By Michael Brooks and William Opalka

Massachusetts’ highest court Wednesday struck down regulators’ plan to allow electric distribution companies to charge ratepayers for additional natural gas pipeline capacity, concluding that the legislature intended for electricity and gas utilities to be regulated separately (SJC-12051).

The Department of Public Utilities issued the order last year in response to the Department of Energy Resources’ request for an investigation into how the state could add more pipeline capacity, an issue that has lingered since the polar vortex of 2014. The order was challenged by ENGIE Gas & LNG and the Conservation Law Foundation.

The Supreme Judicial Court determined that state law, dating back to 1926, precluded the DPU from allowing EDCs to enter into contracts for gas capacity.

The DPU argued that language in the 1926 act unambiguously allowed it to approve such contracts. But the court said that the law neither expressly prohibits nor permits the department’s order. Instead, it relied on legislative intent for its ruling.

“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 court said.

The court found that the law was enacted at a time when EDCs were being consolidated into large holding companies, provoking concerns about the impact on ratepayers. The 1926 law was amended in 1930 to include gas companies because lawmakers “predicted that the same concerns about electric companies would arise with respect to gas companies as well,” the court said. It also noted that the state’s utilities distribute both electricity and gas.

The court’s logic mirrors comments state Attorney General Maura Healey made in June before the order was finalized. “Legislative history also clearly demonstrates that the legislature meant to relate purchases of electricity to electric companies and purchases of gas to gas companies,” she wrote.

“The court’s decision makes clear that if pipeline developers want to build new projects in this state, they will need to find a source of financing other than electric ratepayers’ wallets,” she said in a statement Wednesday.

Healey also released a study in November disputing the presumption that New England needed additional pipelines to maintain reliability and lower prices. (See Mass. Attorney General’s Study: Pipelines Unneeded.)

Environmentalists praised the court’s decision.

The ruling “will help Massachusetts move more quickly to a clean, renewable energy future,” the Sierra Club said. “The $3 billion that would have gone to out-of-state corporations for fracked gas pipelines can now be spent here in Massachusetts on projects such as energy efficiency, energy conservation and clean power sources like solar and wind.”

The New England Coalition for Affordable Energy, which advocates for expanded energy infrastructure in the region, called the ruling disappointing, but not surprising.

“However, it does not resolve underlying concerns about the region’s ability to cost-effectively meet future needs, which we believe requires an integrated approach using both renewable resources and natural gas generation,” the group said.

While pipeline proponents were disappointed by the court’s ruling, they said they would press on with their attempts to get infrastructure funded and built.

“This leaves Massachusetts and New England in a precarious position without sufficient gas capacity for electric generation during cold winters. The lack of gas infrastructure cost electric consumers $2.5 billion during the polar vortex winter of 2013 and 2014,” said Creighton Welch, a spokesman for Spectra Energy, which is developing the Access Northeast project with partners Eversource Energy and National Grid.

“This is a disappointing setback for the project, which is designed to help secure New England’s clean energy future, ensure the reliability of the electricity system and, most importantly, save customers more than $1 billion annually on their electricity bills,” National Grid said in a statement.

“While the court’s decision is certainly a setback, we will re-evaluate our path forward and remain committed to working with the New England states to provide the infrastructure so urgently needed to ensure reliable and lower-cost electricity for customers,” Eversource said.

Part of that path is changing its Tariff to allow for targeted capacity releases from natural gas pipelines to be sold to natural gas-fired generators. That proposal, which has been opposed by some power generators, is pending before FERC. (See Utilities Seek OK for Gas Releases to Generators at Technical Conference.)

“Massachusetts has some of the highest electricity rates in the nation, and without additional gas capacities and a diverse energy portfolio, the trends will continue to rise over time,” said Peter Lorenz, a spokesman for the Massachusetts Executive Office of Energy and Environmental Affairs.

The Massachusetts ruling may have also killed a similar pipeline funding order in Maine. State regulators there last month approved ratepayer financing, provided other New England states followed suit. (See Maine PUC Endorses Gas Pipeline Contracts.)

For its part, ISO-NE reiterated it remains neutral on individual projects or how they are financed. But the RTO repeated its position that the region needs gas infrastructure to replace retiring generation and to help balance the increased penetration of intermittent renewable resources.

“The ISO has consistently stated, based on studies conducted for the ISO as well as our operational experiences as the regional power system operator, that we continue to see a need for natural gas infrastructure to ensure continued system reliability,” spokeswoman Marcia Blomberg said. “The need will continue to grow as the region transitions rapidly to a power system with decreasing amounts of coal, oil and nuclear power and increasing levels of renewable and distributed energy resources.”