FERC’s approval of the REAE project: A threat to consumers, states, and urgently needed movement towards a modern, clean grid.

Even among policymakers, there’s a common misconception that new fossil fuel infrastructure development invariably increases “reliability” and “reduces” consumer energy costs. This may hold true when there is a real probability that demand might exceed available capacity. However, in cases where ample capacity already exists, additional fossil fuel infrastructure often drives up rates for consumers. That is because utilities can pass the cost of building and operating new infrastructure entirely onto consumers–increasing energy rates with no corresponding benefit to the public. To prevent (among other things) these adverse consequences of infrastructure “overbuild,” the Federal Energy Regulatory Commission (FERC) is supposed to review proposals for new gas infrastructure to ensure that approved projects are in the “public convenience and necessity.” FERC unfortunately has largely abdicated this duty and primarily serves as a rubber stamp for the build-out of unnecessary fossil fuel infrastructure.

For evidence of how fossil fuel interests have completely captured federal regulation of interstate gas infrastructure, look no further than FERC’s recent approval of Transcontinental’s Regional Energy Access Expansion (“REAE”) gas project. The Niskanen Center represents the lead petitioner, New Jersey Conservation Foundation, and the New Jersey League of Conservation Voters, Aquashicola Pohopoco Watershed Association, and an impacted landowner. Together, they are challenging this project primarily due to its harm to consumers and the deeply troubling precedent it sets, which could impede states’ ability to engage in the vital clean energy planning necessary to transition to a zero-carbon, affordable, and modern grid.

At the state level, New Jersey invested considerable time and resources in evaluating its gas capacity needs, including an independent expert report and dedicated docket and investigations by the New Jersey Board of Public Utilities.The result, which New Jersey presented to FERC, was unequivocal: the State does not need additional gas capacity—even in an extreme weather event. FERC effectively ignored this firm conclusion and corresponding expert analysis. Now, over 73.5% of REAE’s gas capacity—of a total whopping 829,400 dekatherms per day—is destined for New Jersey markets. This unnecessary capacity undermines the laborious work of energy planning, benefitting only corporate shareholders at the expense of average American consumers.

Meanwhile, utilities can turn around and sell the unneeded or surplus capacity on the secondary or ‘spot’ market to the highest bidder, including energy trading companies and electric generators. This creates a perverse incentive structure where utilities are motivated to contract for unnecessary capacity because they are guaranteed a return on investment, making the investment virtually risk-free. This is layered on top of FERC guaranteeing nearly 14% return on equity for any approved interstate gas project, irrespective of need.

By approving REAE, FERC has signed off on such an approach and cast aside the state and regulatory bodies charged with guarding the public interest. In fact, the office required by law to protect New Jersey consumers— New Jersey’s Rate Counsel—strongly opposes the project and has joined in our challenge against FERC. As previously noted, eight other states also joined as amici in the challenge, as they recognize that FERC’s approval of REAE “abrogates its duty to guard against overbuilding and to protect consumers.” This is further exemplified by FERC’s approval yesterday of TC Energy’s GTN Xpress Project, which Washington state and West Coast U.S. Senators oppose on similar grounds.

Moreover, FERC’s approval of the REAE project obstructs New Jersey’s progress towards clean energy goals, increasing New Jersey’s annual greenhouse gas emissions by 12% and accounting for nearly 50% of the state’s 2050 emissions. In the words of the eight-state amici group, FERC’s decision “infringes on the [States’] sovereign interests in executing their laws, achieving their policy goals, and protecting public welfare” within their borders. FERC’s endorsement of the gas industry’s hollow justifications for such projects raises concerns about future federal governance and oversight of the fossil fuel industry and energy markets, necessitating the D.C Circuit’s thorough examination and rebuke.

Just last week, FERC doubled down on its flawed analysis by filing a brief in the D.C. Circuit supporting this precedent-setting authorization. FERC relies on vague, undefined assertions of “reliability” and the ‘diversification’ of natural gas sources. If this line of thinking prevails, any gas project proposed ever, regardless of any actual need, would be justified as ‘diversifying’ our resources and improving ‘reliability,’ even if it means constructing redundant infrastructure in a market oversaturated with ample capacity.

This is no battle of the experts. The record unequivocally demonstrates that New Jersey doesn’t need more gas capacity or another gas pipeline. If this approval stands, it could establish a precedent allowing FERC to disregard and undermine states’ ability to plan for and achieve their long-term clean energy goals. On the other side of the ledger, however, are the interests of project applicants, shippers, and utilities, guided by powerful economic incentives to build and contract for unnecessary gas capacity. FERC’s parroting of the gas industry’s justifications for such projects is an ominous harbinger of the federal government’s diminished integrity and captured oversight of our energy planning and markets. The D.C. Circuit vacating FERC’s approval of REAE would be a vital step toward curbing this troubling trend.