A pipeline expansion that would bring more natural gas to New England faces a setback after losing its major customers in Massachusetts, following an unfavorable ruling by the state's Supreme Judicial Court.

Utilities National Grid PLC and Eversource Energy withdrew petitions they had filed with the Massachusetts Department of Public Utilities for 20-year agreements to take gas from the Algonquin Gas Transmission system. The pipeline system, owned by Spectra Energy Corp., is set to expand if the company can secure more customers.

The moves came after the Supreme Judicial Court of Massachusetts last week blocked a plan that would have allowed the electric utilities to pass along the costs of signing up to the pipeline to consumers.

Eversource said in a statement that it withdrew its contract petition in light of the court's ruling.

"This does not affect our commitment to the project," the company said.

Spectra said in a statement Tuesday that its expansion project is still moving forward, and that National Grid and Eversource are still co-developers. The company could find other customers for the capacity, in Massachusetts or in other states.

"We have put the court's decision behind us," Spectra said. "We are confident that, ultimately, the interests of New England's consumers will prevail with desperately needed gas supply made available by Access Northeast."

Proponents of the plan argued that a lack of pipelines in New England has driven electricity costs up, especially during cold winter months when gas is also being used for home heating, and that new pipelines would save customers money.

While New England sits within driving distance of mammoth natural gas shale formations, a lack of pipelines has kept output from nearby states from reaching the region.

Spectra, National Grid and Eversource had hoped to change that by expanding Spectra's Algonquin system in an effort to bring up to 1 billion cubic feet of gas to New England every day starting in 2018.

Finding a way to pay for construction has been a roadblock: pipeline companies want to know they'll have customers before they spend billions of dollars putting pipes in the ground. But power companies buy gas to fuel generators on a need-to-have it basis, and utilities are restricted in the extent to which they can pass on higher costs to rate payers.

In an order last year, the Massachusetts Department of Public Utilities determined that it could approve long term contracts between electric distribution utilities and pipelines and allow the utilities to pass along the costs to consumers.

The Conservation Law Foundation sued. Opponents described the deal as a "pipeline tax" that would shift the burden of funding pipeline construction onto consumers.

"The Massachusetts Supreme Judicial Court made it clear last week that electric companies can't gamble on pipelines with the hard-earned money of businesses and families across our state. That is exactly what these contracts would have done," said Josh Block, a spokesman for the Conservation Law Foundation.

Write to Alison Sider at alison.sider@wsj.com

 

(END) Dow Jones Newswires

August 23, 2016 22:25 ET (02:25 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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