As usual, PennEast has made many, many, many (many!) mistakes in its most recent application to FERC. But one error towers above all the others, and makes this 2-phase application a complete non-starter from the get-go.
To recap, PennEast has yet another application before FERC on docket CP20-47-000. In this docket they are now proposing to split the project into two pieces:
- Phase 1 covers most (but not all!) of the route in PA.
- Phase 1 includes two new interconnects south of Route 22 in PA – one for Adelphia Gateway, and one for Columbia Pipeline. This is called the “Church Road Interconnects”
- Phase 2 will include the Hellertown Lateral to UGI in PA, the rest of the route in Bucks County, and the full Route in NJ
PennEast is positioning this as “this proposal is exactly the same as the Certificated Route, we’re just splitting it in twain and adding in the Church Road Interconnects”. Its application is focused solely on Phase 1, and in terms of impact it only deals with the addition of Church Road interconnect.
PennEast’s philosophy here is that they already have approval on CP15-558-000, and the only change here is the Church Road interconnects. As such, PennEast’s application only speaks to the impact of the Church Road interconnect and nothing else.
PENNEAST HAS MADE A FUNDAMENTAL MISTAKE HERE.
The mistake here is simple – PennEast is saying “CP20-47 is just like CP15-558, just split into two”. But that is not true. The problem PennEast has here is that they have indicated repeatedly that Phase 2 may never happen. In both the main application as well as Resource Report 1, PennEast again and again indicates that Phase 2 may never be built. They similarly stress that Phase 1 is independent of Phase 2 entirely.
So let’s look at what that means. The original Certificated Route was around 115 miles long, with 1.1 million dekatherms/day capacity, and was 90% subscribed with 990,000 dekatherms/day of capacity spoken for. Eminent domain rates were technically unknown at the time FERC approved it (we know better, but whatever). FERC ruled the benefits of this project outweighed the negatives (again, we know better, but stay with me).
Now PennEast is proposing a ~68 mile long pipeline in PA only. It has just 650,000 dekatherms/day of capacity. And only 338,000 dekatherms/day are spoken for. With only 4 shippers on this phase.
Critically, these four shippers were also on the original project. 1, UGI, is a PA-only company. But their dedicated amount for Phase 1 is half of what it was for the original project. This is because Phase 1 inexplicably omits the Hellertown lateral.
The other three shippers on Phase 1 are NJ based companies, all affiliates of PennEast (Elizabethtown gas, New Jersey Natural Gas, and South Jersey Gas). They have a total of 288,000 dekatherms/day of subscriptions on Phase 1. Now, Phase 1 doesn’t hit NJ directly, but it does hit it indirectly. Etown gas could get its volume from the new Columbia interconnect at Church Road. NJNG and SJG can get their volumes from the new Adelphia gateway interconnects.
The problem for PennEast here is that this 288,000 dekatherms/day of volume is coming through a brand new interconnect that did not exist in the original project.
Here are the myriad problems that PennEast faces because of this approach:
- Phase 1 has only 338,000 dekatherms/day of commitment. That leaves 48% of Phase 1 unsubscribed too. This is terrible from a “purpose and need” perspective for Phase 1. At a minimum, it makes Phase 1 look oversized. They are overbuilding Phase 1 in anticipation of Phase 2. But since Phase 2 may never happen, this is classic overbuilding, a big no-no at FERC.
- Phase 1 has 228,000 dekatherms/day going through a new set of interconnects. This is effectively stealing capacity from Phase 2. This has many implications for Phase 2:
- Phase 2 pipe may be too big. With more volumes handled via Phase 1 and 3rd party pipelines, Phase 2 could likely be a smaller pipe.
- Phase 2 route may be too long. With NJNG’s full subscription of 180,000 dekatherms/day of gas being delivered now via Phase 1 instead of via the NJ interconnects on the original route, the whole NJ route is called into question.
- PennEast has not stated how this project bifurcation has impacted their original precedent agreements. In particular, what guarantees to do they have for Phase 2? Do they have any at all? What we can see is, at the least, they’ve lost 288,000 dekatherms/day in NJ to the new interconnects in PA for Phase 1.
- There’s more! For FERC to properly gauge benefits for each phase vs. impacts, it needs those impacts clearly labeled. In its CP20-47 application, PennEast fails to give a detailed list of what is Phase 1 and what is Phase 2 in the EIS. PennEast needs to resubmit their entire set of environmental reports with everything clearly labeled as Phase 1 or Phase 2.
- The whole question of eminent domain is now crystal clear. PennEast has sued 198 landowners, 48 in PA and 148 in NJ. This needs to be posted by PennEast to the new docket so FERC can take these takings into account.
- These takings are now severely imbalanced between Phase 1 and Phase 2. Phase 1 has less eminent domain (48 cases) but more volume (650,000 dekatherms/day). Phase 2 has three times as many eminent domain cases (150) but only 450,000 dektherms/day of volume.
- Worse, we have zero precedent agreements specified for Phase 2!
In essence, what PennEast has done is take one big pipeline with one big set of pros and cons, and split it into two unequal pipelines with different benefits and different drawbacks. And we know one of them may not be built at all, so they HAVE to be weighed independently.
We also have a hidden smoking gun in all this mess. Why is PennEast not including the Hellertown Lateral in Phase 1? Why is UGI, a fully PA-based business, only contracting for 50,000 dekatherms/day in Phase 1, as opposed to the 100,000 dekatherms/day they contracted along the original route? Why is UGI so gun shy all of a sudden? COULD IT BE THAT UGI CAN NO LONGER JUSTIFY 100,000 DEKATHERMS/DAY OF COMMITMENT?
Could be that this is the smoking gun hidden in all this – PennEast’s actual project manager and main sponsor in this debacle has just halved its commitment in buying capacity.