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People’s Dossier of FERC Abuses: Deficient Needs Analysis

FERC’s Failure to Mandate Genuine Demonstration of NeedResults In Pipeline Overbuild

(Download printable copy of “People’s Dossier of FERC Abuses: Deficient Needs Analysis with attachments” here)

FERC approval of a pipeline requires a demonstration of need. (Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶ 61,227 (1999), clarified, 90 FERC ¶ 61,128, further certified, 92 FERC ¶ 61,094 (2000)). And yet, FERC routinely ignores evidence that there is no genuine public need for a proposed pipeline project.  Further, instead of requiring a demonstration of genuine need, FERC allows pipeline companies to assert increased profits, competitive advantage, and self-manufactured claims of need to fulfill the public necessity mandate.

Rather than engage in objective and independent review of the claims of need, “FERC has increasingly relied on information supplied by pipeline operators in making decisions to grant approvals….”  (Attch 1) The failure to objectively consider claims of “need” results in poorly informed and often inappropriate decision making.

FERC’s failure to ensure “need” for a pipeline will result in overbuild

Industry experts themselves have recognized that there is no need for additional pipeline capacity. For example:

→ Industry expert Rusty Braziel, speaking to attendees at the 21st Annual LDC Gas Forums Northeast conference regarding capacity in the Northeast, said:

“an evaluation of price and production scenarios through 2021 suggests the industry is planning too many pipelines to relieve the region’s current capacity constraints…What we’re really seeing is the tail end of a bubble, and what’s actually happened is that bubble attracted billions of dollars’ worth of infrastructure investment that now has to be worked off” (Attch 2)

→ And Elle G. Atme, Vice President, Marketing and Midstream operations for independent producer Range Resources has said: 

“We believe that the Appalachian Basin’s takeaway capacity will be largely overbuilt by the 2016-2017 time frame.” (Attch 3)

When credible and expert evidence is provided that the asserted “need” for a new gas project is false, FERC routinely and without explanation ignores that evidence instead embracing pipeline company assertions

In the following cases, expert analyses have directly contradicted company assertions of “need.” And yet, in each instance, the information was largely ignored by FERC as it continued, instead, relying on the assertions of the pipeline companies: 

NorthEast Direct Pipeline (FERC Docket No. CP 16-21): A 2015 study conducted by Analysis Group at the request of the Massachusetts Attorney General that was placed on the FERC docket for the Northeast Energy Direct pipeline, found that new interstate natural gas pipeline capacity is not needed in New England through the year 2030. (Attch 4Attch 5)

Mountain Valley (FERC Docket No. CP16-13) and Atlantic Coast Pipelines (FERC Docket No. CP15-554): According to a 2016 study conducted by Synapse Energy considering the need for the Mountain Valley and Atlantic Coast pipelines that are purported to deliver natural gas from West Virginia to Virginia and the Carolinas: “The region’s anticipated natural gas supply on existing and upgraded infrastructure is sufficient to meet maximum natural gas demand from 2017 through 2030. Additional interstate natural gas pipelines, like the Atlantic Coast Pipeline and the Mountain Valley Pipeline, are not needed to keep the lights on, homes and businesses heated, and industrial facilities in production.” (Attch 6) In a separate analysis, Synapse found that Dominion overestimated the Atlantic Coast Pipeline’s economic benefits in reports to FERC and failed to account for any of the environmental and societal costs that the pipeline would impose on local communities. (Attch 15)

Constitution Pipeline (FERC Docket No. CP13-499):  In the case of the Constitution Pipeline, one detailed report on the record concluded that New York City’s existing infrastructure is “large, dynamic, and more than adequate” to support the City’s needs. The report also provided evidence that the Constitution Pipeline does not, in fact, seek to supply the City with natural gas, but instead seeks to export the natural gas. (Attch 7)

PennEast Pipeline (FERC Docket No. CP15-558):  The asserted public “need” advanced by the PennEast pipeline company for the PennEast Pipeline Project and accepted by FERC included assertions that the proposed pipeline is necessary to serve New Jersey and eastern Pennsylvania communities and some unstated number of “surrounding states.”  However, numerous expert reports on the PennEast docket demonstrate there is in fact no such “need” for the gas that PennEast would transport, and that if the pipeline were to be built there would be an increased gas surplus in both NJ and PA:

  • “The proposed PennEast Pipeline would deliver an additional 1 Bcf/d of natural gas to New Jersey potentially creating a 53% supply surplus above the current level of consumption.”  “…Pennsylvania has no unfulfilled demand…” (Attch 8Attch 9)
  • “Local gas distribution companies in the Eastern Pennsylvania and New Jersey market have more than enough firm capacity to meet the needs of customers during peak winter periods. Our analysis shows there is currently 49.9% more capacity than needed to meet even the harsh winter experienced in 2013.” (Attch 10)

Sabal Trail Pipeline (FERC Docket No. CP14-554):  FERC refused to revisit the alleged “need” for the Sabal Trail pipeline through Alabama, Georgia, and Florida, despite admissions by Florida Power and Light (FPL) that the region’s needs had dramatically changed. In 2016, FPL’s Ten Year Plan stated firmly that “FPL does not project a significant long-term additional resource need until the years 2024 and 2025” and, at the same time, acknowledged that growing investments in efficiency and solar power will stave off and reduce Florida’s need for increased natural gas deliveries. Given the predictions that shale gas will peak by 2020, seriously declining thereafter, that FPL’s predictions for its energy needs changed significantly between its 2013 and 2016 energy plans, and the significant advancements in efficiency and clean energy options, FERC’s refusal to reconsider the question of need for the Sabal Trail pipeline is yet another example of irresponsible consideration of “need.” (Attch 11)

Atlantic Sunrise Pipeline (FERC Docket No. CP15-138)

In the case of the Atlantic Sunrise Pipeline, FERC took Transco’s word over the word of a Pennsylvania electric utility. FERC’s approval of Transco’s Atlantic Sunrise Pipeline directly negatively affected the public and the electric grid; Transco’s use of a public utility’s right-of-way would condemn the right-of-way, rendering it unusable for the utility’s transmission infrastructure. FERC issued a Certificate to Atlantic Sunrise despite the fact that its interference with the utility’s right-of-way would negatively affect the electric grid’s reliability and resiliency, forcing the utility to intervene before FERC. This approval demonstrates FERC’s skewed definition of public need, which favors natural gas infrastructure over the security of the electric grid. (Attch 16)

Pipeline Claims of Higher Profits or Competitive Advantage are Inappropriately Adopted by FERC as Demonstrating Need

FERC routinely allows self-serving claims that a proposed project will help the pipeline company increase corporate profits, give them a competitive edge, or otherwise advance company goals to stand in lieu of a genuine demonstration of need.

Among the assertions of “need” advanced by the PennEast Pipeline Company and endorsed by FERC, are to “provide low cost natural gas produced from the Marcellus Shale region;” to provide “enhanced competition among natural gas suppliers and pipeline transportation providers;” and to allow “supply flexibility,” “diversity,” better pricing, etc.

By any reasonable definition, none of these are public “needs.” These are very clearly private goals and gains that are sought for the benefit of private industry and should not justify the power of eminent domain and avoidance of state and local regulations in the construction, operation and maintenance of the pipeline.

Self-Dealing is Inappropriately Accepted By FERC as Proof of Need

FERC routinely, and inappropriately, allows companies to put forth themselves as the customers in “need” of a proposed pipeline project and do so using unverifiable data and information.  

The PennEast Pipeline Company asserts that the need for its pipeline is demonstrated by contracts for most of the proposed pipeline’s capacity.  FERC accepts this “need” demonstration at face value.  But, as described by the New Jersey Division of Rate Counsel’s comments on the PennEast Docket these contracts do not in fact demonstrate need:

“PennEast bases its claim of need on “precedent agreements with seven foundation shippers and twelve total shippers, which together combine for a commitment of firm capacity of 990,000 dekatherms per day (‘Dth/d’),” approximately 90% of the Project’s total capacity…In this case, approximately 610,000 Dth/d of the 990,000 Dth/d of capacity has been contracted by affiliates of the Project owners… Of the twelve shippers that have subscribed to Project capacity, five of them are affiliates of companies that collectively own PennEast… Thus, two-thirds of the demand for the pipeline exists because the Project’s stakeholders have said it is needed. This self-dealing undermines the assertion of need that the DEIS relies upon.”  (emphasis added; citations omitted). (Attch 14)

In Empire Pipeline, then-Commissioner Norman Bay acknowledged that the Agency’s reliance on precedent agreements to establish need is misplaced. Former Commissioner Bay stated that FERC should consider “whether precedent agreements are largely signed by affiliates; or whether there is any concern that anticipated markets may fail to materialize” among other considerations. (Attch 13) Despite these facts, FERC makes no investigation into the legitimacy of the claims resulting from self-dealing.

FERC Fails To Provide Independent Assessment or Review of Pipeline “Need” Claims and Thereby Perpetuates Overbuilding

As reported by the Institute for Energy Economics and Financial Analysis, pipeline companies have an incentive to overbuild, and no reason to self-moderate or limit their construction. The failure of FERC to provide any independent review or oversight over self-serving claims of “need” undermines the requirements of the law and the actual needs of the public. 

  • “…current low natural gas prices in the Marcellus and Utica region are driving a race among natural gas pipeline companies …. An individual pipeline company acquires a competitive advantage if it can build a well-connected pipeline network …; thus, pipeline companies competing to see who can build out the best networks the quickest. This is likely to result in more pipelines being proposed than are actually needed to meet demand in those higher-priced markets.”
  • “…[T]he regulatory environment created by FERC encourages pipeline overbuild. The high returns on equity that pipelines are authorized to earn by FERC and the fact that, in practice, pipelines tend to earn even higher returns, mean that the pipeline business is an attractive place to invest capital. And because, as discussed previously, there is no planning process for natural gas pipeline infrastructure, there is a high likelihood that more capital will be attracted into pipeline construction than is actually needed.”
  • “The pipeline capacity being proposed exceeds the amount of natural gas likely to be produced from the Marcellus and Utica formations over the lifetime of the pipelines. An October 2014 analysis by Moody’s Investors Service stated that pipelines in various stages of development will transport an additional 27 billion cubic feet per day from the Marcellus and Utica region. This number dwarfs current production from the Marcellus and Utica (approximately 18 billion cubic feet per day). … pipeline capacity out of the Marcellus and Utica will exceed expected production by early 2017.”
  • “The loss borne by the public, businesses, and critical irreparable natural resources when a natural gas pipeline is approved by FERC requires that the Agency sufficiently consider whether an infrastructure project is actually necessary and for the public good. Instead, FERC uses an inappropriate and counterintuitive definition of “need” which is contrary to the historic underpinnings and intent of the Natural Gas Act, and results in the overbuild of unnecessary pipelines to pad companies’ quarterly balance sheets.” (Attch 12)

Complete People’s Dossier: FERC’s Abuses of Power and Law 
available here.