Oil Change International

Exposing the true costs of fossil fuels

3 Key Questions Trump’s Fossil-Friendly FERC Nominees Must Answer

NoPipelineSignTomorrow morning, the Senate Committee on Energy and Natural Resources is set to grill Trump’s two nominees to the Federal Energy Regulatory Commission (FERC), the primary federal agency that oversees the permitting of interstate gas pipelines. As Bloomberg reported, $50 billion worth of energy projects are pending before FERC, which has been lacking a quorum of commissioners since early February and therefore unable to issue final permit decisions.

But FERC’s lack of quorum has almost certainly been a net positive for the climate. The agency has gone on a spree of approving major new gas pipelines and liquefied natural gas (LNG) export facilities in recent years. FERC has done so without conducting a robust analysis of these projects’ significant role in worsening climate change and largely irrespective of the actual market need for the gas the pipelines would carry – or cleaner, cost-effective alternatives. A July 2016 report by Oil Change International shows that the slew of new pipeline projects coming out of the Appalachian Basin will enable an increase in gas reliance that would make it impossible for the U.S. to meet its climate goals. The next FERC commissioners will decide whether these projects get built.

What’s urgently needed at FERC is reform of pipeline permitting processes to square with scientific and economic reality, and serve the public interest. Unfortunately, it appears that Trump’s nominees – Robert Powelson and Neil Chatterjee – would bring the exact opposite: more reliable rubber stamps for the gas industry.

Powelson, who sits on the Pennsylvania Public Utility Commission, is an open cheerleader of fracking and accused people trying to protect their land from gas pipelines of engaging in “jihad.” Chatterjee, meanwhile, has been Senate Majority Leader Mitch McConnell’s right-hand man in attacking climate policies like the Clean Power Plan and in trying to ram through approval of the Keystone XL pipeline.

Senators should use tomorrow’s hearing to push these nominees on pipelines, and put a spotlight on the agency’s continued failure to protect the climate, communities in the path of gas infrastructure, and U.S. consumers being forced to pay for it.

Ultimately, we need Senators to reject any and all FERC nominees who refuse to commit to ending FERC’s reckless, pro-gas agenda.

These three questions get to the core of the reform that’s needed:

1. What steps will you take to ensure FERC adds up the full climate impact of new gas pipelines and stops approving projects that undermine U.S. climate goals?

As our “Bridge Too Far” report shows, building major new gas pipelines increases access to gas that, if we’re going to avoid runaway climate change, we cannot afford to burn.

But, in its legally required environmental reviews, FERC routinely fails to add up the full lifecycle greenhouse gas pollution of proposed gas pipelines, including fracking, piping, processing, and burning the gas. Even in rare cases where FERC has attempted a cursory, limited analysis of lifecycle climate pollution, the agency has used sweeping, outdated assumptions to dismiss the impact as insignificant. FERC ignores science and economics by assuming gas is always cleaner than coal, that gas will get to market with or without pipelines, and that gas will always replace coal.

In fact, as Oil Change International details in our methodology for calculating the climate impact of new gas pipelines from the Appalachian Basin, FERC is stuck in an alternate reality. New pipelines from the Appalachian Basin will unlock a surge of new fracked gas, methane leaks wipe out any benefit of replacing gas with coal, and this gas is increasingly likely to displace energy efficiency and clean energy alternatives.

If FERC was led by the latest science and economics, it would find these pipelines are climate disasters that we can’t afford – and don’t need – which gets to the next question.

2. Will you ensure FERC conducts a robust market analysis to assess whether genuine need exists for new pipelines, and to consider lower-cost, cleaner alternatives?

In assessing permits for new pipelines, FERC must determine a need for the project. Unfortunately, FERC has relied almost exclusively on the existence of contracts between pipeline developers and gas shippers (companies committed to use a certain percentage of the pipeline’s capacity) to certify that need. In other words, FERC looks at whether companies are under contract to supply gas from point A to point B, instead of considering whether U.S. consumers at point B need the gas that would be supplied. Increasingly, pipeline developers are contracting with their own subsidiaries to purchase the gas, which can position them to make bigger profits but is an especially poor basis for establishing public need.

In this void of proper oversight from FERC, pipeline companies are driven by profit incentives to build far more pipeline capacity than is needed, as was detailed in an April 2016 report by the Institute for Energy Economics and Financial Analysis. Existing pipeline capacity is being underutilized, and energy efficiency and renewable energy alternatives are cheaper than ever.

Yet, pipeline companies have a profit motive to build new pipelines because they receive unusually high rates of return on their capital investment, which FERC also approves – leading to the next key question.

3. Will you commit to reevaluating the high rates of return FERC approves for pipeline builders, and thereby protect U.S. consumers from being forced to foot high bills for unneeded pipelines?

On top of failing to consider the full climate consequences of pipelines and failing to honestly assess the genuine public need for them, FERC is creating an artificial economic incentive for gas and utility companies to overbuild them.

FERC allows energy companies to earn a near 15% rate of return on pipeline projects, which is significantly higher than is typical for power plants, interstate transmission lines, and overall utility profits. Utility companies purchasing the gas pass on these rates to their customers. As pipelines typically take 40 years to pay off, ratepayers are being locked into paying for gas for decades to come despite the fact that these pipelines could (and should) become stranded assets. Energy efficiency and renewable energy are already competing directly with gas, and gas must be displaced by clean alternatives sooner than 40 years if we’re going to avoid climate chaos.

It’s time for FERC to stop distorting the market, and incentivizing an overbuild of fossil fuel infrastructure, by guaranteeing pipeline builders unusually high profits.

The track records of Trump’s FERC nominees give us little hope that they’ll have satisfactory answers to these questions, or offer any commitment toward reform at FERC. But it’s about time that U.S. Senators, and all policymakers who care about our climate and U.S. consumers, start asking them.

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