The complaint states that PennEast is exercising a new form of market abuse that federal regulators can only assess through formal hearings.
TRENTON -- An environmental group filed a complaint and motion with a federal regulator Wednesday requesting a hearing to assess the public need for the proposed PennEast pipeline in New Jersey and Pennsylvania.
The Eastern Environmental Law Center (EELC) filed the motion with the Federal Energy Regulatory Commission (FERC) on behalf of New Jersey Conservation Foundation and the Stony Brook-Millstone Watershed Association.
The complaint and motion state that PennEast is exercising a new form of market abuse that (FERC) can only assess by conducting an evidentiary hearing.
"FERC must have substantial evidence of significant public benefit to approve the PennEast application, but the company's existing record fails to meet that test," senior EELC lawyer Jennifer Danis said. "Before FERC proceeds, it needs to take a closer look at the application."
Critics say that the PennEast projects fails to provide proof of public benefit because contract arrangements between the gas providers and the pipeline owners are set up so that the companies can create their own supply and demand -- and charge customers whatever rate they want to cover costs.
FERC generally relies on contracts made through natural gas companies and pipeline companies to establish that there is both an adequate supply and demand by the customer.
An analysis from Skipping Stone, an energy market service provider, concluded that FERC should not rely solely on the PennEast contracts to demonstrate public need for the gas. A deeper inquiry or hearing is needed.
Skipping Stone President Greg Lander said the reason that FERC should not rely solely on the PennEast contract to establish a need for the project is because when a gas provider owns a portion of the pipeline, the provider can adjust the rate customers pay so that the company can profit regardless of actual supply and demand economics.
Profits from customers' payments would go right to the parent companies and shareholders, ensuring a shareholder profit regardless of market forces -- the company profit could be the motivator for the project.
A parent company of New Jersey Natural Gas owns 20 percent of the PennEast Pipeline. In return, New Jersey Natural Gas has a contract to provide almost the same percent of gas to the pipeline -- the parent could be paying itself by owning a portion of the project.
The PennEast pipeline is proposed by six major natural gas companies, including all four major companies in New Jersey. In total, the six owners of PennEast have contracted for 74 percent of the proposed pipeline's initial capacity.
According to the Skipping Stone report, New Jersey Natural Gas, PSE&G, South Jersey Gas, and Elizabethtown Gas have purchased 50 percent of the total capacity of the pipeline, while their corporate affiliates own 70 percent of PennEast.
Lander says that to make sure there is fair deal for customers, gas distributors and pipeline capacity providers should be owned by separate entities. This would ensure that supply and demand are covered fairly -- the two parties would likely not enter an agreement if it were not.
"This doesn't necessarily mean there's a smelly deal, but (FERC) should ask because it's not obvious," Lander said.
"They'll be able to increase rates to absorb the cost to transport the gas," said Tom Gilbert, campaign director of NJ Conservation Foundation. "They're manufacturing their own demand."
"The proposed pipeline would have significant adverse impacts to existing ratepayers, landowners and the environment," Gilbert said. "FERC must account for the serious questions that the public and industry experts have raised about the economics of this project."
The complaint comes on the heels of testimony delivered to the U.S. Senate on Tuesday by the Environmental Defense Fund which highlighted the lack of need for additional pipelines in the Northeast and cautioned against overbuilding unnecessary infrastructure.
PennEast representatives did not immediately respond to requests for comment.
Greg Wright may be reached at gwright@njadvancemedia.com. Follow him on Twitter @GregTheWright. Find NJ.com on Facebook.