NORTHEAST ENERGY DIRECT PIPELINE PROJECT AN UPDATE

October -- 2015
Kinder Morgans Northeast Energy Direct (NED) project aims to bring 1.3 Bcf/day of
natural gas from the Pennsylvania shale fields into New England, a region that endures
significant energy challenges. The pipeline passes from western PA through upstate New York
to a hub in Wright, NY, enters Massachusetts in the Berkshires and then runs east to the
Connecticut River, turning north into New Hampshire. It next co-locates along existing electric
utility transmission lines across the southern part of the state before dropping down into
Massachusetts to Dracut and running into a gas hub connecting to the Maritimes and Northeast
pipeline in Maine.
Opposition to the project has been ferocious, with over 4,000 comments (mostly
opposed) filed with the Federal Energy Regulatory Commission (FERC). As with the Keystone
pipeline that is proposed to bring tar sands oil to Texas from Canada, industry and the trade
unions favor the project as a means of lowering energy costs and creating jobs, while most others
oppose the line, believing it to be a threat to the environment.
This article aims to give residents potentially affected by NED, 1) a sense of whether the
line will ever be built, 2) an understanding of how the process of permitting the line will continue
to unfold and finally, 3) information as to how NED will interface with landowners in the
pipeline right-of-way acquisition process, if NED does obtain its permit.
1) Prospects for completion of NED. To evaluate NEDs prospects, one has to weigh
the energy supply/demand balance in New England against the strong feelings of New
Englanders for protecting the environment and promoting green forms of energy. Let us
consider the present NE energy picture. NE has 33,000 megawatts of electrical capacity--barely
what it needs now and not providing allowance for future growth. Stringent new coal regulations
from the Obama administration have meant the closing of older plants that cannot be
economically retrofitted, such as the four at Salem Harbor and the one at Brayton Point. This
has resulted in the loss of 10% of regional electric generating capacity. One can safely say no
new coal plants will be built in the northeast to fill the void. As for oil, unless it falls to and stays
from $15-$20 a barrel (to match natural gas on a heating equivalency basis) it will remain
uncompetitive. In 2000 New England received 18% of its electricity from coal and about 22%
from oil. As one might guess, these forms of energy are used less now; coal currently provides
3% of electricity needs, while oil furnishes 1%. Natural gas has made up the difference and
increased its share from 15% to 52%.
What role can renewables play in making up a shortfall? Many have noted it is unwise
to rely too heavily on one energy source and urged that renewable play a large role. First let us
consider perhaps the greenest renewable of them allhydro-electric power. Unfortunately,
hydro has already been almost completely built out in this country. With the possible exception
of new projects in Quebec discussed belowit may provide no solution to the NE energy
conundrum.

Many of us who live in northern New England rely for heating on woodthe oldest
renewable. What about its prospects? Though wood-fired plants (one was proposed for western
Massachusetts) could be built, the massive number of trees required for wide-spread industrial
scale utility usage would surely push the region to a time 150 years ago when much of the
countryside was clear-cut for sheep farming. And, of course, burning wood, as with the burning
of coal, puts out smoke, soot and pollutants. Perhaps not surprisingly, plans for the
Massachusetts project have been shelved.
Wind energy makes sense in the wind belt, running from the Dakotas to north Texas. It
also works on mountain tops and where ocean breezes blow along the coasts. But ample wind is
not found everywhere. And where it is found, there is a reliability issue. In Lyme, NH where I
live, for instance, studies have shown we do not have enough wind for viable investmenteven
with a government subsidy. Even where wind is plentiful, there can be significant push-back
from local residentswitness the Cape Wind project in Nantucket Sound, which has been
struggling to build a $2.6 billion project for 13 years. Moreover, with the expiration of the
Production Tax Credit, wind generation is much less economical and its growth has stalled. The
financial firm, Bernstein, has noted the slow, steady improvements in the economics of both
wind and solar. They have calculated that, if the Investment Tax Credit is not allowed to expire
in 2016, these renewables will, by the beginning of the next decade, be competitive with
conventional wholesale electricity. Bernstein adds, however, as a general matter without
subsidies solar and wind will remain uneconomic. It is, moveover, debatable with a Republican
Congress whether subsidies will be extended. Simply put, without subsidies wind and solar will
remain less reliable and much more expensive, generally speaking, than hydrocarbons. They
cannot realistically be looked to as adequate to replace power generation lost by the closing of
New Englands power plants.
Neither will nuclear energy fill the gap. The Yankee facility closed in 2014 because of
political opposition in Vermontdespite the fact that the Nuclear Regulatory Commission had
extended the plants license for an additional 20 years. Gone was 35% of Vermonts electric
supply and 4% of that of the region. In 2013, New England had to borrow electricity from the
Indian Point nuke in New York to make it through the winter. That stand-by resource may not be
there much longer as the facility is under pressure to be closed by Governor Cuomo. The
Pilgrim Nuclear Power Station, the only nuclear power plant in Massachusetts, will close by June
2019 because it is no longer economic according to published reports.
One possible solution to the budding crisis would be importing electricity from hydro in
Quebec where new dams are being built on James Bay. However, the Northern Pass effort to
bring power south has been stymied by activists since 2009. Nobody wants unsightly
transmission lines in their backyard.
The result of all this is that, at 18 cents/kWh New Englands electric bills are 50% higher
than the rest of the country. (Costs went into the 22 cent range during the last two cold winters.)
This discourages manufacturing and affects all of our monthly budgets.
A practical solution to the problem is cheap natural gas, the most environmentally
friendly of hydrocarbon fuels. One of its virtues is it can be used in so-called peaking plants,
whose outputs can be quickly be ramped up to meet times of maximum demand. This role
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cannot be easily undertaken by solar, which cannot generate power at night, or by wind, which
cannot be counted on to continuously blow. Currently, with natural gas selling for about $2.00
per mcf, it offers stiff competition to both coal and nuclear power. Moreover, new gas plants can
be permitted and constructed much faster than the 7-8 years a new nuclear plant would require.
The gas supplies developed first in the Marcellus shale in PA and then in the Utica shale
in Ohio mean that decades of relatively cheap energy are now available. Once the
infrastructurethe pipelines, natural gas liquids plants and so forthis in place, production can
be fairly quickly increased in response to an increase in demand. (Some have suggested we now
have just in time delivery of energy supplies.) This is so because exploration risk is much less
an issue than previously. There is no mystery as to where the gas-laden shale can be found. (In
decades past it took many years to gear up an exploration program, raise the capital, run seismic
tests, undertake a drilling program and bring the product to market.)
Thus, the gas is there to be produced and there is demand for the product. The problem is
that there are not enough pipelines to bring gas into New England, which brings us to our issue:
Is the Northeast Energy Direct likely to be permitted and installed? That will come down to
decisions made by politicians who must answer to their constituents and to regulators, who must
ultimately answer to politicians. The latter are caught in the middle, so let us consider how they
will likely consider things. It is not understood by the general public that New Englands energy
supply/demand balance is dangerously tight. Moreover, there is a widespread belief in the region
that green solutions will solve all energy problems. It is, thus, difficult for any politician to get
out front on the issue in a statesman-like way.
Pressure from the public can lead to the implementation of what are called Renewable
Portfolio Standards, as in California. These require state utilities to use x% of renewables in
electricity generationno matter what the price. Such mandates do not change the underlying
economics of energy investment, however. They only tend to make energy more expensive and
may make the likelihood of a regional energy crisis more inevitable. Having said that, they do
offer a solution to the issue of having all ones energy eggs in one basket.
The experience of Europe, and in particular Germany, in turning sharply away from fossil
fuels in favor of green energy bears considering and sheds light upon how regional politicians
may decide to deal with energy issues here. As high as New Englands electric costs are, those
in much of Europe are about 25% higher, at about 22-25 cents/kWh. Germany, by focusing on
wind and solar, has made the most progress towards turning green, but the costs have been high.
In Germany electricity costs about 40 cents/kWh, and in a soft economy this has triggered
strident complaints from German businesses, which are losing competitiveness. As the result
Chancellor Merkel has begun to slow down the renewable push.
New England had begun to paint itself into a similar corner. However, beginning several
years agoin the face of a series of fierce winters and tight energy suppliesthe politicians
started to wake up to the dangers. Recognizing the regions predicament, and having seen spot
natural gas price spike to $79/Mcf from $4.00 in the winter of 2013, the governors of six
northeast states met at Breton Woods to confront these issues in July of 2014.

On the one hand they were faced with the prevailing ethos favoring wind, solar, biomass
and renewables, and the popular disdain for hydrocarbons. On the other, relatively cleanburning natural gas had become so cheap that if the region were to eschew its usage, NE energyintensive businesses would lose out to those in other regions that take advantage of the resource.
In that regard the eastern half of the rust belt has begun to re-industrialize as manufacturers
build plants that make fertilizer from natural gas, install energy-intensive manufacturing
facilities, construct plants that make ethylene from natural gas liquids, and build plastics plants to
use that ethylene.
Pipelines are common in other regions of the company. See the map below.

Home owners in many areas of the U.S. heat with natural gas because it historically has
been cheap. They live with pipelines running down their streets and, thus, are more tolerant of
natural gas lines because of familiarity. In New England, residential natural gas is somewhat of
a novelty, since many homeowners use oil, propane, electricity or wood for heating. There is a
fear of the unknown as a consequence, a fear with which officials must deal.
I have read many of the comments made to FERC by the regions residents and political
figures concerning NED. Residents and local officials are nearly uniform in their opposition to
the project. By contrast, I have been struck by the fact that many state and federal officials did
not take an all power to the forward shields, hell no, were gonna stop it approach. A good
many of their responses were along the lines of we demand full and complete transparency from
NED, NED must be aware to local concerns,we must protect our environmentally sensitive
areas and cultural resources, and so forth. This tells me there is an understanding of the
seriousness of the New England energy problem. This tells me these officials do not want to be
left holding the bagif a regional energy crisis flares up in New England. This tells me not all
higher-ups will put heavy pressure upon FERC to kill the project. Sure, if FERC grants the
permit, governors and Congressmen/women will publically scream to the heavens, but they may
also secretly breathe a sigh of relief.
What about the other energy projects proposed for the region? Will they displace NED?
Below follows a brief discussion of each of them.
Access Northeast is a Spectra Energy of Houston line that would bring 1 billion cubic
feet of gas a day from Pennsylvania. Spectra is partnering with Northeast Utilities, which last
month received a ruling from the Department of Public Utilities of Massachusetts that it could
pass the costs of the pipeline through to its customers. The push-back on this project has also
been enormous, but it looks to be moving forward.
Algonquin Incremental Market and Atlantic Bridge are two lines that propose to bring PA
gas to NE by co-locating along existing pipelines. Algonquin has begun construction, but the
Atlantic line is still in the permitting process. This gas would be not only for utilities, but would
be made available to private consumers.
New England Clean Power Link proposes to run an electrical cable south beneath Lake
Champlain, bringing Canadian hydro-power to the northeast. In June the Conservation Law
Foundation agreed not to try to block the project in return for $284 million to be used to clean up
Lake Champlain and to promote renewable energy.
Northern Pass is a project that would bring more Canadian hydro power from James Bay
down into the region through New Hampshire. It has been stuck in the mud for years, as noted.
Northeast Energy Link is a power line that would transport 1,000 megawatts of wind and
hydro electricity from Maine to eastern Massachusetts. It is in the approval process.
Vermont and Maine Green Lines would carry respectively 1000 to 2000 megawatts from Canada
to northern New England. Permitting has not yet begun.
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Maine Power Express intends to bring wind, solar and hydroelectricity from Maine to
Boston. It is in the environmental review process.
The renewable projects involve energy generated in northern Maine or Canada. (It
might be said that if all of them were already in place, the need for NED would not be clear.)
A friend of mine observed that the difficulty in the construction of these projects demonstrates
that clean energy is something generated far from home and only begrudgingly transmitted to
the point of consumption. We think it is doubtful that all of them, or perhaps most of these
projects, will be built.
Presently, there are no plans for the NED line to make gas available to Vermont.
However, the line is slated to pass within 6 miles of that state near Vernon, Vt. and NED
officials have said that future spurs to the Green Mountain state are possible.
In conclusion, and in light of the above, it is the belief of our firm that it is more likely
than not that Northeast Energy Direct will ultimately receive FERC approval.
It must be said that the NED pipeline is currently dancing. What is meant by this is
that FERC has listened to many dozens of well-considered comments concerning how the
proposed route of the line impacts local landowners and communities. It has ordered NED to
respond to specific local concerns about, for instance, environmentally or culturally sensitive
areas. Similarly, the EPA has expressed specific concerns and made suggestions. As is usually
the case with new pipelines, these types of inputs will drive alterations to the pipeline route. A
large one has already occurred: instead of the line traversing all the way across central
Massachusetts, the eastern portion of the line now jumps up into southern New Hampshire to colocate along an electric utility easement in a more rural area.
It is highly recommended that towns with particular and specific concerns (not merely
we are against pipelines that transport gas from fracking) get an oar in the water as soon as
possible by communicating to FERC identifiable local issues, supported by documentation.
Though the comment period has closed as of October 16th in that NED does not have to respond
directly to new filings, FERC will continue to accept citizen input. The further the permitting
process advances, the more the lines course will come into focus, and fewer route changes will
be possible. Landowners should do the same thing. For instance, if a farmer sees that the line is
to run through an area ten feet from a spring which is the only possible source for his cattle pond,
FERC needs to know thatnow.
If there are significant changes in the pipeline route, then FERC will likely order
additional public meetings for newly affected residents.
2) Discussion of the next steps for NED. NED continues to conduct its surveys of the
line. Particularly in New Hampshire, many landowners refused to give the company permission
to enter their premises to survey. The company seems to have used aerial photography to try to
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get around this problem. If survey access becomes an issue, it is possible NED will apply to
federal court for an access order, arguing the right to federal eminent domain carries an implicit
right to survey. Those of you who do negotiate survey agreements can protect yourselves by
using the free survey permission form located on our website, rather than signing the form NED
presents you. Our form contains additional landowner safeguards.
Now NED must submit an environmental impact plan to FERC in connection with its
final permit application. A recent directive from FERC to NED requires it to address in detail a
multitude of concerns, environmental and otherwise, raised in the community meetings
conducted by NED and in the many comments filed with FERC by individuals, organizations
and governments. The EPA has also recommended that NED adopt certain policies regarding,
for instance, river crossings and moving the line as much as possible to avoid conservation areas.
Sometime in late fall or early winter, FERC will likely allow or deny the NED application.
Assuming NED makes a concerted effort to respond to FERCs concerns, we feel it is likely a
permit will be granted towards the end of this year.
3) How NED will interface with affected landowners, if a permit is granted. With a
permit in hand, NED will possess the power of eminent domain, giving it ultimately the right to
acquire a pipeline easement along the proposed path of its line. It is our best guess that NED
representatives will begin approaching landowners for negotiated easements after the first of the
year. FERC puts pressure on the pipelines to try to obtain a large majority of easements through
negotiation, as opposed to court proceedings. NED will, thus, make a concerted effort to
successfully negotiate for the necessary easements and properties it needs to install its line,
metering, compression and operational facilities. Landowners will likely be contacted by agents
of NED and given written proposals for agreements in the first quarter of 2016. Specific offers
of money based upon the acreage taken, crop damages, loss of fertility and so forth will be made.
This is a critical time for property owners. A landowner is at a huge disadvantage in
negotiating by himself or herself with a pipeline company. Pipeline agents are well-trained to
couch negotiations in terms that are not favorable to property owners. Pipeline law is a highly
technical area. When a pipeline is installed, it can have a profound effect upon the value and use
of the property on which it is located. A properly negotiated pipeline agreement can give a
landowner both fair compensation and terms which better protect the landowners property.
Important tax issues need be considered as well. For example, certain payments to a landowner
by NED will be treated as long-term capital gain and receive a favored income tax treatment.
Other payments will be treated as regular income and much more heavily taxed. Experienced
legal counsel has a better chance of negotiating a better tax result than the unrepresented.
While it is not yet 100% certain the Northeast Energy line will be built, the project has
some momentum. If you are an affected landowner, we would like the opportunity to help you
through this process. Our experience in Ohio has been landowners are usually better off
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negotiating as a group. There is strength in numbers. Having said that, your particular
interests and needs will be individually addressed. The client always decides what is best for
himself of herself, and is not bound by the group.
We will organize convenient landowner meetings along the pipeline route later in the
year and look forward to seeing landowners then. We welcome questions by email in the
meantime. I can be reached at
-- Atty. Nils P. Johnson