Category Archives: Finance

New Rules from FERC on Pipeline Profit Margins?

A DeSmog article on May 13, 2019, Energy Regulators May Reconsider Rules Critics Say Fueled America’s Oil and Gas Pipeline Glut, discusses a “little-noticed Federal Energy Regulatory Commission (FERC) announcement could have an outsized impact on the oil and gas pipeline industries — if the commission decides to snap shut loopholes that analysts say create financial incentives to build too many new pipelines in the U.S.” FERC’s announcement was followed by a March 21 notice of inquiry requesting “information and stakeholder views to help the Commission explore whether, and if so how, it should modify its policies concerning the determination of the return on equity (ROE) to be used in designing jurisdictional rates charged by public utilities. The Commission also seeks comment on whether any changes to its policies concerning public utility ROEs should be applied to interstate natural gas and oil pipelines.”

The high rate of return on equity (a guaranteed 14% for the Atlantic Coast Pipeline) allows for the construction of unnecessary pipeline projects, “which critics say will leave the United States criss-crossed by newly built fossil fuel infrastructure despite falling renewable energy prices and growing concern about the climate crisis. Critics add that because utilities can pass along costs to consumers in their monthly bills, FERC has effectively allowed them to use other people’s money to build pipes that may never be fully used.”

Now is your chance to comment to FERC on whether it should change the way it determines rate of return. Comments from the public on FERC’s new inquiry are due on June 26, 2019.

SCC Asked to Consider Higher Profits for Dominion

Two recent editorials, one in Charlottesville’s Daily Progress and one in Fredricksburg’s Free-Lance Star, urge the State Corporations Commission (SCC) to demand full and accurate information from Dominion before considering Dominion’s request for new projects and new profits – and potentially new rate increases from customers to pay for them. Dominion wants the SCC to raise its guaranteed return on equity [ROE] so it can attract investors. But SCC judges and staff noted that nearly all the projects could also generate higher bills for ratepayers. Plus Dominion has submitted varying plans at various times.

The Free-Lance Star put it this way: “If Dominion’s guaranteed return on equity is increased, that would mean more money for investors, but less money for refunds or grid investments that directly benefit the company’s 2.6 million captive customers—who incidentally just got stuck paying up to $5.7 billion to clean up decades’ worth of toxic coal ash. It’s up to the SCC, which will hold a public hearing on Sept. 10 in Richmond on the utility’s application, to decide whether that’s fair.”

Protesters Target Bank of America

In Charlotte NC on April 24, 2019, protestors outside the Bank of America annual meeting demanded that the bank halt any further funding for the Atlantic Coast Pipeline and other fossil fuel projects. “The Atlantic Coast Pipeline is economically and environmentally reckless,” said Donna Chavis, senior fossil fuels campaigner at Friends of the Earth. “The pipeline is just one example of how Bank of America is fueling the climate crisis. Investors should be aware that Bank of America’s pumping of finance into fossil fuel infrastructure is accelerating climate catastrophe and community destruction. This is bad for the Earth, and bad for investors’ bottom-line.”

Over 100 groups, including Friends of Nelson, had sent a letter to Bank of America CEO Brian Moynihan, calling on the bank to refrain from any further financing of the ACP.

ACP: Risk Upon Risk

On March 25, 2019, Oil Change International released a new report, Atlantic Coast Pipeline – Risk Upon Risk, about the public health, ecological, and economic risks of the now $7.5 billion dollar ACP. As the transition to clean energy gathers pace, the risks and costs of this huge fracked gas pipeline project are growing rapidly in the face of major legal, regulatory, financial, and community challenges.

The ACP is now two years behind schedule and substantially over-budget. The latest update from Duke Energy estimates the project cost at between $7 to $7.8 billion – 37% to 53% higher than the original estimate of$5.1 billion – with the latest date for full operation now pushed back to 2021.

Lorne Stockman of Oil Change International says the ACP is facing a triple threat of challenges that combine to present serious obstacles for the project to reach completion:

  • Extensive legal and regulatory challenges that are delaying construction and raising costs, which may lead to cancellation.  ““The ACP is facing an onslaught of legal challenges and losses. Seven federal permits have been stayed, suspended or vacated; in fact, all construction on the pipeline is currently stopped. When — or if — construction will start up again is unknown. Environmental groups, Indigenous Peoples and others have brought at least nine court challenges to ACP permits and certifications, most of which are ongoing.” 
  • Fundamental challenges to its financial viability in the face of lack of growth in domestic demand for methane gas and increased affordability of renewable energy options.  “In Dominion’s 2018 long-term Integrated Resource Plan (IRP), four out of five modeled scenarios showed no increase in methane gas consumption for power generation from 2019 through 2033. However, in December 2018, this IRP was rejected by Virginia state regulators, in part for overstating projections of future electricity demand.” “Over the next decade, it is likely that the demand for methane gas in Virginia and North Carolina will decrease further as renewable energy and storage technologies continue to rapidly decline in price and undercut the cost of running methane gas-fired power plants.”
  • The Pipeline Compliance Surveillance Initiative (CSI), an unprecedented citizen initiative, is positioned to ensure strict compliance with environmental laws and regulations, even in remote locations, if construction proceeds. [Three cheers for the CSI!]

These challenges and the accompanying risk are likely to further delay construction and raise the project’s price tag even higher. If completed, state utility regulators in North Carolina and Virginia are unlikely to justify passing the full cost of methane gas transportation contracts onto ratepayers.

Download the full Oil Change International briefing here.

Financing the ACP

Chart by Oil Change International

An article published on April 19, 2018, in Oil Change International, Bank of America Leads Finance for Atlantic Coast Pipeline, says, “The abuses, risks and climate pollution of the Atlantic Coast Pipeline have a clear set of financiers, led by the nation’s largest commercial bank, Bank of America.” The chart above is from the article, and lists the many banks funding the ACP.

Most shareholders are probably unaware of BOA’s large role in enabling the destruction the ACP will bring to many citizens of North Carolina. But impacted landowners, including indigenous leaders, plan to be at the BOA shareholder meeting in Charlotte NC next week to educate them.

The article notes, “The pipeline’s route burdens some of North Carolina’s poorest communities including the native Lumbee population. In Virginia, one of the project’s massive compressor stations, an industrial complex generating noise, pollution and safety hazards 24/7, is proposed in the heart of a historic, rural African-American community. The litany of this project’s abuses and dangers is long. And those abuses and dangers now have a clear set of financiers, led by the nation’s largest commercial bank, Bank of America.

“Bank of America, together with JPMorgan Chase, was a “Lead Arranger and Bookrunner” for the loan. This means BOA was key to the process of negotiating terms, assessing risk and arranging the participation of all the banks forming the syndicate for the loan. Bank of America committed $255 million to the credit facility. 

“Bank of America’s leading role in this loan adds to the Bank’s poor performance in screening out financial support for companies engaging in the production of so called ‘extreme’ fossil fuels, including coal, tar sands, and oil and gas produced in ultra-deepwater and Arctic environments. Rainforest Action Network recently published its annual Fossil Fuel Finance Report Card, which examines bank policies and financing for the worst fossil fuels driving the climate crisis. Bank of America received an average D Grade for its policies on the fossil fuel projects discussed in the report, and was estimated to have financed over $13.6 billion to these projects from 2015 through 2017. This financing did not include the loan to ACP LLC.”

The article discusses changing policies of other financial institutions, saying, “The World Bank Group recently announced an end to upstream oil and gas financing by 2019. Other banks including ING and BNP Paribas are restricting financing for some of the worst fossil fuel projects. There is so much more the finance sector should be doing, and Bank of America is lagging behind some of its peers on this crucial sustainability issue that weighs so heavily on our planet’s future.”

On April 20, 2018, the Toronto Globe and Mail published an article called HSBC to stop funding most new fossil fuel developments.  “Europe’s largest bank, HSBC, said on Friday it would mostly stop funding new coal power plants, oil sands and arctic drilling, becoming the latest in a long line of investors to shun the fossil fuels.  Other large banks such as ING and BNP Paribas have made similar pledges in recent months as investors have mounted pressure to make sure bank’s actions align with the Paris agreement, a global pact to limit greenhouse gas emissions and curb rising temperatures.  ‘We recognise the need to reduce emissions rapidly to achieve the target set in the 2015 Paris Agreement … and our responsibility to support the communities in which we operate,’ Daniel Klier, group head of strategy and global head of sustainable finance, said in a statement.”