Study: PennEast Pipeline Would Rob Ratepayers

by | Mar 21, 2016

Claims that the proposed PennEast Pipeline (FERC Docket No. CP15-558) is needed to supply New Jersey with additional natural gas capacity – and to reduce gas prices for consumers – cannot be substantiated, according to a report released on March 11 by the New Jersey Conservation Foundation.

The study, prepared on behalf of the foundation by energy consulting firm Skipping Stone, also notes that introduction of the pipeline’s capacity to the region actually would increase costs to the region’s ratepayers – not decrease them, as PennEast asserts.

The new, $1.2 billion, 108-mile, 36-inch pipeline has been proposed by a consortium of six extractive energy companies – AGL Resources, NJR Pipeline, Public Service Enterprise Group, South Jersey Industries, Spectra Energy Partners, and UGI Energy Services – which intend to convey natural gas from the Marcellus Shale region of Pennsylvania to Mercer County, New Jersey.

Indeed, the report, “Analysis of Public Benefit Regarding PennEast Pipeline,” concluded that 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,  the foundation’s Campaign Director  for Energy, Climate and Natural Resource, adding,  “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 [the Federal Energy Regulatory Commission (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 noted 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 prtvrny more delivery capacity than needed to meet even the type of harsh seasonal weather experienced in 2013 (the “Polar Vortex” winter).
  • Providers of gas-fired electric generation can meet their needs 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 ten 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.
  • 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, PSE&G, South Jersey Gas, and Elizabethtown Gas have purchased 50 percent of the total capacity of the pipeline, while their corporate affiliates own 70 percent 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.

In conclusion, the report finds that FERC should institute a full evidentiary proceeding with discovery and cross-examination to determine what demand is being met by the proposed pipeline and whether less disruptive and more cost effective alternatives exist to meet such demand.

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