If They Build It, Consumers Will Pay

Posted March 28, 2017

Tom Blog Unneeded Pipelines

The financial incentive to build pipelines has run out of gas. A few recent developments are red flags for important trends that are unlikely to disappear with changing political winds and federal policies.

For one thing, there’s the recent news that New Jersey’s largest utility has sold its interest in the proposed PennEast pipeline. PSEG announced it is selling its 10 percent share in PennEast to Spectra Energy Partners, already an investor — and customer — in the project.

This came not long after another interesting sign. Norman Bay, the former chair of the Federal Energy Regulatory Commission (FERC), wrote a letter to his fellow Commissioners, warning them to look more closely at self-dealing schemes among pipeline companies to make it seem like unnecessary new pipelines are meeting nonexistent public demand.

State regulators are taking notice, too. The New Jersey Division of Rate Counsel — the state’s independent state consumer utility watchdog — concluded that there is no evidence of need for PennEast, and building it would be “unfair to ratepayers” who would foot the bill for an unneeded pipeline.

Rate Counsel and the former chair of FERC offer perspectives on PennEast that need to be heard, particularly by investors. There is increasing and substantial regulatory risk for many unneeded projects that are being proposed.  Overbuilding has already begun and the PennEast scheme is a prime example of an unnecessary pipeline. It is no wonder that PSEG wanted out.

In his letter, Bay highlighted the risk of overbuilding pipelines. He said that a proper analysis of costs and benefits “may not support building the pipeline” for some proposed projects. Bay pointed to an important flaw in current practice: that regulators often accept contracts signed by utilities as confirmation that more capacity is needed.

Bay further explained the consequences of FERC approving unneeded pipelines:

“Pipelines are capital intensive and long-lived assets. It is inefficient to build pipelines that may not be needed over the long term and that become stranded assets,” he said.

Traditionally, the high price of constructing new pipelines safeguards against overbuilding. Local gas companies and their customers willingly assume these costs when facing genuine growth in demand. Today, though, we see numerous projects in which gas companies collude in tangled schemes to build new pipelines. By shifting contracts from existing pipelines to a new pipeline that is owned by their corporate parents, affiliates of pipeline companies would leave unused capacity as someone else’s problem, while enriching their shareholders.

Commissioner Bay didn’t name names, but his warnings were all-too-familiar to those following PennEast. State regulators are taking notice, too. The New Jersey Division of Rate Counsel concluded that PennEast’s contracts with its own affiliates represent “self-dealing,” not proof of market demand.

In the past, overbuilding pipelines led to cycles of boom and bust. The first sign of this new defective cycle is the massive amount of new pipeline capacity that has been constructed over the past eight years. The second sign is the fact that pipelines are being proposed as vehicles to maximize profits, not to meet actual growth in demand.

We’re all familiar with the “dotcom” and real-estate bubbles that formed, but now pipelines are forming a dangerous bubble, and guess who will be on the hook for the damage? The customers in every state where their regulated gas companies sign up for unneeded pipelines. Federal and state officials should pay heed and put the brakes on unneeded, costly pipelines like PennEast.

-Tom Gilbert, Campaign Director, ReThink Energy NJ

Related Articles

NJ Introduces Legislation To Establish Statewide Healthy Building Standard

March 20, 2024

NJDEP Announces Strategic Climate Action Plan

September 21, 2023

Multiple State AGs, NJ Rate Counsel Join Environmental Groups in Challenging FERC’s Flawed Approval of Unneeded REAE Fossil Fuel Project

August 11, 2023
© 2024 ReThink Energy NJ | Privacy Policy