Gazing into the Crystal Ball - PennEast's future
It's not an easy time to be in the greenfield development business with its growing number of known unknowns and unknown unknowns. Savvy developers, shippers, and capital backers are paying close attention, aiming to identify any trends that may repeat. So what can be learned about the future? For starters, project development can be episodic, as the confluence of commercial, permitting and litigation issues have created a complicated mosaic for developers. Some companies have embraced the new normal by planning for the unknowns. Today, we'll briefly examine the "Big Three."
Benchmarking Greenfield Development
By using the LawIQ platform, we can benchmark PennEast, managed by UGI Energy Services, LLC and owned in equal parts by Spectra Energy Partners, LP and four other affiliated companies, to Dominion Energy's Atlantic Coast Pipeline (ACP), and EQT's and NextEra's Mountain Valley Pipeline (MVP). From this, we learn that PennEast is running about four months behind these other two projects. Further qualitative analysis shows that permitting and litigation clouds have formed for PennEast, for which PennEast should now be planning.
What the Future Holds
The ACP and MVP received their FERC certificates on the same day last October. PennEast received its FERC certificate about three months later, in January of this year. All three projects are now moving through the process of obtaining a full notice to proceed with construction from FERC. We will look at three key issues that projects typically encounter in this phase of project development, as well as a fourth issue that has become increasingly costly: (1) condemnations; (2) obtaining other federal permits; (3) navigating time-of-year restrictions on construction; and (4) defending permits from legal challenges. All four would indicate that the road ahead will not be an easy one for PennEast.
Condemnation Conundrum
The ACP has filed more than 100 separate condemnation actions in federal court against landowners, filing many of them in December of last year, but also filing quite a number of them as recently as February 23. By contrast, MVP needed to file less than 20 such federal court actions to gain access to land it had not voluntarily acquired. In this regard, PennEast appears to be more like ACP, as it has filed over 180 such actions since February. Also, PennEast has been required to file condemnation actions against the state of New Jersey for state lands; New Jersey has challenged the right of PennEast to condemn the state's property. Both of these circumstances means that PennEast may take a longer time to navigate this part of the process than either of the other two projects.
Other Federal Permits
Two key federal permits that greenfield projects typically require are a water quality certificate (WQC) under section 401 of the Clean Water Act (CWA) and the related permit under Section 404. For both MVP and ACP, Virginia was the most contentious state for the WQC. For both projects, the Virginia Water Control Board (VWCB) granted WQCs in early December 2017, but it conditioned the ACP approval on the Virginia Department of Environmental Quality reviewing and approving various environmental plans. Once these plans are approved, ACP could begin construction in the state of Virginia.
Following the issuance of these WQCs, the United States Army Corps of Engineers approved both projects under its national permit process. As we have discussed in prior customer notes, PennEast faces a slightly different process in New Jersey, because, in New Jersey, the state has authority to issue the Section 404 permit and the WQC. And New Jersey has not yet started the review process because it is waiting for PennEast to obtain the access rights it needs through condemnation to complete the application required for those approvals. Again, it seems that PennEast will proceed more slowly than either ACP or MVP.
Navigating Time-of-Year Restrictions
Another key factor for determining how quickly a project can be constructed are limits generally referred to as "time-of-year restrictions" that limit certain activities to certain months of the year. An activity commonly limited to particular months is tree clearing. These limits are designed to protect migratory birds and endangered species, such as the Indiana bat, made infamous to even casual project development observers during the Rover Pipeline tree clearing fiasco. MVP agreed to a complete ban on tree clearing along discrete portions of its right of way between April 1 and November 15 of each year. However, along the vast majority of its right of way, tree clearing was permitted in most months other than June, July and August.
ACP agreed to a prohibition on tree clearing from April 1 to August 31 in West Virginia and North Carolina, and from March 15 through August 31 in Virginia. Earlier this month, ACP requested relief from these limitations, but on Wednesday of this week, FERC denied the requested relief. The PennEast order takes the more limited approach of adopting tree-clearing windows required to protect endangered species .
Litigation Leaks
Once a project proponent has received a FERC certificate, other federal agency permits and permits delegated to the states, the project proponent will invariably face litigation challenging each of these approvals. Both ACP and MVP face at least one appeal challenging FERC's issuance of its certificate for the project, the issuance of a state's WQC, and the granting of a right of way through federal lands. PennEast is already litigating challenges to the WQC it received in Pennsylvania and an appeal claiming that FERC is biased toward pipelines and that it cannot be objective in its decision making.
Stay Ahead of the Pack
LawIQ customers can monitor all of this activity by using our Energy Oil & Gas analytics platform, receiving our daily alerts, and reading our Insights. Subscribers can easily benchmark projects against all similar past FERC projects and view timeline projections for future milestones. The benchmarking feature allows for quick and enlightening comparisons that, combined with LawIQ written Insights, provides decision makers the analytics, context, and lessons learned needed to inform their capital project decisions.
Coming Soon - Customer Special Report -
Next in our Tax Cut Impact series, a deep dive into the impact of
Accumulated Deferred Income Tax (ADIT) on pipeline revenues.