The Cost of the Pipeline

While covid-19 shelter in place and PennEast commenting periods were going on, FERC quietly released their State of the Markets report.

This report is just raining bad news for PennEast. It basically indicates that demand in the North East is totally saturated, and that pipeline capacity additions in the North East are trailing off as a result. The MidWest and South now represent areas where new pipeline capacity may be needed.

It also continues the tale of prices continuing to fall, and electrical and residential gas demand remaining effectively flat. The small increase in demand is basically all coming from LNG Exports, but such exports are really a trickle compared to other users.

This is also doubly bad for PennEast because they have changed their marketing message with this 2-phase plan to be “rah rah PA, NJ sucks!”. See:

https://penneastpipeline.com/penneast-files-new-phased-approach-with-federal-regulators-to-meet-growing-customer-demand/

This new marketing approach is really startling in that PennEast is almost literally thumbing their nose at NJ and focusing exclusively on Philly and PA benefits only.  This is doubling down on the Adelphia Gateway connection.

Coupled with the lame 338,000 dekatherms/day commitment they have on Phase 1, this ends up presenting an incredibly weak Purpose and Need story to FERC for Phase 1.

I suspect NJDEP, US EPA, and other agencies are going to hammering pretty hard on these facts, along with the obvious overbuild Phase 1 now represents.

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.

We have a week to get comments in on the new PennEast docket, CP20-47-000.  To help you along, here are some helpful tips.  The deadline is March 30th, 2020.

If you’re rusty on how to submit a comment to FERC, please see this helpful document from ReThink Energy NJ.

How-To Guide_Posting Comment to FERC PennEast DocketCP20-47

If you’d like some ideas for comments, I’ve been tracking my comment list in a Google sheets spreadsheet.  it includes a summary of each comment a link to the full file list.

List of Mike’s comments on PennEast’s awful 2-Phase plan

Feel free to reuse, reword, or otherwise rejigger my comments at will.  The important thing is to get your comments on the docket to reinforce the level of displeasure the public has with this latest PennEast twist.

By now we probably all know about “flattening the curve” – being smart in our interactions with others, cleaning constantly, social distancing wherever possible.  Basically the whole country is stuck at home looking for things to do.

Lucky for you, FERC and PennEast have given you the perfect activity to do at home!  FERC has opened a 30 day comment period on the new PennEast “abbreviated” application amendment (you know, the Phase1 PA, Phase 2 NJ thing).  This comment period ends at 5:00pm Eastern Time on March 30, 2020.  That gives us 15 days left to get comments on the docket.  Why not do a comment a day to keep the coronavirus blues away?

Remember, the new docket is CP20-47-000.  We are looking to get as many comments as we can on the docket to demonstrate that opposition to PennEast remains strong.  To give you some ideas, the Citizens Against the Pipeline (CAP) grassroots organizations across NJ and PA have put together some example comments.  Please feel free to submit these, or make comments of your own on the FERC docket CP20-47-000.

So let’s bring on the examples!

Not an Amendment, A New Project.  

PennEast’s proposal must be treated as a new project, not an amendment to an existing certificate.  PennEast’s attempt to amend its certificate in this manner is in clear violation of the Natural Gas Act (NGA).

PennEast is claiming that both Phase 1 and Phase 2 have independent utility but that issue needs to be explored and proven in a new application since this was not considered in the original application. Phase 1 clearly does not have required independent utility as required under the Natural Gas Act (NGA). It does not show economic justification nor protect the consumer to meet the NGA criteria of being in the “public interest”.

INSIDE DEALING and NEED

How can PennEast claim that Phase 1 is independently viable when 85% of their contracted capacity is with New Jersey local distribution companies but the proposed capacity does not reach New Jersey?

On top of this, PennEast attempted to hide the fact that all of the shippers for Phase 1 are wholly owned subsidiaries of PennEast’s owning companies from the public.

PennEast has not proven there is a need for the Phase I portion of the project. They only have Shippers for 52% of the capacity of the pipeline and all of them are affiliates of PennEast.

RADICAL SHIFT in FLOWS

PennEast’s original Certificate filing had roughly 990,000 dekatherms/day of subscribed capacity, with the endpoints described for each subscription.  This included substantial deliveries into NJ. The abbreviated filing now includes 213,000 Dekatherms/day flowing into NJ, presumably via the Adelphia pipeline interconnects.  PennEast does not indicate how this 213,000 dekatherms/day is related to the original subscriptions in the Certificate filing, nor does it specify endpoints. This means that PennEast needs to file an entirely new Purpose and Need statement for Phase 1 and Phase 2, it needs to identify what the endpoints are, and it needs to define what subscriptions apply to Phase 1, and what apply to Phase 2. Without this information, the abbreviated filing cannot be accepted by FERC, as the purpose and need calculations have fundamentally changed.

EMINENT DOMAIN and PURPOSE and NEED

FERC’s policy statement on determining Purpose and Need states explicitly that the commission must view purpose and need proportionally with the amount of eminent domain exercised within a project.  That is, the greater the amount of eminent domain that will be applied within a project, the stronger the purpose and need has to be justify the takings. At the time FERC issued a Certificate to PennEast on docket CP15-558-000, it did not appear to take eminent domain takings into account when determining purpose and need.  However, it is feasible that FERC believed that in the end PennEast would be able to negotiate with a substantial number of landowners in the final hour and avoid eminent domain court in most cases. We know now that is not the case. In fact, PennEast almost immediately filed 198 separate eminent domain cases once it was granted its Certificate.  148 of those cases were in the NJ portion of the route, and represent a staggering 50% of the total route. This means that FERC is now fully aware that Phase 2 of this abbreviated filing would involve 50% eminent domain. Since this is now an established fact, FERC must re-evaluate its purpose and need decision, and determine if the benefits of the Phase 2 project outweigh the outright decimation of property rights by needing to condemn fully half of the route.  It is clear that the weak statement of “need” by PennEast cannot justify condemning such a large number of properties, and that FERC must thereby reject this application.

REGIONAL OVERBUILDING

PennEast was always unneeded but is even more so now that an additional four billion, fifty-five million cubic feet per day of capacity (4.055 Bcfd38) has been added to pipelines in, running to, or running through, Eastern Pennsylvania and New Jersey since the original application filing. There was sufficient capacity at the time of the original application’s filing, and now that has dramatically increased to a massive glut of capacity. Old, out-of-date, self-dealing precedent agreements do not justify demand or qualify as proof of public need.

PHASE 1 OVERBUILDING

While PennEast claims independent utility for Phase 1 of the pipeline, it does not justify anywhere the 36” pipe size.  With only 338,000 dekatherms/day subscribed to in Phase 1, it would appear on its face that a 36” pipe would represent over building on the part of PennEast.  Consumers should not bear the construction costs and rate burden of a 36” pipeline if a pipeline of that size is not actually required in Phase 1. This is especially concerning as PennEast has stated explicitly that Phase 2 may never be built.  This would result in stranded unused capacity being paid for by consumers, with violates a critical FERC mandate.

PHASE 2 OVERSIZED

With 213,000 dekatherms/day of capacity proposed to flow to NJ through the Adelphia pipeline in phase 1, the sizing of Phase 2 is now in serious doubt.  A large portion of the gas that “required” a 36” greenfield pipeline to be built in NJ may now be flowing through Adelphia and connecting to NJ in Phase 1.  As a result, the Phase 2 pipeline sizing almost certainly represents overbuilding on the part of PennEast. As a result, FERC must deny this abbreviated application.

JURISDICTION and Condemnation RIghts

SInce the 2018 Certificate is currently under review by the D.C. Circuit Court of Appeals, the FERC Commission lacks jurisdiction to modify it. Simply put, under the Natural Gas Act (NGA), FERC does not have authority to alter the certificate while the D.C. Circuit Court of Appeals still has jurisdiction.

CONCEALING NJ Issues

In its abbreviated filing, PennEast states that its delays are due to issues with getting its “New Jersey Authorizations”.  This is not in fact the case. The true issue facing PennEast is that the 3rd circuit court of appeals has barred PennEast from bringing 42 suits against the State of NJ in Federal condemnation court.  Due to the 3rd circuit ruling, PennEast cannot legally obtain rights and build on those 42 properties. Those properties total about 9.2 miles of the ROW, which represents approximately 20% of the route on the Phase 2 proposal within NJ.  This means that PennEast is legally barred from ever creating its Phase 2 route. For this reason this abbreviated application must be denied.

ENVIRONMENT

The phases in the application all pose significant environmental harms that must be considered by the Commission when determining public interest.  All of the phases’ harms must be independently weighed against its purported (nonexistent) need to determine public interest for each phase. This includes a cumulative EIS of Phase 1, including the new Church Road Interconnect, and a reevaluation of all potential HDD drilling impacts that current scientific and industry data demonstrate has been significantly underestimated. The industry acknowledged 50% failure rate of HDD must be accounted for in assessing the impact to wetlands, streams, and animal habitat.

NEPA

The FERC commission failed to comply with the National Environmental Policy Act (NEPA) and perform a complete EIS for PennEast’s 2015 project and therefore did not correctly weigh the public benefits and costs of the project.