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PennEast Pipeline LLC, a consortium of five fossil fuel utilities companies, is proposing a 120-mile pipeline that will deliver fracked natural gas from Luzerne County, Pennsylvania, to Mercer County, New

PennEast Pipeline LLC, a consortium of five fossil fuel utilities companies, is proposing a 120-mile pipeline that will deliver fracked natural gas from Luzerne County, Pennsylvania, to Mercer County, New Jersey. While PennEast claims the pipeline is needed to meet consumer demand and to increase grid reliability, opponents say the pipeline is unnecessary, harmful to the environment, in violation of landowner rights, and is motivated primarily by high rates of return.

With the Federal Energy Regulatory Commission’s (FERC) January 19th, 2018 approval of PennEast, two main regulatory hurdles stand in the way of the pipeline: approval from the Delaware River Basin Commission (DRBC) and the New Jersey Department of Environmental Protection (NJDEP). On February 1, 2018, the NJDEP rejected PennEast’s application – which, even after a previous rejection in June 2017, was still deemed insufficient – for a water-quality permit and said it could reapply. With the election and inauguration of New Jersey Governor Phil Murphy, a progressive Democrat who advocates strong environmental policies and has expressed skepticism towards PennEast, the fate of the pipeline hangs in balance.

The Murphy administration possesses the power to halt the pipeline, and there is reason to think it could do so to further the bold vision that Murphy has outlined for New Jersey’s environmental and energy future (discussed more below). Given this, it’s important to take stock of – and bring more transparency to – the powerful interests and networks of influence behind PennEast that have ties to the Murphy transition, the New Jersey Democratic Party (which holds large majorities in both houses of the New Jersey legislature), and important agencies, boards, and pressure groups in the state.

This report explores the power – the influential individuals and entities, revolving door lobbyists, conflicted regulators, and under-the-radar profit motives – behind the PennEast Pipeline. It has a primary – though not sole – focus on PennEast’s power in New Jersey and its ties to the New Jersey political establishment, including the Murphy transition.

Key findings

I. PennEast Pipeline and its Critics

The PennEast Pipeline is a proposed 120-mile pipeline that will deliver fracked natural gas from Luzerne County, Pennsylvania, to Mercer County, New Jersey, at the site Transco’s pipeline interconnection near Pennington. The pipeline will be primarily 36 inches and have the capacity to ship about 1.1 billion cubic feet of gas per day. It will cost about $1 billion to build.

Currently five companies own PennEast Pipeline LLC, the entity behind the pipeline, each with a 20% stake. They are:

An original partner of the consortium was the New Jersey-based PSEG, which held a 10% stake until June 2017, when it sold its stake to Spectra. Spectra originally had a 10% stake, but has a 20% stake following the transaction.

PennEast also has 12 shippers committed to shipping a total of 990 Dth/day of fracked gas through the pipeline. They are, in order of the most to the least amount of committed gas to ship:

Five of these shippers are subsidiaries of the parent companies that will own the PennEast Pipeline: New Jersey Natural Gas Company (New Jersey Resources), Texas Eastern Transmission (Spectra), South Jersey Gas Company (South Jersey Industries), Pivotal Utility Holdings (Southern Company), and UGI Energy Services (UGI Corporation). This means that 610,000 Dth/day out of a total of 990,000 Dth/day gas will be shipped by the same companies that own the pipeline.

Out of those five companies, four have local Local Distribution Companies (LDCs) in Pennsylvania and New Jersey. The subscribed capacity of these four amounts to 485,000 Dth/day (about half of the total) that could potentially be shipped and purchased all within the same parent companies – a fact that has led to accusations of self-dealing as a motive for the pipeline. (Southern Company and its subsidiary Pivotal Utilities are selling Elizabethtown Gas and Elkton Gas to South Jersey Industries. If the acquisition is approved, it’s unclear how this will impact the shipping and buying agreements of Southern Company and South Jersey Industries).

Several prominent organizations and individuals – including the New Jersey Conservation Foundation and a longtime former communications director for New Jersey Natural Gas – have strongly criticised the need for the pipeline and questioned the motives of the consortium behind it. Others have called out PennEast’s potential cost through its impact on property values and the environment. Landowners threatened by the pipeline have protested it and spoken out against the potential use of eminent domain.

The most scathing critique of the pipeline has come from the New Jersey Division of Rate Counsel’s comments to FERC. The Rate Counsel is an “independent state agency” that “represents the interests of consumers” of natural gas and other services. In two separate comments to FERC, it argued that the pipeline is not needed because sufficient capacity for energy supply already exists, and that PennEast’s real motive appears to higher rates of return – a FERC-regulated pipeline could set a 14% return on equity for New Jersey LDCs, several percentage points higher that what’s authorized by the New Jersey Board of Public Utilities.

It should also be noted that the Rate Counsel’s claims were supported in an affidavit by David Dismukes, a long time energy analyst who, as we have shown, is no enemy of the fossil fuel industry.

In addition to critiques of the purported need for the pipeline, some have made the case for its harmful impact on the environment. For example, Oil Change International released an April 2017 report that argues PennEast will emit 49 million metric tons of greenhouse gases annually, which is the equivalent of 14 coal plants or 10 million cars. OIC’s numbers take into account GHG emissions that FERC’s final environmental impact statement (FEIS) failed to factor in, such as the full impact of methane leakage and upstream emissions.

II. PennEast and New Jersey Governor Phil Murphy

Phil Murphy was inaugurated as New Jersey Governor on January 16, 2018. Murphy has set bold goals for New Jersey’s energy future, including a full transition to renewable energy for the state by 2050. He supports a permanent ban on fracking at the Delaware River Basin and a number of measures to reduce carbon emissions. He earned the endorsements of high profile, mainstream environmental groups, and he appointed representatives to his transition committees from groups who oppose the PennEast East pipeline, such as the Sierra Club and Delaware Riverkeeper Network. Murphy recently brought New Jersey back into the Regional Greenhouse Gas Initiative, a regional cap-and-trade agreement that Chris Christie pulled the state out of in 2012. He has been reported as saying he opposes the pipeline – he even agreed to take a photograph with anti-pipeline activists last year.

But while there are indications that point towards Murphy’s skepticism about the PennEast pipeline, it’s unclear whether he intends to stop its construction. The Murphy campaign stated that “fracking and fracking waste have no place in New Jersey,” but its position on the transportation of new fracked gas through new pipelines across New Jersey, and the use of this gas in the state, is less clear. Murphy has spoken highly of fracking in the past – he praised the extraction technique in a speech in Germany in 2013. And as was reported during his campaign, Murphy himself was invested in at least 43 gas, oil, energy, and chemical companies, including three PennEast partner companies, even as he criticized the fossil fuel industry.

Most unsettling are signs that PennEast backers and lobbyists have influence within his transition – discussed in the next section below.

Murphy’s mixed messages over the pipeline reflect larger tensions within the Democratic Party. While some Democratic leaders increasingly foreground the need to address climate change and enact policies to reduce carbon emissions, some of these same leaders waver on – or support outright – the expanded use of fracked natural gas. This comes as a widening swath of the Democrats’ base opposes fracking and new fossil fuel pipelines. As tensions continue to play out in the Democratic Party over fracking and pipelines, what Murphy ultimately decides to do on PennEast could have a wide, even national impact.

III. PennEast’s Powerful Revolving Door Lobbyists

PennEast and its partner companies have hired several high-powered lobbying firms in New Jersey and Pennsylvania to push for the pipeline, or have deployed the partner companies’ in-house lobbyists at the state level. PennEast has also hired lobbyists at the federal level or benefited from outside fossil fuel industry lobbying in Washington.

The army of lobbyists working for PennEast includes ones with significant influence in state politics and close ties to politicians – senators, congress members, assembly members, former governors – and regulatory entities. This raises serious questions about the undue influence that the fossil fuel and utilities’ interests behind PennEast are exerting over the pipeline approval process at both the state and federal levels.

PennEast paid $260,270 to outside lobbyists in New Jersey in 2016 (numbers for 2017 are not filed until February 2018). Lobbying firms hired by PennEast include:

New Jersey Governor Phil Murphy appointed five registered PennEast lobbyists to his transition committees

New Jersey Governor Phil Murphy appointed five registered PennEast lobbyists to his transition committees after winning the New Jersey gubernatorial race in 2017. At least two of the lobbyists have filed reports showing they lobbied politicians and state agencies on behalf of PennEast. The five registered lobbyists are:

In addition, Modia “Mo” Butler of Mercury LLC was appointed to Murphy’s Stronger and Fairer Economy Committee. Butler is not a registered lobbyist for PennEast, but his firm lobbies for the pipeline.

New Jersey Senator Cory Booker’s former advisor is a top lobbyist for PennEast and Booker’s former Chief of Staff is a principal at a firm that lobbies for PennEast

As mentioned above, a key PennEast lobbyist is Mercury LLC partner Michael Soliman. Soliman was a top advisor to New Jersey Senator Cory Booker – arguably the state’s most high-profile politician – during his 2014 campaign. Soliman filed a report on July 7, 2016 that show he lobbied the New Jersey Speaker’s Office on behalf of PennEast, and he has been a registered lobbyist for PennEast since April 5, 2016.

As mentioned, another Mercury lobbyist, Mo Butler, is Senator Booker’s former Chief of Staff, though Butler is not a registered lobbyist for PennEast.

Governor Murphy appointed lobbyist to transition committee who heads industry group that counts PennEast as a member

Governor Murphy also appointed Edward Salmon to his Government Technology and Innovation transition committee. Salmon is head of Salmon Ventures Limited, a powerful New Jersey lobbying firm. He chairs the New Jersey Energy Coalition, an energy industry lobbying group that has PennEast on its advisory board. Salmon is a former president of the New Jersey Board of Public Utilities and former member of the New Jersey state assembly.

PennEast has an army of revolving door lobbyists with extensive professional and personal ties to New Jersey’s Democratic Party establishment

PennEast has hired over a dozen revolving door lobbyists in New Jersey from PPAG and Mercury. These lobbyists have extensive ties to powerful New Jersey Democratic Party politicians and other state political entities. Among other ties not mentioned here, PennEast lobbyists are connected to:

In addition, a top lobbyist for PennEast has been Dale Florio, the longtime head of PPAG who is arguably New Jersey’s most powerful lobbyist. Florio has been a registered lobbyist – and one of the most active – for PennEast since October 10, 2014. He filed nine lobbying reports between April 8, 2016 and January 1, 2017 that show he lobbied the New Jersey legislature, Department of Environmental Protection, Department of Transportation, Department of Law and Public Safety, and Governor’s Office on behalf of PennEast.

Two former Pennsylvania PUC commissioners and Pennsylvania DEP officials are lobbying for PennEast in Pennsylvania

Unlike in New Jersey, PennEast has already gained approval from the Pennsylvania DEP and expects to easily obtain all necessary permits, but it’s worth noting the extent of the revolving door between that state’s regulatory agencies and lobbyists for PennEast:

Astroturf group backed by Koch brothers has lobbied for PennEast at federal level

Paul N. Cicio is President of the Industrial Energy Consumers of America (IECA), an astroturf group that lobbies for the fossil fuel, chemical, and manufacturing industries and is run by the lobbying firm Carbonleaf LLC. Members and funders of IECA include Koch Industries, Dow Chemicals, and Marathon Refining. IECA’s board members represent different member-companies, and many, like Koch Industries’ Brian Henneberry, are lobbyists. Cicio worked for Dow for 30 years before becoming head of the IECA. Cicio and IECA recently advocated for the US to leave the Paris Climate agreement.

In May 2017, Carbonleaf, on behalf of IECA, reported $1.04 million in lobbying income. Cicio lobbied a host of federal agencies, including FERC, the EPA, the Department of Energy, and both houses of Congress. He lobbied on many issues, including PennEast.

IV. PennEast Campaign Donations to Phil Murphy

In addition to the presence of PennEast lobbyists in the Murphy transition, the Murphy campaign also accepted nearly $15,000 from two NJR executives – including CEO Larry Downes – as well as two registered PennEast lobbyists, along with $8,300 from the head of an energy industry coalition of which PennEast is a member.

V. Are “FERC level returns” and “expansion potential” the real motives of PennEast?

Critics of PennEast have tried to show that the pipeline is not needed to meet the region’s energy needs and that the true motive behind the pipeline is the high rate of returns it will bring. While PennEast denies this, and some company documents and comments repeat talking points about the need for expanded gas supply, a deeper analysis of at least one the PennEast partners’ SEC filings and presentations to investors show that a primary focus, within the company, is the big profits the pipeline will ensure, as well as the possibility for further “expansion potential” around the project.

In 2017, nearly all of SJI’s quarterly reports and presentations emphasized PennEast’s “FERC level returns” and said little about the need for gas supply

South Jersey Industries consistently emphasized pipeline profits as its primary motive in its 2017 SEC filings and investor presentations. Its SEC filings from all four 2017 quarters, and its presentations to the American Gas Association Financial Forum and Morgan Stanley Utilities conference, emphasize “FERC level returns projected” while making no mention of any supply need to build the pipeline as a core motivation. “FERC level returns” refers to higher rates on equity – likely 14% – that are set for interstate pipelines as opposed to intrastate pipelines.

For example, SJI’s March 2, 2017 presentation at the Morgan Stanley Utilities conference in New York has as the top bullet point on its PennEast slide, “$200M investment with FERC level returns projected.” Other filings and presentations from that year have an identical emphasis.

An admission by CEO Michael Renna further speaks to suspicions of SJI’s main motive with regards to PennEast. In SJI’s 2017 second quarter business update filed with the SEC, Renna is quoted:

Growth driven improvements in customer margins and infrastructure investments designed to enhance the safety and resiliency of our system continue to drive utility performance, while contributions from our Midstream investment in PennEast and from our niche fuel supply management business reflect our focus on growth through high quality and repeatable earnings. (PAI’s emphasis in italics).

What this shows is that – in contrast to “infrastructure investments designed to enhance the safety and resiliency of our system” – Renna mainly frames PennEast as contributing to SJI’s focus on “high quality and repeatable earnings” – precisely what PennEast’s “FERC level returns” have to offer. All this leads to further speculation that PennEast’s guaranteed, regulated higher rates of return are a core motivation for one of its key investors.

SJI’s mentioned the possibility of the pipeline’s “expansion potential”

In several 2016 presentations, SJI hinted at larger possibilities for PennEast that may go beyond what is currently being proposed. For example, a May 15th, 2016 presentation to the American Gas Association Financial Forum emphasized projections of PennEast’s FERC level returns, but also declared: “favorable location creates potential for incremental opportunities” and that “opportunities exist beyond PennEast to participate in additional FERC regulated investments including LNG projects and natural gas pipelines.” This emphasis on “expansion potential” was mentioned in at least five other presentations in 2015 and 2016.

While it’s not precisely clear what SJI is alluding to, its focus on further expansion relating to PennEast confirms fears that some critics have about pipeline expansions or a move toward LNG exports, all of which will likely see an upsurge under a fossil fuel-friendly Trump administration. PennEast opponents have raised the spectre – which there is no clear cut evidence for yet – of the shipment of the pipeline’s gas out of the Cove Point LNG export facility in nearby Maryland (some have also commented on New Jersey Resources’ ties to Dominion Energy, which owns and operates Cove Point, including NJR’s equity stake in Dominion Midstream).

NJR’s allusions to “demand” for natural gas fail to mention that much of the gas that PennEast will ship will be bought by partner companies’ own subsidiaries – a possible conflict of interest

In its filings and calls with analysts, NJR executives emphasize the demand for natural gas that PennEast will meet, and that proof of this is revealed by commitments already in place to purchase the bulk of the gas that the pipeline will deliver. However, what the documents don’t say is that much of commitments to buy PennEast gas come from the pipeline owners’ very own subsidiaries, which means they are buying gas from themselves and creating their own demand.

For example, in a February 2017 call with analysts, NJR CEO Larry Downes emphasized that “90% of PennEast capacity is already contracted by local distributions and others to serve customers including those in New Jersey.” This leads him to conclude that “it’s clear that PennEast will responsively support our region’s growing energy needs.”

But Downes fails to say that much of the “demand” for PennEast gas would come from the partner companies themselves. As mentioned above in Section I, 485,000 Dth/day of subscribed capacity out of 990,000 Dth/day – about half – will be shipped by midstream segments of parent companies who could be selling the gas back to their LDCs in Pennsylvania and New Jersey. As one journalist put it, PennEast companies “would be both owners and customers of the pipeline, meaning they would essentially be selling to themselves.” Critics such as ReThinkEnergyNJ and Oil Change International have said that this scenario – partner companies committing their LDCs to buying half of their midstream subsidiaries’ gas supply through PennEast, and thereby locking their customers into paying for it – is a form of self-dealing.

VI. The Power and Influence of New Jersey Resources and South Jersey Industries

Two of the New Jersey-based utilities companies behind PennEast – New Jersey Resources and South Jersey Industries – are led by top executives and board members with significant ties to entities and individuals with strong influence within New Jersey’s political power structure. These include the Chamber of Commerce, business-boosting and subsidy-granting entities, non-profit boards, and others.

SJI CEO Michael J. Renna and NJR CEO Laurence M. Downes

Michael J. Renna has been the CEO of SJI since May 2015. He earned $2,352,374 in total compensation in 2016 and has taken in $5,030,208 between 2014 and 2016.

Larry Downes has been the CEO of NJR since 1995. He earned $4,597,830 in 2017, and has taken in a total of $15 million between 2015 and 2017. Downes was named the 45th most powerful person in New Jersey in 2017 by NJBIZ, and was ranked 26th in 2016.

Renna and Downes are tied to several very influential entities that have significant sway in New Jersey politics:

Renna’s wife was an aide to former Governor Chris Christie who had to resign in 2014 because of a conflict of interest that involved Renna and NJR trying to push through a pipeline in the New Jersey Pinelands region that Christie supported.

SJI and NJR Executive and Board Ties

Both SJI and NJR have executives and board directors with extensive powerful ties that give the companies avenues for influence within New Jersey politics, including with politicians and entities who could impact the fate of the PennEast pipeline. With their stock ownership in the companies, these figures stand to profit from the pipeline.

SJI’s recent CEO before Renna, Edward J. Graham, who left SJI in 2015, is also very influential, having sat on or currently sitting on the boards of Choose New Jersey, the New Jersey Business & Industry Association, the New Jersey Alliance for Action’s foundation, and the United Way of Greater Philadelphia and Southern New Jersey.

VII. Concerns of Conflicts and Revolving Doors at Regulatory Institutions

PennEast must still gain approval from several regulatory institutions, including the New Jersey Department of Environmental Protection and the Delaware River Basin Commission. Furthermore, while the New Jersey Board of Public Utilities doesn’t need to approve the pipeline, and it doesn’t set rates for FERC-approved pipelines like PennEast, it oversees regulated utilities in the state such as New Jersey Natural Gas and South Jersey Gas. Governor Phil Murphy’s administration holds significant influence over whether entities within New Jersey will ultimately approve the pipeline in that state, which may be the last hope for pipeline opponents.

PAI found a range of potential conflicts within these entities that raise concern over industry influence in the approval and regulatory process. (It should be noted that the end of Christie administration has resulted in the removal or demotion of some of these individuals, which means some regulatory conflicts may carry less weight. However, it’s worth noting these conflicts since this was the regulatory framework in which the pipeline plan was conceived and developed).

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