As the Federal Energy Regulatory Commission (FERC) closes out a year of approving every single fossil fuel project proposal that came before it, a troubling project waits on its desk and appears scheduled for vote this Thursday. Transco’s Regional Energy Access Expansion (Regional Access) project would build another gas pipeline purportedly designed to serve customers in Pennsylvania, Maryland, and–primarily–New Jersey. Yet New Jersey—via its Board of Public Utilities (BPU), which oversees gas utilities, and the New Jersey Rate Counsel, which protects ratepayers and the public interest— told FERC that the state does not need more gas capacity. What’s more, Maryland’s most populous county just enacted a gas ban and has the country’s most stringent GHG reduction law. Taking these facts into account, FERC should break from its 100 percent project approval this year and deny certification for the project,  signaling its willingness to ask the right questions when faced with such proposals going forward

Why would a pipeline company invest money in building an unnecessary pipeline? The short answer is that building pipelines is hugely profitable for developers, as they can make a 14 percent return on equity (regardless of whether the pipeline is even needed). And for pipelines like Regional Access, where most shippers are state-regulated gas utilities, they recover 100 percent of the contract costs from their ratepayers. Utility shippers then profit from selling extra capacity on secondary markets to entities other than their rate-paying customers, enriching their shareholders at ratepayers’ expense. 

In New Jersey, local distribution companies (LDCs) retain the extra profits from these sales. Even though ratepayers pay for the infrastructure that carries the gas generating those profits, the profits do not offset rates paid.  This amounts to free money for LDCs, as they receive a wealth transfer from people in New Jersey who are paying for capacity they don’t need, to utility shareholders when LDCs sell the unneeded capacity to electric generators and energy trading companies. Crucially, unless FERC starts paying attention to state regulators, there is no limit to how many times utilities can play this game. 

If FERC continues its historical practices of approving almost any project before it, it will rubber-stamp Regional Access under the usual guise of deferring to private companies’ “business decisions.”  But market demand (the existence of private contracts to purchase capacity) is not the same as public need (needing new capacity to fill a gap). 

To that end, New Jersey regulators found, via an independent expert analysis, that New Jersey utilities didn’t need new pipelines and submitted that analysis to FERC. A second report published by energy markets consulting firm Skipping Stone also concluded that Regional Access’ capacity is unnecessary. This report found that there were only five days in the past five years when New Jersey utilities, direct-served power plants, and industries acquired gas over current utility-contracted capacity (plus energy trading company capacity to and through New Jersey). All these findings underscore that  New Jersey markets–homes, businesses, industries, and power plants–had no problem obtaining gas. 

In fact, the cost of getting gas for those five days was only a fraction of the projected cost of building  Regional Access. Enough capacity exists even without legally required gas demand decreases. Yet recently, New Jersey utilities told FERC that people would go cold this winter if it didn’t approve this project. Thankfully, New Jersey Rate Counsel set the record straight – reminding FERC that these utilities were crying wolf. 

If FERC approves Regional Access, its costs will fall on New Jersey ratepayers. LDCs have no incentive to come to FERC and say that costs are too high because they pass all costs along to ratepayers. In turn, their shareholders profit from reselling the capacity ratepayers don’t need. By failing to consider the public need and current data on available capacity, FERC continues to fall short of its responsibility of ensuring just and reasonable rates by preventing overbuild. When unneeded infrastructure is approved and placed into service, ratepayers will continue to pay for it for decades. 

As long as FERC turns a blind eye or hides behind a belief that private contracts are sufficient for establishing public need, none of this will change. Pipeline companies could apply to build infinite amounts of new capacity that is not even remotely needed. Without federal legislation or action by FERC, the situation in New Jersey could be replicated in other states, regardless of state gas needs or laws requiring GHG reductions. If FERC is indeed the  “guardian of the public interest,” it should begin acting accordingly and use its last 2022 meeting to deny authorization for Regional Access.

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