September 19, 2017

Lorne Stockman, lorne [at]
David Turnbull, david [at]
Tyson Slocum, tslocum [at]
Doug Jackson, doug.jackson [at]

Report: Gas Pipeline Construction Leading to Massive Risks to Utility Ratepayers
Self-dealing, manufactured need, lax oversight exposed by new analysis

On the eve of the Federal Energy Regulatory Commission’s first meeting in seven months, and as states from Virginia to New Jersey to North Carolina weigh new gas pipelines facing imminent rulings from Trump-appointed regulators, a report released today exposes an impending crisis of risk to utility ratepayers.

The new report, entitled “Art of the Self-Deal,” shows how utilities and gas companies are increasingly engaged in shady self-dealing to support a dangerous gas pipeline buildout, while the regulators charged with protecting ratepayers are asleep at the wheel. It calls on FERC to stop issuing permits for new gas pipelines in order to overhaul its permitting process to protect the best interests of consumers.

Released by Oil Change International in partnership with Public Citizen and the Sierra Club, the report highlights that, in an era of profound technological change that is increasingly disrupting energy markets, FERC offers little meaningful analysis of market need for new gas pipelines. Instead, FERC is allowing companies to sew up contracts between affiliated subsidiaries in order to manufacture demand for additional pipeline capacity and cash in on lavish returns authorized by FERC.

The report includes case studies of four pipelines on FERC’s recent or pending agenda that illustrate these risks: the Atlantic Coast, Mountain Valley, PennEast, and NEXUS projects.

“FERC fails ratepayers when it takes at face value pipeline company estimates of future gas demand while the momentum behind clean energy’s disruption of fossil fuel markets is accelerating. FERC adds insult to injury when it allows utilities to muscle in on the pipeline business while shifting the costs and risk to ratepayers,” said Lorne Stockman, Senior Research Analyst at Oil Change International and co-author of the report.

Previous research has exposed the climate risks the gas buildout poses. This new analysis suggests that beyond the climate impacts of unrestricted gas production, utility ratepayers could be locked into paying for gas infrastructure when investments in a real clean energy transition would better protect their pocketbooks and their health. Absent effective oversight, ratepayers could end up shouldering long-term costs for pipeline capacity they don’t need, while losing out on opportunities to take advantage of increasingly cheaper, cleaner choices.

“Pipeline developers have misled the public and decision-makers by claiming that new pipelines will result in lower energy costs,” said Thomas Hadwin, a former utility executive, business consultant, and entrepreneur in Virginia. “Families and businesses will pay billions more over the next 20 years to use new pipelines instead of available capacity in existing pipelines. FERC has failed the nation by refusing to evaluate the need for these projects or their effect on ratepayers.”

The report finds that three key factors are raising the ratepayer risk posed by the ongoing gas pipeline buildout:

  1. Corporate self-dealing is increasing the likelihood that ratepayers, not shareholders, bear the financial risks of investing in gas pipelines;
  2. High rates of return set by FERC that beat returns available in other activities are luring new players such as utilities into the gas pipeline business; and
  3. Today’s dynamic energy landscape is creating increasing uncertainty over the future demand for gas. This requires greater scrutiny than ever from regulators if the risks and costs of overbuild are to be avoided.

“FERC must improve the evaluation criteria it utilizes to review pipeline projects that expose consumers to millions of dollars in rate increases,” said Tyson Slocum, Energy Program Director for Public Citizen. “To ensure that consumers and citizen groups have a seat at the table, the Commission must create and fund the Office of Public Participation to improve the ability of the public to engage in pipeline proceedings.”

Recommendations from the report include:

  • FERC should immediately initiate a review of long-term market demand for gas and of the Commission’s granting of excessive rates of return on equity for pipelines.
  • State Public Service Commissions should assert their authority to review contracts between the utilities they regulate and the proposed gas pipelines in which affiliates of these same companies are investing; and
  • FERC should halt all permitting of interstate gas pipelines in the meantime, while these processes are pursued.

“These gas pipelines are dirty, dangerous and unnecessary relics of the past century’s energy markets,” said Kelly Martin, Director of the Beyond Dirty Fuels campaign for the Sierra Club. “Energy companies should not be making their customers pay for unneeded projects that pollute the air they breathe and the water they drink when clean energy sources are already abundant and affordable.”

The report can be found at