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People's Dossier of FERC Abuses: Economic Harms

(Download printable copy of "People's Dossier of FERC Abuses: Economic Harms with attachments" here)

FERC Routinely Ignores the Economic Costs of Pipeline and Compressor Infrastructure Projects

FERC’s section 7 duty to consider the public interest is broader than promoting a plentiful supply of cheap gas. (See Fla. Gas Transmission Co. v. FERC, 604 F.3d 636, 649 (D.C. Cir.2010)) Rather, FERC must ensure “the [public] benefits of the proposal outweigh the adverse effects on other economic interests.” AES Ocean Express, LLC, 103 F.E.R.C. ¶ 61,030 at ¶ 19.

Despite this clear mandate, FERC routinely ignores documented economic harms anticipated from proposed pipelines, while accepting at face value company claims of benefit. As Dr. Spencer Phillips, Ph.D. articulates,  FERC’s policy that guides its review of pipeline economics “is completely inadequate for evaluating the costs and benefits of proposed pipelines.” (Attch 1):

  • First, FERC’s stated policy is for the applicant to provide information that supports FERC’s approval. By asking only for information supporting a foregone conclusion, FERC fails to subject pipeline applications to a full, rigorous, or economically adequate examination of the proposals.
  • Second, FERC relies almost exclusively on cost and benefit information supplied by applicants and their consultants, who have – and act upon – their self-interest by presenting inflated estimates of benefits and greatly discounted estimates of costs. As most recently demonstrated by the Atlantic Coast Pipeline (FERC Docket No. CP15-554) (Attch 2), Mountain Valley Pipeline (FERC Docket No. CP16-13) (Attch 3), PennEast Pipeline (FERC Docket No. CP15-558) (Attch 4), Millennium Eastern System Upgrade Project (FERC Docket No. CP16-486) (Attch 5), and Atlantic Sunrise pipeline (FERC Docket No. CP15-138) (Attch 7), FERC’s NEPA review relies almost entirely on the information provided by the applicant and as a result, provides no serious consideration of the costs of pipeline construction, operation and maintenance.

Property Value Costs And Lost Tax Revenues Are Significant and Ignored

Some of the important costs that pipeline applicants and FERC fail to consider include:

  • Reductions in private property values along the length of pipelines and extending outward through the right-of-way, the “high consequence area,” and the evacuation zone. These reductions in property value translate into a reduction in the property taxes collected by local governments. These property value reductions can be significant:

→ construction and operation of the Penneast Pipeline, for example, would result in a loss of property value of $159.7 to $177.3 million resulting in a $2.7 to $3.0 million loss in property tax revenue annually; (Attch 4)

→ construction and operation of the Mountain Valley Pipeline would result in losses of $42.2 to $53.3 million in property value (resulting in losses ranging from $243,500 to $308,400 tax revenue annually). (Attch 3)

  • Reductions in property value are not limited to pipelines; compressor stations were responsible for a 25-50% reduction of property assessments for homes in Hancock, NY. (Attch 6)

Credible, independent research shows that pipelines do in fact have significant negative effects on property values. See “Claims That Pipelines Do Not Harm Property Value Are Invalid” beginning on page 20 of Key-Log Economics’ report on the Millennium Eastern System Upgrade project. (Attch 5) And yet, FERC routinely cites fundamentally flawed, industry-sponsored studies that claim there is no such property value effect, ignoring the independent data and real world experiences to the contrary.

Environmental, Business, Farming, and Other Economic Costs are Far Reaching, Staggering, and Ignored

Additional costs resulting from pipeline construction, operation, and maintenance that are ignored by FERC include:

  • Loss of water purification, water storage, air quality benefits, flood protection, aesthetic quality and wildlife habitat. These benefits are lost, minimized and/or significantly reduced when land uses/land cover like forests, wetlands, natural meadows, and natural open space that produce these benefits at a high rate are converted to pipeline associated industrial operations and/or shrub/scrub that produce far less, and frequently no, natural benefits.
  • Economic harms such as reduced crop production for farmers, adverse impacts to businesses along or near the pipeline right of way, and adverse impacts to ecotourism and related businesses and jobs.
  • Forgone economic development opportunity from recreationists, tourists, retirees, entrepreneurs, and workers who will choose safer, more environmentally healthy, and more aesthetically pleasing locations than the ones associated with construction and operation of the proposed pipeline/compressor.

 These costs can be significant and staggering:

  • For the PennEast Pipeline, a 115 mile pipeline with one compressor, estimated external costs ignored by FERC total approximately $13.3 to $56.6 billion. (Attch 4)
  • In the case of the Mountain Valley Pipeline, an analysis of only half the proposed 300-mile length revealed uncounted external costs of between $8 and $8.9 billion. (Attch 3)
  • For the Atlantic Coast Pipeline, where costs were estimated for just a fifth of the ACP’s proposed 500+ mile length, unconsidered costs by FERC would total between $6.9 and $7.9 billion. (Attch 2)
  • According to a recent study, the Millennium Eastern System Upgrade project, which includes new compression and a new 7.8 mile section of pipeline, would cause between $4.7 and $18.8 million in external costs. (Attch 5)

FERC Lacks The Economic Expertise to Remedy Its Economic Failings

It is also important to note that FERC’s reliance on pipeline applicants to provide information about the need for, as well as the benefits and costs of, their proposals is exacerbated by FERC’s lack of capacity to review and filter the economic information they receive, let alone to conduct analyses of its own. The Office of Energy Projects (OEP), whose “mission…is to foster economic and environmental benefits for the nation through the approval and oversight of hydroelectric and natural gas pipeline energy projects that are in the public interest” (retrieved from https://www.ferc.gov/about/offices/oep.asp) has no economists among its staff. (2017 Employee Phone Directory. Retrieved from https://www.ferc.gov/contact-us/tel-num/phone.pdf) The Office of Energy Policy and Innovation, which otherwise collaborates with other FERC offices to evaluate industry proposals, does not support OEP by providing any economic review and analysis of pipeline certification projects. (Personal communication of Dr. Spencer Phillips (Key-Log Economics) with OEPI’s Administrative Officer, March 17, 2017)

It does not seem plausible that an agency responsible for evaluating the economic merits of energy project proposals could do so without benefit of qualified economic expertise. Indeed, as we have noted above and as is detailed in the attachments listed below, FERC has not provided adequate review of the economic costs and benefits of pipelines. The predictable result will be too much pipeline capacity, too many environmental and other external costs, and a loss of economic vitality for American people and communities.

Complete People's Dossier: FERC's Abuses of Power and Law 
available at  http://bit.ly/DossierofFERCAbuse

Supporting Documents