, saying the court declared it unlawful for Massachusetts "to force residential electricity customers to subsidize the construction of private gas pipelines." The ruling instead makes the companies themselves "shoulder the substantial risks of such projects."

"This is an incredibly important and timely decision," said David Ismay, CLF's lead attorney on the case. "Today our highest court affirmed Massachusetts' commitment to an open energy future by rejecting the Baker Administration's attempt to subsidize to the dying fossil fuel industry."

A spokesman for Algonquin Gas Transmission, sponsor of Access Northeast, said the company "is extremely disappointed with the decision of the Massachusetts Supreme Judicial Court."

"This leaves Massachusetts and New England in a precarious position without sufficient gas capacity for electric generation during cold winters," said Algonquin spokesman Arthur C. Diestel. "The lack of gas infrastructure cost electric consumers $2.5 billion dollars during the Polar Vortex winter of 2013 and 2014. While the Court's decision is certainly a setback, we will reevaluate our path forward and remain committed to working with the New England states to provide the infrastructure so urgently needed for electric consumers."

This story has been updated. Mary Serreze can be reached at mserreze@gmail.com