ROY COOPER NORTH CAROLINA Governor Environmental Quality MICHAEL S. REGAN Secretary November 5, 2018 Chairman Chatterjee, and Commissioners Glick, LaFleur, and McIntyre Federal Energy Regulatory Commission 888 First Street, NE Room 1A Washington, DC. 20426 Re: Comment Regarding Demonstrated Need and the Public Interest of the Mountain Valley Pipeline Southgate Extension Project, Docket Number: PF18-4-000 Dear Commissioners: On behalf of the North Carolina Department of Environmental Quality (NCDEQ or Department), we submit this letter to share our concerns about the underlying justi?cation for the Mountain Valley Pipeline (MVP) Southgate Extension Project (Southgate Project). interest in this project arises from our work to review and issue permits and authorizations for activities related to the construction, development, and operation of the Atlantic Coast Pipeline (ACP). In the course of our work on ACP, our Department and staff received and continues to ?eld questions about the purpose and need for the ACP project. We anticipate that questions relating to the purpose of and need for the Southgate Project, and whether it is in the public interest, will similarly come to Therefore, it is imperative that the Department and the public are equipped with a complete understanding of the facts that underpin request for a Certi?cate of Public Convenience and Necessity in order to fully respond to any questions. Many of our residents are apprehensive of and sensitive to the possibility of another new pipeline the Southgate Project constructed in their communities after last year?s approval of the ACP by the Federal Energy Regulatory Commission (FERC or the Commission). As of the date of this letter, we have been unable to determine whether there exists an overarching need and demand for constructing and putting into operation, the Southgate Project as proposed. After examining ?lings made to both FERC and the North Carolina Utilities Commission (NCUC) and conducting research and outreach to better inform our understanding of this Southgate Project, we remain unconvinced that the Southgate Project is necessary. We question whether the project 45:. DE 2 WW North Carolina Department of Environmental Quality 217 West Jones Street I 1601 Mail Service Center 1 Raleigh, North Carolina 27699-1601 919.707.8600 satis?es the criteria for the Commission to deem it in the public interest, and whether it is essential to ensure future growth and prosperity for the residents of our State. On April 25, 2018, the Commission issued a Notice of Inquiry (N01) requesting information and stakeholder perspectives on whether, and if so how, the Commission should revise its current policy statement on the certi?cation of new natural gas transportation facilities (Policy Statement)1 pursuant to the Natural Gas Act Through this NOI, the Commission opened the door to make important reforms and modernize the process that it uses to evaluate new natural gas pipeline projects. Speci?cally, the N01 solicited feedback on current methodology for determining whether there exists a need for a proposed project, including the Commission?s consideration of precedent agreements and contracts for service as evidence of such need and (ii) the process for evaluating altematives to a proposed project. It is our understanding that the approval process for the Southgate Project will not be affected by the ?ndings or changes made as a result of the N01 because the Commission is presently reviewing the comments received. Nevertheless, we request that the Commission evaluate the Southgate Project certi?cate application with the same intent and rigor to ensure modern principles of science, economics, and societal factors are carefully weighed. As FERC evaluates whether or not to issue a certi?cate of public convenience and necessity for the Southgate Project, we offer the following facts and information to assist the Commission in determining whether this pipeline is in the public interest of North Carolinians. I. The Southgate Project Would Create an Excess Supply of Natural Gas. Section 7 of the NGA establishes the standard by which the Commission grants the certi?cate of public convenience and necessity, and is based on whether a pipeline project is in the public interest. Under the current NGA policy, FERC ?rst applies the threshold question simply, can the Southgate Project proceed without subsidization by current customers? In this case, if the Commission ?nds that the Southgate Project is ?nancially viable without subsidies, then we assume it will ?nd that the project satis?es the public convenience and necessity standard. The current policy states that ?the threshold requirement for approval. . .protects all the relevant interests.?3 However, we believe that this standard protects only interests. We understand that in applying the existing rubric to determine or evaluate what constitutes ?need,? FERC does not assess whether or to what extent a project is vital to support local or regional energy demands. FERC presently relies on precedent shipping agreements as a proxy for ?iture energy demand, agreements and contracts that are too often made between and amongst pipeline af?liates. Further, FERC does ?not [look] beyond contracts for a further Statement of Policy. (1999). Certi?cate of New Interstate Natural Gas Pipeline Facilities. 88 FR 61,277. Retrieved from 2 Natural Gas Act. (1938). 15 U. S. C. 717. Retrieved from 201 1-titie 15-0th 1 5B-sec71 7/content-detail. 3 Statement of Policy. (1999). Certi?cate of New lnterstate Natural Gas Pipeline Facilities, 88 FR 61,277. Retrieved from hit; ferc. oov/le gal/mai-ord-re 99-3-000. ogf an 592:? imam North Carolina Department of Environmental Quality 237 West Jones Street I lhOI Mail Service Center I Raleigh, North Carolina 27699-1601 919.707.8600 determination of market or supply. . As evidenced by the content and tenor of the N01, we believe that the Commission is aware of these concerns. We suggest that ERC both reevaluate its methods and its consideration of how need for pipeline projects is determined. In the case of the Southgate Project, on December 20, 2017, Public Service Company of North Carolina (PSNC) and MVP entered into a Precedent Agreement for 300,000 dekatherms per day (dth/day) of ?rm transportation capacity for a term of 20 years at a negotiated rate. This agreement made PSNC an anchor shipper for the Southgate Project. Separately, on August 1, 2018, PSNC acquired 30% ownership interest in a membership series of MVP through a wholly-owned subsidiary PSNC Southgate, LLC.5 Approximately one?half of annual throughput is comprised of deliveries to industrial or large commercial customers that either purchased gas from PSNC or transported gas on system. The remainder of throughput consists of ?rm sales service to residential and small-and medium customers.6 It is our understanding that the intent of the Southgate Project is to reliably serve the ?rm customers on a peak day. The region is projected to experience population growth, in an amount that equates to roughly an 11% increase in design-day requirements7 between 2018 and 2023. . As shown in Table 1 below, the addition of the throughput delivered by the Southgate Project would increase the contracted capacity volume by 100%, which would far exceed the historical deliveries and the growth projected in the service population. Table 1. PSNC Contracted Capacity Contracted Capacity Pre 2019 2019 2020 and later Transco8 390,743 390,743 390,743 DT18 7,331 7,331 7,331 Atlantic Coast Pipeline - 100,000 100,000 MVP Southgate 300,000 Subtotal 398,074 498,074 798,074 Increase in Capacity 25% 100% Certi?cation of New Interstate Natural Gas Facilities. (2018). Federal Energy Regulatory Commission, Department of Energy, Notice of Inquiry, 83 FR 18020, April 25, 2018. Retrieved from 5 PSNC Application for Approval of Payment of Compensation under a Sen/ice Agreement with Mountain Valley Pipeline, LLC. (2018). North Carolina Utilities Commission, Docket No. 6-5, Sub 593, August 16, 2018. 5 PSNC Annual Review of Gas Costs, Direct Testimony of Rose M. Jackson. (2018). North Carolina Utilities Commission, Docket No. 6-5, Sub 591, August 14, 2018. 7 Mountain Valley Pipeline Southgate Project. (2018). Draft Resource Report 1 General Project Description, FERC Docket No. PF 18-4-000, August 2018. Retrieved, Project Pre-?linq-Draft?RR1 8 PSNC Annual Review of Gas Costs. (2018). Official Exhibits for 8/23/18 Hearing, Revised Jackson Exhibit 1, August 14, 2018. Retrieved Q3) ?mwv North Carolina Department of Environmental Quality 217 West Jones Street I 1601 Mail Service Center I Raleigh, North Carolina 27699-1601 919.707.8600 Given this inconsistency, we ask the Commission to investigate beyond the precedent agreement as its sole basis for assessing the need for the Southgate Project. Without further demonstration of actual demand, we believe that certifying the Southgate Project could result in overbuilding a gas pipeline in which the single discernible bene?t of the provision of an assured excess in gas capacity available only to PSNC in the future. II. Peak Day Shortage of Natural Gas Does Not Exist in the Region Supported by the Southgate Project. In the Purpose and Need section of MVP Draft Resource Report 1 (General Project Description),9 MVP states that the purpose of the Southgate Project is to: (I) meet the growing needs of natural gas users in the southeastern (2) add a new natural gas transmission pipeline to provide competition and enhance the reliability and resiliency of the existing pipeline infrastructure in North Carolina and southern Virginia; and (3) provide North Carolina and southern Virginia with direct pipeline access to the Marcellus and Utica gas regions in West Virginia, Ohio and southwestern NCDEQ provides comments below on each of the three reasons MVP uses to justify the need for the Southgate Project. (1) On the Growing Need for Natural Gas: There does not appear to be a capacity shortfall in the future. The demand for new growth appears to be fully supplied by existing PSNC contract agreements. We ?nd that when the ACP agreement is included in its design day analysis, PSNC has a surplus of natural gas. In Section 1.2. of Draft Resource Report 10 (Alternatives),10 MVP states that: PSNC Energy would experience a capacity shortfall as projected in their annual filing with the North Carolina Public Utilities Commission. We disagree with presentation of this information the gas shortage cited in future years by MVP is not supported by facts in the record. Indeed, the record leads to a contradictory conclusion. The annual ?ling to the NCUC to which MVP refers is 2018 PSNC Filing of Annual Review of Gas Costs (Docket No. 6-5, Sub 591 In the Exhibit, reproduced below as Table 2, PSNC projects design-day demand requirements against annual assets for winter seasons for the 9 Mountain Valley Pipeline Southgate Project. (2018). Draft Resource Report 1 General Project Description, FERC Docket No. PF 184-000, August 2018. Retrieved from Southgate-Prcject Pre-?lino-Draft-RR1 -8-20-18.pdf 1" Mountain Valley Pipeline Southgate Project. (2018). Draft Resource Report 10 Alternatives, FERC Docket No. PF 18-4-000, August 2018. Retrieved from ije 1 0_-8-20? 1 8.pdf his Wit North Carolina Department of Environmental Quality 217 West jones Street I lbOl Mail Service Center I Raleigh. North Carolina 27699-1601 919.707.8600 next ?ve years.11 According to this Exhibit, PSNC projects gaps in reserve margins to begin in the winter of 201 9-2020 reserve margin) with increasing gaps through the winter of 2022?2023 reserve margin). It is important to note that additional information included in Table 2 as a footnote clearly states that the contracted capacity ?does not include ACP capacity scheduled to be in service by late However, in its 2015 ?ling of Annual Review of Gas'Costs to the NCUC, PSNC included its 20- year precedent agreement with ACP for 100,000 dth/day and reported a positive reserve margin of 1 1.17% for 2019-2020.12 PSNC noted that the project will provide PSNC with a second interstate pipeline connection to gas supplies located in the Marcellus and Utica shale This capacity will provide additional diversity to PSNC ?s supply portfolio and should allow the Company to meet incremental design-day demand for ?rm customers into the 2020 ?s.13 Based on the information that is publicly available, we calculated that contracted capacity, including ACP once it is placed in service, more than accounts for the increases in design-day requirements in the out years (~92,000 dth/day surplus in 2019-2020, and ~3 7,000 dth/day surplus in 2022-2023). If there exists no projected gap in reserve margins when the ACP capacity is included in the contracted capacity calculation, then what is the demonstrable need to ?ll or the public interest to meet ?rm shipping commitment of 300,000 dth/day by the Southgate Project? To reiterate, PSNC is on the record having stated publicly that ACP capacity ?should allow the Company to meet incremental design?day demand for ?rm customers into the 2020?s. ?14 Because of this discrepancy, we ask that FERC conduct an independent review using representative data that includes all existing and approved future pipeline capacity to base its decision on the need for the Southgate Project. 1" PSNC Annual Review of Gas Costs. (2018). Official Exhibits for 8/23/18 Hearing, Revised Jackson Exhibit 1, August 14, 2018. Retrieved ?2 PSNC Application for Annual Review of Gas Costs. (2015). Direct Testimony of Rose M. Jackson and Direct Testimony of Candace A. Paton, Docket No. 6-5, Sub 558, June 1, 2015. 40502? ?4 lbld. mn- ?mmv North Carolina Department of Environmental Quality 217 West jones Street I 1601 Mail Service Center Raleigh. North Carolina 27699-1601 919.707.3600 Table 2. PSNC Design-Day Requirements and Available Revised Jackson Exhibit! 0mm: Reomumm AND Amman: Assam ll/E eon Sermons mom 2017-18 ?mover! 2022-23 5 1017-18 2018-19 2019-20 2020-21 2011-22 2022-23 Contracted Clpuit)!? Tm FT 390,743 390.743 390.743 390,743 390,743 390,743 131'! ET 7.331 7.331 7,331 7.331 7,331 7,331 Subtotal 398,074 398,074 398.074 398,074 398,074 398,074 Salons! capacity a Truman Storage 33.2!8 33.218 33,218 33.7.18 33.218 33,218 3 D11 Slangc 60.883 60.883 60,883 60,883 60,883 60,883 2 Columbta Storage 35.335 35.335 35.335 35.335 35.335 35,335 Storage 48.877 48.877 48.877 48.877 48.877 48.877 '1 Subtotal 178,313 178,313 178,313 178,313 178,313 178,313 Faking Tram LGA 5,175 5, I 75 5.175 5.175 5,175 5,175 Pine Needle LNG 103,500 103,500 103,500 103.51!) 103,500 103,500 PSNC LNG 100,000 100,000 100,000 100.000 100,000 100,000 Cove Point LNG 25.000 25.000 25.000 25,000 25 000 25 000 Subtotal 233.675 233.675 733.675 233,675 2334675 1131.675 Total 810,062 810.062 810,062 810,062 810.062 810.062 Dulgm?ay Requlrements 731.485 800.404 817.772 835.510 853.159 872.173 Surplus (Shortage) 27.577 9.65 8 [7.710) [25.456] {43.587} [62,111 I Reserve Margin 3.52% 1.21% 094% 6.05% 4.11% 31.12% Duel not include Atlantic Coast Pipeline capacity scheduled to be in sun-vice by late 7019 orMormtcin Val1ey Pipeline capacily scheduled to be in service by late 2020. amuse?5.2.559: Page 1 (2) On the Need for Diversi?cation: The precedent agreement between PSNC and ACP should be included in the diversi?cation analysis before determining the need for additional pipeline capacity in North Carolina. The Southgate Project, as proposed, will more than double the historical contracted capacity of North Carolina portfolio. According to Draft Resource Report 1, MVP states that ?this third interstate pipeline diversified risk by giving PSNC multiple options on geographically-diverse interstate pipelines.? Again, this project arrangement will nearly double total contracted capacity, an amount not before seen in previous ?lings. We ask FERC to review whether the nominal increase in population, the demand for growth in natural gas, and the need for diversi?cation warrant the construction of another new pipeline in North Carolina. To address diversi?cation, we refer the Commission to the recommendations submitted by the North Carolina Department of Environmental (BBQ) in its review of the EIS Scoping process on September 10, 2018.15 In its EIS Scoping review, DEQ recommended that the Commission analyze each individual alternative applicable to North Carolina, as well as the combined effects ?5 September 10, 2018. North Carolina Department of Environmental Quality Comment on the Scoping Process for MVP Southgate Project from DEQ Assistant Secretary Sheila Holman to FERC Secretary, Kimberly Bose, Retrieved from: y. ferc. qov/idmws/common/ooennat.asp ??lelD=15033293 2? North Carolina Department of Environmental Quality 217 West Jones Street I 1601 Mail Service Center Raleigh. North Carolina 27699-1601 919.707.8600 of the possible environmental impacts of all the alternatives to the proposed Southgate Project. As FERC evaluates the Southgate Project, we ask the Commission to fully consider whether non?natural gas alternatives, including, where applicable, renewable resources and other clean- energy resources, can be deployed to close any gap in demand, if such a gap in the reserve margins exists. Any gaps in reserve margins that are calculated and reported by PSNC are not substantiated when design-day demand requirements and assets for future winter seasons are calculated with the company ?s subscribed 100, 000 dth/day contract from ACP included. (3) On the Need for Pipeline Access to the Marcellus and Utica Gas Regions in West Virginia. Ohio. and southwestern Direct pipeline access to North Carolina from the Marcellus and Utica shale basins is already provided by ACP. A second pipeline supplying gas from the same region requires better justi?cation than that which is presented by MVP. In its 2015 ?ling to the NCUC, PSNC stated that its contract with ACP provides access to the ?Marcellus and Utica shale basins of West Virginia, and Ohio.? We ask FERC to evaluate the need for the Southgate Project to deliver gas extracted from the same region. The Southgate Project is Not Fully Subscribed to Warrant a Large Footprint in North Carolina. Based on the currently available public information, it appears that only PSNC has a ?rm commitment with the Southgate Project. MVP has stated that negotiations continue with additional interested shippers; however, as of the date of this letter, we are unaware of any other customers that have committed to the Southgate Project. Currently, the amount of gas contracted by PSNC appears to represent only a small fraction of the pipeline?s total capacity. As proposed, the Southgate Project has a much larger footprint and a much larger capacity than that desired by PSNC. We ask that FERC determine if the costs and environmental risks associated with building a larger-than-necessary pipeline system is in the public interest. IV. Conclusion The rationales described by MVP and PSNC, taken either separately or together, do not address the projected gap in reserve margin that both MVP and PSNC cite as the justi?cation for the Southgate Project. Therefore, we remain unconvinced that the Southgate Project is necessary. Based on the available data and facts, we question whether the project satis?es the criteria for the Commission to deem it in the public interest and whether it is essential to ensure future growth and prosperity for the residents of our State. Given the evidence provided in this letter, we ask that prior to issuing its decision, that the Commission fully investigate these documented discrepancies surrounding the stated purpose and need for the Southgate Project. '3 Wmv?} North Carolina Department of Environmental Quality 217 West Jones Street I 160! Mail Service Center I Raleigh, North Carolina 27699-1601 919.707.8600 We thank you for the opportunity to comment on this important ruling. We trust that our comments contained herein will be considered as the Commission makes its decision. Sincerely, Sheila C. Holman Assistant Secretary, NCDEQ 4D. 322? We North Carolina Department of Environmental Quality 217 West Jones Street 1601 Mail Service Center I Raleigh. North Carolina 27699-1601 919.707.8600