People’s Dossier of FERC Abuses: Economic Harms

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

(Download printable copy of “People’s Dossier of FERC Abuses: Economic Harms with attachments” here)

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 (Attch 2) (FERC Docket No. CP15- 554), Mountain Valley Pipeline (Attch 3) (FERC Docket No. CP16-13), PennEast Pipeline (Attch 4) (FERC Docket No. CP15-558), Millennium Eastern System Upgrade Project (Attch 5) (FERC Docket No. CP16-486), Atlantic Sunrise pipeline (Attch 7) (FERC Docket No. CP15-138), and Adelphia Gateway Project (FERC Docket Nos. CP18-46) (Attch 9) 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, are among the costs that are ignored. These benefits are lost, minimized and/or significantly reduced when land uses/land covers 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 the ones associated with construction and operation of the proposed pipeline/compressor.
   
• Social Cost of Carbon resulting from upstream and downstream greenhouse gas emissions that are facilitated by additional natural gas transmission
  
  These costs can be significant and staggering: (1)

FERC Accepts Exaggerated Pipeline Benefits as the Basis for Decisionmaking

Pipeline companies seeking FERC approval typically claim that construction of their project will result in positive economic impacts, job creation, increases in personal income, and lower end-user energy costs for natural gas and/or for electricity generated in gas-fired power plants that will spur further economic development. However, independent expert analyses submitted to FERC consistently find these claims to be exaggerated or entirely false.

For example, in a thorough, retrospective, statistical analysis of the experience of the region affected by the Marcellus Shale-based boom in natural gas availability and natural gas pipeline construction since 2000, Key-Log Economics found that, despite claims that increased pipeline capacity drives down electricity prices, electricity prices have instead increased during the Marcellus Shale boom: (Attch 8)

From 2001 through 2015—a period encompassing the beginning of the Marcellus Shale gas boom—the total natural gas transmission capacity available in the Marcellus region increased from 20,195 million cubic feet per day (Mmcfd) in 2001 to 1,098,894 Mmcfd. That is an increase of more than 5,300%. If the contentions that increased pipeline capacity drives down electricity prices were true, we would expect to see dramatically lower electricity prices during this same period. What we observe, however, is the opposite: total electricity prices (including residential, commercial, and industrial customers for utilities), have increased from an average of 69.62$/MWh in 2001 to 98.80$/MWh in 2015 (in inflation-adjusted 2017$)—a 42% increase. For residential customers, the price increase was 36%, from 86.65$/MWh in 2001 to 118.12 $/MWh in 2015 (in 2017 $). During the same time period, however, the average price of natural gas to end users (i.e. “distribution price”) did fall from $9.04/Mcf to $4.80/Mcf (in 2017$).

Despite clear evidence dispelling pipeline companies’ claims of economic benefits, FERC accepts their claims at face value as the basis for its public interest determination.

FERC Refuses to Consider the Social Cost of Carbon in Its Pipeline Analysis

FERC fails to use readily available tools to quantify the public costs of the projects it reviews in order to ensure “projects that have residual adverse effects would be approved only where the public benefits to be achieved from the project can be found to outweigh the adverse effects” (88 FERC 61,227, p. 23). Among the most significant and calculable residual adverse effects resulting from fracked gas infrastructure projects are the incremental economic impacts of incremental greenhouse gas (GHG) emissions.

The United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) in Sierra Club, et al. v FERC, 867 F.3d 1357, (D.C. Cir., Aug. 22, 2017), found that FERC is required to consider and quantify the downstream greenhouse gas (“GHG”) emissions from the combustion of the natural gas transported by a project as part of their National Environmental Policy Act review. In light of the recent D.C. Circuit’s decision, FERC must:

• quantify pipeline projects’ emissions combined with past, present, and reasonably foreseeable future gas projects in the region;
• and adopt appropriate mitigation measures in recognition of the past, present, reasonably foreseeable future gas projects in the region to reduce the severity of cumulative impacts from the project.

The social cost of carbon (SCC), “a measure, in dollars, of the long-term damage done by a ton of carbon dioxide (CO2) emissions in a given year,” (2) is an available and appropriate tool that would allow FERC to measure economic impacts of climate change that would result from proposed pipelines as required by NEPA and the NGA.

Despite the fact that a federal court recently upheld the legitimacy of using the social cost of carbon as a viable statistic in climate change regulations, (3) and that the CEQ had recommended its use in its final guidance for federal agencies to consider climate change when evaluating proposed Federal actions, (4) the Commission continues to contend that it “‘has not identified a suitable method’ for determining the impact from the Projects’ contribution to climate change and, absent such a method, it simply ‘cannot make a finding whether a particular quantity of [GHG] emissions poses a significant impact on the environment and how that impact would contribute to climate change.’” (5)

However, as Commissioners Glick and LaFleur have pointed out in response to multiple recent certificate order decisions, FERC is incorrect in its claims that there is “no widely accepted standard to ascribe significance to a given rate or volume of GHG emissions” (6) and that “it cannot ‘determine how a project’s contribution to GHG emissions would translate into physical effects on the environment.’” (7) As Commissioner Glick explains (8):

“That is precisely what the Social Cost of Carbon provides. It translates the long-term damage done by a ton of carbon dioxide into a monetary value, thereby providing a meaningful and informative approach for satisfying an agency’s obligation to consider how its actions contribute to the harm caused by climate change.” (9)

“the Commission has the tools needed to evaluate the Projects’ impacts on climate change.  It simply refuses to use them.” (10)

The SCC for pipeline projects, conservatively estimated, can run into tens of billions of dollars over their designed lifetime of a pipeline. Key-Log Economics recently calculated that the additional 325 million cubic feet of natural gas capacity per day created by the Adelphia Gateway Project translates to 6.3 million metric tons of CO2 equivalent in GHG in each year of operation. Using a range of conservative discount rates, the SCC of the project over 30 years of operation ranges from $300 million to $40 billion. (Attch 9)

Key-Log Economics has also calculated staggering SCC estimates resulting from pipeline projects each year:

• The PennEast Pipeline would result in SCC costs of $301.8-2.3 billion annually (Attch 4)
• The Atlantic Sunrise Pipeline would result in a SCC of $466.5 million to $3.6 billion each year (Attch 7)
• The Millennium Eastern System Upgrade would impose $51.8 – 343.5 million in SCC annually (Attch 5)

Despite the clear mandates from NEPA, the Natural Gas Act, and the Courts, FERC continues to illegally narrow its consideration of the adverse societal impacts of pipelines, compressors and related infrastructure in its decisionmaking.

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” (11) has no economists among its staff. 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.

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.

(1)    See table from Economic Harms Attachment 8, Key-Log Economics, LLC, Economic Issues related to FERC Policy Regarding Certification of Interstate Natural Gas Pipelines and FERC Docket No. PL18-1, Economic Costs of the Atlantic Coast Pipeline, July 23, 2018.

(2)    EPA Fact Sheet, Social Cost of Carbon, December 2016, retrieved from: https://www.epa.gov/sites/production/files/2016-12/documents/social_cost_of_carbon_fact_sheet.pdf

(3)    Susanne Brooks, Environmental Defense Fund, In Win for Environment, Court Recognizes Social Cost of Carbon, August 29, 2016.

(4)    Final Guidance on Greenhouse Gases and Climate Change, Council on Environmental Quality, August 2016.

(5)    Statement of Commissioner Richard Glick on Texas Eastern Transmission, LP, FERC Docket No. CP18-10, July 19, 2018.

(6)    Id. P 27.  Florida Southeast Connection, LLC, 162 FERC ¶ 61,233, at 2, 5–8 (2018) (Glick, Comm’r, dissenting).

(7)    Statement of Commissioner Cheryl A. LaFleur on Texas Eastern’s Texas Industrial Market Expansion Project, FERC Docket No. CP18-10, July 19, 2018 referencing Texas Eastern Certificate Order at P 33.

(8)    Statement of Commissioner Richard Glick on Northwest Pipeline, LLC, FERC Docket Nos. CP17-441-000, CP17-441-001, July 19, 2018. See also Texas Eastern Transmission, LP, July 19, 2018, Docket No.: CP18-10-000; partial dissent on on Columbia Gas Transmission, L.L.C., July 19, 2018, Docket No.: CP17-80-000; July 19, 2018, Docket No.: CP17-80-000; partial dissent of the Northwest Pipeline certificate order.

(9)    Id. at 5 (Glick, Comm’r, dissenting) (citing cases that discuss the Social Cost of Carbon when evaluating whether an agency complied with its obligation under NEPA to evaluate the climate change impacts of its decisions).

(10)    Statement of Commissioner Richard Glick on Mountain Valley Pipeline, LLC , FERC Docket Nos. CP16-10-000 and CP16-13-000, June 15, 2018.

(11)    FERC, Office of Energy Projects, Updated March 20, 2017, available at  https://www.ferc.gov/about/offices/oep.asp

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