Ratepayer Risk in Overbuildin: the Atlantic Coast Pipeline, the Mountain Valley Pipeline, and the Appalachian Connector Pipeline
Utilities and pipeline companies are proposing major new natural gas pipelines here in West Virginia as part of a massive build-out driven by the shale gas boom. These proposals are meant to transport cheap natural gas from the Marcellus and Utica shale formations to eastern markets. But as investors rush to take advantage of optimism around long-term natural gas demand, there’s a real risk of overbuilding pipelines.
Pipeline opponents raise concerns ranging from threats to property values, public safety, and groundwater to the impacts of cutting large pipeline corridors through national forests. They’re also right to question whether all of these new pipelines are even necessary.
Unlike most major infrastructure investments, including highways, water lines, sewers, and electricity transmission, there’s no larger, coordinated planning process for natural gas pipelines. Interstate natural gas pipelines, like electric transmission lines, are regulated by the Federal Energy Regulatory Commission—the agency is considering both the Atlantic Coast and Mountain Valley pipeline, although the Appalachian Connector Pipeline has not yet applied for FERC approval.
The planning process for electric transmission allowed alert state regulators in Virginia to see that electric reliability could be assured by rebuilding existing lines rather than by building the proposed PATH, which would have cut through West Virginia and several other states. That contributed to its cancellation in 2012, saving ratepayers about $2 billion.
By contrast, when it comes to pipeline capacity, if a pipeline company signs contracts in advance with enough customers to account for most of its proposed capacity, FERC finds it has demonstrated “significant evidence of need.” This may seem reasonable, but such logic is not necessarily in the public interest.
A case in point is the $5.1 billion Atlantic Coast Pipeline, a joint venture of Dominion Resources, Duke Energy, Piedmont Natural Gas, and AGL Resources. The largest customers—which together have contracted for 90 percent of the pipeline’s capacity—are all subsidiaries of these same four companies. Each subsidiary is also a fully regulated utility that gets to pass its costs for the pipeline on to its customers. The owners benefit from building their own pipeline rather than using someone else’s because they are able to earn a profit on their investment, through their customers’ rates—an incentive that should raise skepticism. For example, Dominion has contracted for one-fifth of the capacity of the Atlantic Coast Pipeline to supply two natural gas plants that it is building in Virginia—plants for which Dominion has already entered into twenty-year contracts with another pipeline for enough capacity to supply all of the gas needed by the plants. Is it necessary for ratepayers to pay for redundant capacity?
NOT ALL PIPELINE DEALS ARE STRUCTURED IN THIS WAY, with pipeline developers building a line for affiliated companies, but it illustrates the point that the private interests of pipeline companies do not necessarily align with the public interest.
One result of the unplanned approach is that the pipeline capacity companies have proposed dwarfs the amount of gas expected. The U.S. Geological Survey estimates that 122 trillion cubic feet of gas is recoverable from the Marcellus and Utica shales with current technology. Proposed pipelines in various stages of development would transport nearly 10 trillion cubic feet per year from the region, Moody’s Investor Service concluded in October 2014. Barring major discoveries or technological advances, the gas would last less than 15 years—a much shorter period than the life of the pipeline infrastructure. The cost of that underutilized infrastructure would largely be borne by the rate-paying public.
What does this mean for West Virginia? The Atlantic Coast pipeline is proposed to run southeast from Harrison County through Lewis, Upshur, Randolph, and Pocahontas counties and enter Virginia after crossing through the Monongahela National Forest. The Mountain Valley Pipeline will originate in Wetzel County and cut almost due south, entering Virginia from Monroe County. The Appalachian Connector pipeline, which is not as far along in planning as the others, will likely originate in the northern panhandle and terminate in Chatham, Va. While the pipelines will be paid for by customers farther east, West Virginia landowners would be right to question whether the projects planned through their lands are needed in the first place.
Just last month, a study released by the Massachusetts Attorney General concluded that, contrary to pipeline industry claims, New England could cost-effectively meet its electricity needs through at least 2030 without building new pipelines. This kind of independent scrutiny is sorely needed here.
Cathy Kunkel is an IEEFA energy analyst and a resident of West Virginia.