Energy Expert Analysis Debunks PennEast Justification for Proposed Pipeline — Only Purpose Is Profit

Posted March 11, 2016

New Jersey Conservation Foundation Calls on FERC to Halt Review and Investigate Claims

FAR HILLS, N.J. (March 11, 2016) — PennEast’s claims that its proposed pipeline is needed to supply New Jersey with additional natural gas capacity and will reduce gas prices for consumers are not substantiated according to a report conducted for the New Jersey Conservation Foundation. In the analysis prepared by Skipping Stone, a nationally recognized energy consulting firm, it also notes that introduction of the pipeline’s capacity to the region would actually increase costs to the region’s ratepayers, not decrease them as PennEast alleges.

The report concluded that regulators should not rely merely on the existence of contracts to assess need, since most of the customers purchasing capacity on PennEast are also affiliated with PennEast owners. Instead, the primary motivation for the project appears to be the potential high return on capital for owners of PennEast.

“This analysis provides concrete data to conclude that PennEast’s justifications for the proposed pipeline do not hold water,” said Tom Gilbert, campaign director — Energy, Climate and Natural Resources for New Jersey Conservation Foundation, which commissioned the Skipping Stone research. “The PennEast pipeline is not needed and ratepayers will bear the cost. Profit by the private companies that own PennEast is not justification for building a pipeline, nor the use of eminent domain to take private property.”

“Based on this compelling analysis, we call upon FERC to immediately suspend review of PennEast’s application and to initiate a full-evidentiary hearing to determine what demand is supposedly being met by the proposed pipeline,” Gilbert stated. “The project should be rejected without a demonstration of public need.”

Gilbert also notes that according to the report:

Local gas distribution companies in the Eastern Pennsylvania and New Jersey market have more than enough firm delivery capacity to meet the needs of customers during peak winter periods. The analysis shows there is currently 49.9% more delivery capacity than needed to meet even the harsh winter experienced in 2013 (the Polar Vortex Winter).

There are alternative ways for providers of gas-fired electric generation to meet their need for electric reliability more cost-effectively by using either natural gas from LNG facilities or dual fuel. Natural gas pipelines in the northeast are typically fully utilized between 10 and 30 days a year to meet peak demand in the winter. Building a pipeline that is only fully utilized for a short period of time is not a cost effective way to provide reliable electricity.

The impact of PennEast may well be to increase, rather than decrease, costs to gas customers. The PennEast pipeline would be capable of transporting 1 billion cubic feet of gas daily, displacing gas from existing pipelines. Analysis of two existing pipelines shows that the value of capacity on those pipelines would decrease, costing ratepayers between $130 million and $230 million annually in lost revenues. Additionally, to the extent excess capacity causes existing pipelines in the region to experience loss of contracting by customers, FERC rules permit those existing pipelines to file for rate increases on remaining customers to recover lost revenues.

PennEast claims of potential savings for gas consumers or electric generation customers are based on faulty assumptions and analysis. The price spike experience during the Polar Vortex is unlikely to be repeated and does not, alone, justify the addition of new pipeline capacity. PennEast does not address evidence that similar price spikes did not occur in Winter 2014/2015; nor the important changes made in electric markets since 2013 that reduce dependence on constrained natural gas pipelines during peak demand periods because of reliance on fuel oil and LNG.

FERC should not rely on non-arms-length transactions as a foundation for finding market need. New Jersey Natural Gas, PSEG, South Jersey Gas, and Elizabethtown Gas have purchased 50% of the total capacity of the pipeline, while their corporate affiliates own 70% of PennEast. While the parent companies will benefit from their ownership of PennEast, those companies’ customers — ratepayers — bear the risk of paying for the PennEast capacity for 15 years. The contracts are essentially between parent companies and their own affiliates and therefore cannot by themselves represent a true demonstration of market need.

The Skipping Stone report can be found at: rethinkenergynj.org/penneastnotneeded

About Skipping Stone: Skipping Stone is an energy markets consulting firm that helps clients navigate market changes, capitalize on opportunities and manage business risks. Its services include market assessment, strategy development, strategy implementation, managed business services and talent management. Market sector focus areas are natural gas and power markets, renewable energy, demand response, energy technology and energy management. Skipping Stone’s model of deploying only energy industry veterans has delivered measurable bottom-line results for over 260 clients globally. For more information, visit SkippingStone.com.


Tom Gilbert, NJCF
Email: tom@njconservation.org
Phone: 267-261-7325

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