UIL Holdings is making an $80 million investment in a natural gas transmission line project being proposed for New York, Massachusetts and New Hampshire.
The investment by the utility holding company, which was announced Friday after the close of U.S. financial markets, will give UIL Holdings a 2.5 percent ownership stake in the Northeast Energy Direct pipeline project proposed by Kinder Morgan, a Houston-based energy company. Plans call for the natural gas transmission line to extend 188 miles from upstate New York State, through western Massachusetts and southern New Hampshire before terminating in Dracut, Massachusetts.
Construction of the $3 billion project is expected to start in 2017 with the pipeline becoming operational in November 2018. Northeast Energy Direct is part of a larger, 412-mile transmission project that would bring natural gas from the Marcellus Shale deposits of north central Pennsylvania to the population centers in southern New England.
The proposed pipeline is one of several being proposed to alleviate constraints in the natural gas transmission network that have been exacerbated by the number of power plants in New England that run on natural gas. Over 60 percent of the electricity generated in the region comes from power plants fueled by natural gas, according to regional power grid operator ISO-New England.
"We are pleased to have this opportunity to participate in this critical investment in New England's energy infrastructure," James Torgerson, UIL's president and chief executive officer, said in a statement. "The NED project will bring abundant, low-cost and critically needed natural gas supplies to the heart of New England, helping alleviate infrastructure bottlenecks that have resulted in higher energy costs to residents of the New England region."
Kimberly Watson, president of Kinder Morgan's East Region Natural Gas Pipelines, said UIL's involvement in the project "as an equity investor further demonstrates the importance and value this project will bring to New England in the years ahead, meeting the energy demand for business and residential customers, and furthering economic growth in the Northeast."
Michael West, a UIL spokesman, said the company's deal with Kinder Morgan gives it the opportunity to purchase an even larger ownership stake in the transmission line project.
UIL already had made a commitment in March to have its subsidiaries — Berkshire Gas, Southern Connecticut Gas Co. and Connecticut Natural Gas Corp. — become anchor customers for the project. Currently, Kinder Morgan has executed commitments to transport more than 550,000 dekatherms per day of incremental natural gas supplies.
Berkshire Gas, which serves western Massachusetts, declared a moratorium on new natural gas connections in late 2014 that was later expanded upon in March of this year.
West acknowledged that the additional availability of natural gas from the Northeast Energy Direct project would benefit Berkshire Gas, but added, "that's not the primary reason that we did this."
Joel Gordes, a West Hartford-based energy consultant, said UIL's primary interest in the project is as an investment. Gordes noted that there have been discussions about including a surcharge for electricity customers across New England to help pay for the costs of the transmission line projects.
"The huge majority of this gas is not going to be used for the residential sector," he said. "It's going to be used to run the power plants and I think they (UIL) are viewing this as a purely economic type of thing. I think they believe they have an opportunity to make a lot of money."
But some assessments of the amount of natural gas available from the Marcellus Shale fields have raised questions about how long that fuel supply will last, Gordes said. The Marcellus Shale natural gas field stretches from upstate New York in north to western Virginia in the south and from eastern Pennsylvania to West Virginia and Ohio.
"There's a question as to whether the reserves will last long enough to recover the costs associated with building pipelines like this," he said.
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