$peculation on Natural Gas Pipeline Projects is Wide$pread, Part 1

Pipeline Payday: How Builders Win Big, Whether More Gas Is Needed or Not, Part 1

From an Article by Phil McKenna, Inside Climate News, August 3, 2017

Close corporate relationships between pipeline builders and gas buyers are allowing companies to reap higher profits while locking in emissions for years to come.

The real fight over America’s energy future isn’t in coal, despite the Trump administration’s public focus on a mining revival. Rather, dozens of pipeline projects, making up one of the largest expansions of natural gas infrastructure in U.S. history, are where the fossil fuel action is.

At a cost of billions of dollars, these pipelines will tap the rich reservoir of fracked natural gas flowing out of the Marcellus-Utica shale basin that lies under much of Pennsylvania, Ohio and West Virginia.

The Trump administration and its allies, energy-dominance manifestoes in hand, are eager to see these projects approved as soon as the president’s nominees to the Federal Energy Regulatory Commission (FERC) are confirmed by the Senate.

But are all these new gas pipelines really needed?

Critics say that the financial interests of gas and electric companies—not market demand—are driving most of the new pipelines proposed for the region. Those profits are approved by FERC, an agency that is charged with ensuring public interests, but that nurtures “an exceptionally cozy relationship” with industry, as described in a comprehensive investigation published last month by the Center for Public Integrity and StateImpact Pennsylvania, with National Public Radio.

“At every turn, the agency’s process favors pipeline companies,” the review found after the groups interviewed more than 100 people, reviewed FERC records, and analyzed nearly 500 pipeline cases.

It also noted another cozy relationship: the tight corporate links between the companies building the pipelines and those buying the natural gas, either to deliver it to homes and businesses or to use it to make electricity.

These close relationships, explored in greater depth here by InsideClimate News, not only set up surefire profits at the expense of consumers, critics say; they also lock in long-term incentives—in the form of physical infrastructure and financial rewards—to keep burning the fossil fuels that are warming the planet.

“It’s bad for ratepayers, it’s bad for the climate, it’s bad for the environment, but it’s really good for companies that are going to make profits,” said Amy Mall, a senior policy analyst for the Natural Resources Defense Council.

More Gas, No Additional Demand

One example of this is in Missouri, where Spire STL Pipeline LLC, an interstate pipeline company, and Laclede Gas Company, a local gas utility, have proposed to build a $220 million pipeline that would deliver Marcellus shale gas to St. Louis.

Laclede and Spire are owned by the same parent company. Project opponents say this incestuous business arrangement between the customer, Laclede, and its supplier, Spire, puts the interest of shareholders above those of ratepayers.

If the project is approved, shareholders of Spire, Inc., the parent company, will make a 14 percent annual return on the equity they invest in the project. Laclede’s captive ratepayers would probably have to pay higher gas rates to finance the new pipeline.

State regulators, a competing pipeline company, other utility companies from the region and an environmental organization are challenging the project.

“It is not clear that there is need,” the Missouri Public Service Commission wrote in a conditional protest in February to federal regulators overseeing the project.

Natural gas demand in Missouri has been flat since 1997, and no increase is anticipated until 2024, according to the U.S. Energy Information Administration.

Laclede has 18 percent more capacity than it needs during periods of peak demand, according to an analysis of Laclede’s annual reports from 2006 to 2014.

Unused capacity from four existing pipelines supplying the St. Louis area could provide an additional 35 percent capacity above what Laclede needs on peak days, according to the analysis, by Enable Mississippi River Transmission, one of the pipeline companies that currently supplies Laclede’s gas.

The new pipeline “has been shielded from a truly competitive market,” it is subsidized by ratepayers, and, without such subsidy, it “makes no economic sense,” Enable wrote in public comments filed to FERC.

Complaints Roll In

It’s hardly a unique situation, InsideClimate’s review of several projects shows.

Four of the six large, new pipelines proposed or currently under development for the Marcellus-Utica region are “affiliate pipelines,” where a parent company owns the gas or electric utility that will purchase the gas and also owns, or enters into a joint venture with, the pipeline company that will build the pipeline.

Complaints filed with the Federal Trade Commission allege two of these pipelines, Atlantic Coast and NEXUS, violate antitrust laws.

State regulators typically allow a roughly 8 percent annual return on equity for new pipeline projects for local gas and electric utilities. Affiliate agreements, however, allow the parent company of a state-regulated utility to seek federal certificates for interstate pipelines. These permits typically allow a 14 percent annual return on equity, a rate that is “tantamount to winning the lottery,” according to one state agency.

Existing pipelines run at only slightly more than half capacity. Average capacity utilization for the interstate pipeline system between 1998 and 2013 was only 54 percent, a figure that for major pipelines is expected to increase only slightly to 57 percent by 2030, according to the U.S. Department of Energy. “Given the cost of building new pipelines, finding alternative routes utilizing available capacity on existing pipelines is often less costly than expanding pipeline capacity,” the department concluded in a 2015 report.

In February, outgoing FERC chair and Obama appointee Norman Bay warned on his last week in office of the potential for affiliate pipeline agreements to result in an overbuild of pipelines. “It is inefficient to build pipelines that may not be needed over the long term and that become stranded assets,” he said.

Proposed gas pipeline projects coming out of the Marcellus-Utica shale basin would lock in added carbon and methane emissions for decades to come by incentivizing additional gas use in the future once the pipelines are built and paid for.

Bay noted in his departing memo that FERC should “be open to analyzing the downstream impacts of the use of natural gas and to performing a life-cycle greenhouse gas emissions study.” A recent analysis by environmental organizations did just that and concluded “the currently planned gas production expansion in Appalachia would make meeting U.S. climate goals impossible.”