Do Not Pass Go, Do Not Collect...ACP's and MVP's Path to Receive Full Authority to Construct
In What the Fourth Circuit's Recent Decisions Mean for MVP, ACP and the Industry?, we profiled our viewpoints on court challenges confronting Dominion's Atlantic Coast Pipeline (ACP) and EQT's Mountain Valley Pipeline (MVP). Since then, the outlook for both projects has changed, first getting much darker, but then brightening. As the projects have progressed along the regulatory path to approval, it seems as if they have now turned a corner, but the road ahead is still difficult. We lay out below the narrow path they both need to tread to receive full authority to construct across each project's entire right of way. We also look at the legal fees that past projects have spent, with an aim to understand how the new world project developers live in, where every federally required permit is challenged in court, will likely continue to impact that spending going forward.
What is the Path Forward?
After our last write-up, What the Fourth Circuit's Recent Decisions Mean for MVP, ACP and the Industry?, the prospects for ACP dimmed as FERC Staff issued a stop work order for that project, similar to the one that had been issued earlier for MVP. But since then, MVP's prospects have improved, as FERC relaxed its stop work order for that project on August 15, providing that construction could continue along spreads which had been cleared and trenched.
And, this week has been even better for MVP, and perhaps also signaled good news for ACP. First, FERC Staff issued a letter to MVP which lifted the stop work order for all of the pipeline right of way, except for about 30 miles. The Staff based its lifting of the stop work order on a letter issued on August 23 by the Federal Bureau of Land Management (BLM). Second, the Fourth Circuit also lifted its stay on MVP's work in the U.S. Army Corps of Engineers' (USACE) Huntington District, based on the USACE's revised findings concerning Nationwide Permit 12. Third, the District of Columbia Circuit Court denied a stay request filed in a proceeding that challenged the entire FERC certificate.
These three developments are clearly major developments for MVP, but as the charts below show, there are still hurdles to be overcome before MVP and ACP are able to construct along their entire project routes. In the charts below, the red areas are issues that still must be resolved for work to resume or even start. The yellow issues are ones that still remain open and could lead to a new stay of construction and green issues appear, for now, unlikely to result in a stay.
Mountain Valley Pipeline
What's Next for MVP?
While all three actions this week at FERC and in the courts are positive developments for MVP, it is unclear whether the company: (i) will recall the 50% of the construction crews that it released less than 2 weeks ago and resume construction; and (ii) will move up the recently announced fourth quarter 2019 in-service date.
As indicated in the table above, the fact that the Fourth Circuit has asked for responses in the two cases in which it either denied the stay or lifted its prior stay, could be an indication that the court was relying on FERC's stop work order as a basis for not imposing its own stays. Since one judge out of the three judge panel objected to those actions, only one judge's view needs to change for the decision to go the other way. We should know in the next couple of weeks whether that is the case and if FERC's lifting of the stop work order will cause the court to reimpose its own stay
Atlantic Coast Pipeline
What's Next for ACP?
The biggest problem for ACP remains its lack of a valid water quality certificate in Virginia, followed closely by the FERC Staff's stop work order. We expect that the FERC Staff's stop work order will be lifted first, following receipt of a revised incidental take statement from the U.S. Fish and Wildlife Service. If FERC lifts its stop work order, we would expect the Fourth Circuit to revisit its denial of a stay if ACP indicated it intended to begin construction activities in areas where there is likely to be an adverse effect on protected species. FERC did provide information on August 23 to the US Fish and Wildlife Service so the agency could complete its revised incidental take statement.
Lawyers, Lawyers Everywhere
Large capital projects, such as MVP and ACP, incur large legal expenses, but such expenditures are usually lower as a percent of total spend on the larger projects, because a certain amount of legal work is needed regardless of a project's size. So when comparing capital expenditures as a percentage of total costs, it is appropriate to limit your comparisons to projects of a similar magnitude in cost. We have looked at the projects in our data set for which the total expenses were at least a half a billion dollars and, as seen the graphic below, after 2011, the lowest amount spent on legal has been about one third of one percent of final project costs, while other projects have spent more than three times that percentage.
ACP projected it would spend less than $12 million on legal fees, or about ¼ of one percent of the project's total cost. MVP did not provide a separate estimate for its legal expenses but estimated "other services" to be about $30 million, or less than one percent of total project costs. We would expect that neither project anticipated nearly the level of legal challenges that they have faced. As such, we would expect that these numbers will increase, perhaps substantially, when the final cost reports for both projects are filed.
Insights Coming Soon
Update on Permian projects
Highlights of our 501G Analytics and Advisory Product
Insights You May Have Missed
Roll-Ups (Enbridge) and Rate Cases (Dominion Overthrust) - What We Can Learn Before Transco Files
FERC Tactics: To Pre-file or Not to Pre-file? That is the Question.