Category: Uncategorized

PSEG and PennEast

So by now it’s been widely reported that PSEG wants to sell it’s equity stake in PennEast. See some of the links below.

http://www.njspotlight.com/stories/17/03/08/pseg-power-may-pull-out-of-penneast-pipeline-project/

http://www.reuters.com/article/usa-pseg-penneast-idUSL2N1GM11B

I think it’s worthwhile to take a look at the trajectory of the PSEG and PennEast relationship, and speculate on how things might go from here.

In the beginning….

Not everyone realizes that PennEast used to be made up of 4 companies, not 6.

In the beginning there was UGI, New Jersey Resources (owner of New Jersey Natural Gas), South Jersey Industries (owner of South Jersey Gas), and AGL Resources (owner of Elizabethtown Gas).

The word on the street was that Wall Street analysts were uncomfortable with the idea of these four smallish LDCs taking on a major interstate pipeline project like PennEast.  So it was suggested they go out and find some more partners.

One of them was Spectra Energy, they were brought in because they have been building interstate pipelines for a very long time and know how it works.

The other one was PSEG.

On September 18th, 2014, UGI announced that PSEG was joining the project:

http://www.ugicorp.com/press-room/subsidiary-news/News-Details/2014/PSEG-Power-Joins-PennEast-Pipeline-Project/default.aspx

The spin was that now all of the Local Distribution Companies (LDC) in NJ were onboard with PennEast.  I think a closer characterization would be that they brought a huge mover and shaker in NJ markets (PSEG) into the fold.

Happy First Steps

By all appearances PSEG was quite happy to come into the fold as a benevolent and wealthy grandfather helping the grand kids of NJR and SJI and the others to get on their feet.

They ended up with a modest 10% equity stake, and were tied as second largest shipper along with the other newcomer Spectra Energy. The press releases and FERC application in September 2015 to FERC all talked about the sparkling possibilities of this relationship between all the LDCs in NJ, plus the odd duckling UGI in PA, and Spectra Energy thrown in for good measure.

Cracks begin to show….

If we fast forward to April 2016, we see a different picture.  In late April PSEG held an earnings call with equity analysts to talk about their 2016 Q1 results.  Link is here:

http://seekingalpha.com/article/3969728-public-service-enterprises-peg-ceo-ralph-izzo-q1-2016-results-earnings-call-transcript?part=single

On that call, an analyst noted that Con Edison was aggressively pursuing a strategy of getting involved with natural gas pipelines, and that PSEG seemed to be moving in that direction with their investment with PennEast.  That analyst asked if PSEG was going to be doing more in that direction.

The response was very surprising (to me at least, and I suspect to many people).  PSEG CEO Ralph Izzo basically indicated that they weren’t all that happy with pipelines in particular and PennEast specifically, that the Constitution pipeline project showed the difficulties with permitting, and indicated that doing pipelines was not in PSEG’s “DNA”.

PennEast pooh-pooh’d this, but rumors started flying left and right that PSEG was looking for a way out of the project.  This simmered throughout the summer and fall of 2016.

Blowups Happen

Enter March 2017, and the PSEG rumors explode into reality.  Early in the week PSEG holds a meeting with analysts and investors to talk about their Capital Expenditures budget for the next five years.  A smart analyst noted $108 million was missing from that budget – which was just about the size of PennEast.  The PSEG spokesman said “yes, that money is gone” but refused to indicate why.

Yesterday, we found out the why.  As the cited articles at the top of this entry state, PSEG wants to sell its equity stake to someone else.  They want to get out of the natural gas pipeline business and focus on their core businesses.

It’s worth noting though that PSEG is still a “shipper” on the project with 125,000 dekatherms/day – they are more or less locked into that via long term precedent agreements.

So what does all this mean?!

So where do we go from here?  What does this mean?

Here’s my take on some of it.

  1. The buyer hasn’t been identified yet, although I suspect PSEG has someone in mind and likely has already done some negotiation.  The fact that they yanked this out of their budget shows they have some confidence that they will in fact sell their stake.
  2. The PennEast LLC agreement prohibits anyone from pulling out of the project until the project has been in service for some time (I believe from memory it’s 18 months, but don’t quote me on it!).  This doesn’t mean that PSEG can’t pull out.  What it means is that in order to pull out, they’ll need unanimous agreement from all the other PennEast partners to do this, and they have veto over who PSEG deals with.  Presumably if they went ahead they would simply rewrite those LLC agreements.
  3. Who the buyer is is going to be really, really important.  It could be Spectra upping their 10% stake to 20%.  It’s plausible, given that they were bought out by Enbridge who seems to be more aggressive in these kinds of deals.  It could be Cabot Oil & Gas, who is in a bit of bad shape after the Constitution Pipeline denial.  Or it could be another player.  Who it is will give us powerful clues in what might happen.
  4. In losing PSEG, PennEast is losing a powerful advocate in NJ.  What this means I don’t know, but it could mean PennEast is contemplating lessening their presence in NJ.  Or some other major change in the project’s character.
  5. If any major changes happen as a result of this, it could seriously kink the FERC process.  Look for more major delays as a possible minimal result of this.

Remember at the beginning of this piece, I pointed out that PSEG was not originally part of PennEast, and that they were brought onboard largely to bring some adult supervision (and clout) to the project.  Now that PSEG is withdrawing, that means that clout and supervision is disappearing too.  So forget the PennEast spin on this, this is a very serious blow to the project.

Oh my God Becky, look at that bluff

This is part XI (!) of the 3D Flyover video series of the proposed PennEast Pipeline route.

This one is a look at another one of the Important Bird Area (IBA) Avoidance Routes, specifically the one that avoids the Holland/Milford area in NJ and instead routes through Bucks County.

The potential route is in transparent red, we fly a few hundred meters above it.  The route is shown in a 350′ wide zone of uncertainty, given the coarse natures of the maps provided by PennEast.

The video starts at the Delaware River and heads North.  So at the very beginning we go straight up a very steep climb, then continues going up and down some modest hills.  It then heads out through old growth forests, paralleling a narrow power line cut.

After a long path through forests, it gets dramatic around 2:10.  There the route goes right to the very edge of the Delaware River bluffs on the PA side.   Just before turning left you can see the Gilbert generating plant across the river in NJ and the Gilbert interconnect route to get to it.

The route then teeters on the very edge of the bluffs, like the Man in Black peering down from the Cliffs of Insanity.

After the bluffs, it dives into PA heading out through farm country.

It terminates at the interconnect at Route 78.

As with all of the IBA Avoidance alternatives, the routing choices are just nuts.  It’s clear that PennEast put nearly zero effort into the routing.

3D Flyover of proposed PennEast Pipeline Route in Delaware township vicinity

This is part of the 3D flyover video series of the PennEast routes. In this installment, we look at the route in the Delaware Township vicinity.

As always, the 400′ survey corridor is in smokey gray, the pipeline 50′ permanent easement line is in red, and the light blue areas are temporary construction zones. There is also a 100′ construction right of way not shown here.

This starts with another long HDD stretch.  At 0:21 in the video you can see an HDD prep site right at the front door of my friend Carla’s place.  Incidentally, PennEast has not indicated how homeowners in situations such as Carla will have ingress/egress to their homes with both trenching across their driveways plus massive heavy construction equipment on site.
There are many big HDD stretches here, including those at Lower Creek Road and Brookville Hollow Road.
The route continues of course through the Rosemont Historical Agricultural District.

3D Flyover of the proposed PennEast Pipeline Route in Kingwood Township vicinity

This is part of the 3D flyover video series of the PennEast routes. In this installment, we look at the route in the Kingwood Township vicinity.

As always, the 400′ survey corridor is in smokey gray, the pipeline 50′ permanent easement line is in red, and the light blue areas are temporary construction zones. There is also a 100′ construction right of way not shown here.

More agricultural and woodland impacts, plus the first of the incredibly long HDD sites.   If the northernmost Kingwood HDD attempt fails, PennEast will have to either make a major re-route or destroy the major solar panel installation we see at 1:45.

 

3D Flyover of the proposed PennEast Pipeline Route from Milford to Frenchtown

This is part of the 3D flyover video series of the PennEast routes. In this installment, we look at the route between Milford and Frenchtown.

As always, the 400′ survey corridor is in smokey gray, the pipeline 50′ permanent easement line is in red, and the light blue areas are temporary construction zones. There is also a 100′ construction right of way not shown here.

This portion shows the beginning of many impacts to rich farmland in NJ when viewing the route from North to South.  Plus the incredibly steep slopes at the Nishisakawick Creek at 3:05 near the end of the video.

 

3D Flyover of Proposed PennEast Pipeline Route across the Appalachian Trail

This is part of the 3D flyover video series of the PennEast routes. In this installment, we look at the Appalachian Trail crossing of the project in Pennsylvania.

As always, the 400′ survey corridor is in smokey gray, the pipeline 50′ permanent easement line is in red, and the light blue areas are temporary construction zones. There is also a 100′ construction right of way not shown here.

In the video, we approach the trail from the South East.  Just as it approaches the upgrade, the route turns sharply to the West, paralleling the trail for some distance.  All of this portion is green field development through old growth forest.  No co-location in site.

It then turns north again and climbs up the mountain (again all through old growth forest).  Near the top is a 700 HDD section (visible in the video where there are no light blue temporary work spaces), the one sop given to the trail.

It then follows some of the Blue Mountain resorts roads for a bit along the ridge, then plunges seemingly straight down the mountain side.

Don’t let the HDD portion fool you.   The AT corridor in this area will be permanently scarred by the 100′ clear cut route of the pipeline on either side of the trail, and the use of HDD means the part closest to the trail will have the greatest impacts (due to HDD entry and exit sites requiring a lot of space).  Trail walkers along the ridge will see the permanent scar running parallel to the mountain to the north and south, thanks to PennEast’s brilliant routing.