N.J. pipeline project could shake up FERC gas reviews

By Niina H. Farah, Miranda Willson | 08/17/2022 07:09 AM EDT

A natural gas pipeline in Plains Township, Pa.

A natural gas pipeline in Plains Township, Pa. Kara Newhouse/Flickr

A proposed Northeast pipeline expansion could test the Federal Energy Regulatory Commission’s approach to scrutinizing demand for new natural gas infrastructure at a time when a slew of states are trying to use less of the fossil fuel.

The Regional Energy Access Expansion (REAE) project is designed to support growing demand for natural gas in New Jersey, Pennsylvania and Maryland, according to developer Transcontinental Gas Pipe Line Co. LLC. New Jersey state officials, however, have told FERC that the Garden State doesn’t need more gas, in part because of the state’s climate policies and energy efficiency goals.

The tension offers an unusual opportunity for the commission to consider a state’s climate targets before signing off on a pipeline project, according to some legal experts. At the same time, it exposes a key question for the commissioners as they contemplate new approaches to natural gas reviews: What evidence and perspectives should carry the most weight?

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“We finally get to see what FERC will do now that they have these data from the state showing that we don’t need more gas capacity,” said Jennifer Danis, a senior staff attorney at the Niskanen Center, a libertarian-leaning think tank that is representing the New Jersey Conservation Foundation opposing the project before the commission.

In a potential first for a pipeline proceeding, the New Jersey Division of Rate Counsel and the New Jersey Board of Public Utilities (BPU) have presented FERC with an independent study on the state’s natural gas capacity. Conducted by the consulting firm London Economics International for the BPU last year, the analysis concluded that New Jersey was “well-positioned with available interstate supply beyond 2030,” contrary to gas utilities’ claims of potential shortfalls.

The study was commissioned by the BPU last year as New Jersey seeks to transition off fossil fuels. The Garden State has a target of 100 percent clean energy by 2050 across the electric power, transportation and buildings sectors.

“We don’t need additional pipelines going either into or bringing gas into New Jersey,” said Brian Lipman, director of the New Jersey Division of Rate Counsel, which represents consumers on utility issues. “We’re concerned about overbuilding gas pipelines, especially during this transition period where we’re not really sure what role natural gas will be playing within the next five to 10 years.”

It’s hard to predict how FERC will respond to New Jersey’s findings, but the commission seems interested in working more collaboratively with states, said Shelley Welton, professor of law and energy policy at the University of Pennsylvania Carey Law School.

“I think it’s an interesting moment from a federalism perspective to ask what is FERC going to do with this statement from a state public utilities commission that it doesn’t need this gas,” she said.

Expansion projects like Transco’s are becoming more attractive to developers who have recognized that it has become harder to build new or “greenfield” pipelines, said Adam Carlesco, a staff attorney at Food and Water Watch. The nongovernmental organization is intervening in proceedings now before the commission and has submitted comments on FERC’s draft analysis of the project.

But, he warned, if these projects move forward, they will lock in industrial gas reliance for the next 50 years.

“Trying to put this level of capacity in the state is going to mean that they don’t hit their climate goals,” Carlesco said.

Transco has argued that new pipeline infrastructure could be compatible with low-carbon fuels such as hydrogen. Supporters of the expansion, including major natural gas utilities in all three states in which the project would be located, have also questioned the results of the independent study submitted by the BPU.

“The majority of natural gas capacity from Regional Energy Access is subscribed by local New Jersey utilities that have made it abundantly clear they need this additional supply to reliably meet their firm service obligations as well as growing needs of New Jersey customers,” a spokesperson for the Williams Cos., Inc., which owns Transco, said in a statement.

Gas demand and climate goals

Historically, FERC has approved nearly all gas pipeline applications that have come before it, so long as developers had signed binding contracts — known as precedent agreements — with shippers ready to receive the gas.

Like with other developers, Transco has signed such agreements with eight shippers, including New Jersey’s four largest gas utilities, which the pipeline giant says demonstrate the need for its expansion.

But at least three of FERC’s five commissioners have indicated that precedent agreements should not be the only factor driving pipeline approvals. In February, the commission’s three Democratic members voted to add new considerations for landowners, environmental justice communities and other factors to FERC’s “certificate policy statement,” which guides the commission’s gas pipeline review process (Energywire, Feb. 18).

The changes, along with a related proposal on greenhouse gas emissions, were turned into unenforceable “draft” policies in March after industry groups said they gave too much weight to environmental issues (Energywire, March 25). Still, FERC Chair Richard Glick has said he hopes to finalize a modified version of the new policies after reviewing comments on the matter.

“We plan to sit down with [the comments] and put something out as soon as we can,” Glick, a Democrat, said at a press conference last month.

Transco’s expansion project is a clear case study for why FERC’s long-standing reliance on precedent agreements may fall short, some observers said.

For one thing, a growing number of states are trying to move away from fossil fuels, clean energy advocates have noted. Those discussions, coupled with FERC’s consideration of a new certificate policy statement, show that FERC is interested in assessing factors beyond precedent agreements.

That interest should translate to the commissioners responding to New Jersey BPU and the Rate Council’s gas capacity study, even if FERC isn’t required to act on the information, said Colin Parts, a staff attorney at New York University’s State Energy & Environmental Impact Center.

He could not, however, predict whether the filing would mean FERC would deny Transco’s application.

“I do think that FERC is going to have to respond to this really substantively; it’s not something that just gets brushed off,” Parts said of New Jersey’s filing. “And that’s really exciting because it’s laying the groundwork for future claims to be made before FERC.”

FERC considering a state’s climate goals would be incremental progress, he added.

“But,” Parts said, “it’s very exciting incremental progress.”

The Transco project would add a few dozen miles of new pipe to the company’s existing network in Pennsylvania, as well as with other infrastructure in New Jersey and Maryland. It would boost the capacity of Transco’s system by 829,400 dekatherms per day, helping to keep gas service affordable and reliable, supporters say.

All four of New Jersey’s main natural gas utilities have signed up to receive some of the gas, along with providers serving areas near Baltimore, Philadelphia and elsewhere.

FERC staff estimated that the project would emit nearly 17 million metric tons of greenhouse gases annually — more than the average yearly emissions of four coal-fired power plants, according to EPA’s greenhouse gas calculator. The estimate is likely an undercount, but it would still represent a huge increase in New Jersey’s emissions, said Matt Smith, state director for Food and Water Watch.

The project “goes against the stated policy of New Jersey, which is to transition to 100 percent clean energy sources by 2050,” Smith said. New Jersey also has a goal of slashing greenhouse gas emissions in half relative to 2006 levels by 2030.

Gas utilities have countered that the state’s climate goals don’t preclude the addition of new pipelines. In comments submitted to FERC, utilities have also stressed they are working to reduce their emissions in light of state policies.

“It is still critical that new, incremental pipeline capacity projects targeting New Jersey growth are supported and encouraged to ensure that we continue to meet forecasted demand in a manner that allows us to provide safe and reliable service to our customers without interruption,” South Jersey Industries, which provides gas service to over 700,000 customers in the Garden State, told FERC last month.

Competing analyses

The report on gas capacity commissioned by the New Jersey BPU came as the state regulatory agency was under pressure to take a harder look at gas investments given the state’s climate goals, environmental advocates said.

One of the report’s findings was that some utilities may be overestimating demand for natural gas, said Erin Murphy, senior attorney at the Environmental Defense Fund.

“I wouldn’t say we agree with every component of that analysis,” she said. “But we thought that the high-level takeaways were really important and crucial.”

Broadly, the report assessed the risk of gas capacity shortfalls through the end of the decade under various scenarios, including ones in which some customers switch to electric heating. The study found that even if most residents continue to rely on natural gas for heating, gas utilities “easily” have enough capacity to meet demand, said Peter Peretzman, a spokesperson for the BPU.

“The [London Economics International] Report was a comprehensive look at New Jersey’s gas supplies through 2030 and assessed the risk of a capacity shortfall under five different demand conditions to 2030,” Peretzman said in an email.

In sharing the analysis with FERC, the BPU and Rate Counsel may have addressed a long-standing gap in information between what FERC is told about natural gas demand and data that is available to state officials, according to some observers. Historically, gas utilities have been able to sign up for capacity on FERC-regulated pipelines without having to ask permission from state regulators, said Danis of the Niskanen Center.

“I think this is exactly the kind of thing that courts, that FERC, that everybody has been saying,” said Danis, “which is there’s this gap between what’s happening in the FERC dockets and what’s happening and the knowledge and awareness that the states have at the state level about what their [local distribution company] shippers really need.”

Transco, meanwhile, has submitted a separate study on gas needs that reached a different conclusion.

Conducted this year by independent consulting firm Levitan & Associates Inc., Transco’s report found that its own expansion project was needed “to meet the reliability requirements” of gas utilities in New Jersey and southeastern Pennsylvania. It also found that the project could help lower gas prices in the region and improve energy security during the coldest months of the year, among other benefits.

“As more renewable generation is added to the resource mix to meet carbon reduction goals, REAE provides a vital operational hedge in extreme winter conditions when cold weather and high wind speeds reduce offshore wind production and snowstorms affect solar production,” the report said.

The pipeline’s shippers and Transco have said the Levitan analysis is more accurate than the one submitted by New Jersey officials. The one commissioned by Transco is newer and focused specifically on the expansion project in all three states in which it would be built, they’ve noted.

A spokesperson for FERC said the commission considers “all issues raised” in comment proceedings before approving a new project.

In the courts

For now, legal experts are watching closely to see how FERC responds to all information on the Transco project, especially in light of recent court rulings that have criticized the commission’s process for reviewing new gas infrastructure.

In particular, the U.S. Court of Appeals for the District of Columbia Circuit last year found that FERC had overlooked evidence showing that the Spire STL pipeline carrying gas to customers in the St. Louis area was not needed. The D.C. Circuit determined FERC had relied too heavily on a single precedent agreement between Spire Inc. and shipper Spire Missouri Inc., an affiliated retail utility (Energywire, June 23, 2021).

The Spire case demonstrated how important it is for FERC to pay attention to concerns from states, said Murphy of the Environmental Defense Fund.

While the Transco project has precedent agreements for more shippers, in the Spire case, the Missouri Public Service Commission also raised concerns about the need for the project with FERC.

“Ultimately, FERC approved that project, and down the line there were obviously some real issues with that approval,” Murphy said.

She suggested other states could benefit from following New Jersey’s lead by holistically planning for gas demand and incorporating plans for building electrification. Doing so isn’t just about meeting climate goals, she said, but also addressing costs of expensive gas projects to ratepayers.

Gas remains a big source of energy, and transitioning away from it will take time, Murphy said, adding that careful analysis is needed because the costs of gas projects are designed to be recovered over decades.

“If a project might not be needed in that long time frame,” she said, “then a really close look is valuable.”

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