• PUC Decision on Mariner East Pipeline Opens Door to the Region Becoming a World Energy and Jobs Hub
  • December 19, 2014 | Authors: Michael L. Krancer; Christopher A. Lewis; Frank L. Tamulonis
  • Law Firm: Blank Rome LLP - Philadelphia Office
  • Action Item: The Pennsylvania Public Utility Commission’s decision validating Sunoco Pipeline’s Mariner East natural gas liquids pipeline project as a public utility delivering important public benefits will have far-reaching and longstanding benefits to the nation and especially to the Philadelphia Region. For the nation, this is a step in the direction of responsible development of infrastructure to accommodate our new robust energy and feedstock production capabilities. For the Philadelphia Region, it helps in the ongoing transformation of the Region into the Silicon Valley of energy, manufacturing development, and a jobs growth juggernaut.

    The Greater Philadelphia Region’s economic future just took a big turn for the better. Why the turnaround? On October 2, 2014, the Pennsylvania Public Utility Commission (“PUC”) took an important vote that will help propel the Region into becoming a major energy hub and jobs creation center. The PUC’s Opinion and Order was entered on October 29, 2014.

    The Commission validated, in a vote of 4 to 1, Sunoco Pipeline’s (“SPLP”) existing status as a public utility corporation for the transportation of liquid petroleum products within Pennsylvania, which includes the Mariner East project.

    Full disclosure: it was a team of Blank Rome lawyers who represented Sunoco Pipeline in the PUC proceedings.

    The Mariner East Project is a 300-mile pipeline project that will make use of SPLP’s existing pipeline infrastructure and route to ship valuable natural liquids (like ethane, propane, and butane) from the Marcellus Shale regions in Pennsylvania, Ohio, and West Virginia to delivery points along the line within the Commonwealth culminating at the Marcus Hook Industrial Complex (“MHIC”) in Delaware County. Petroleum products had flowed via Sunoco Pipeline and its predecessors’ integrated pipeline system since the 1930s. Flow had been primarily from the refinery in Southeastern Pennsylvania west and north and northeast to delivery points in Pennsylvania and other states. The company began repurposing the route to transport natural gas liquids (“NGLs”) eastward from the Marcellus and Utica shale regions to delivery points across Pennsylvania all the way to the MHIC.

    Sunoco Logistics purchased the former Marcus Hook refinery property in 2012. The 109-year former Marcus Hook Refinery had closed operations in December 2011, resulting in 490 layoffs. While the Refinery could not be saved as an oil refinery, it presented an opportunity for repurposing to other uses. The primary driver behind this opportunity to put our Region at the top of the world’s energy map is, of course, the environmentally responsible development of the Marcellus and Utica shale formations in western and northern Pennsylvania and Appalachia. The MHIC is well-positioned as a regional hub for a petrochemical industry powered by energy resources extracted from the Marcellus and Utica Shale regions to the west. In fact, a 2012 IHS Study found the Marcus Hook facility could be repurposed into a major industrial complex with the feedstock of NGLs from the western and/or northern parts of the Commonwealth.

    The Mariner East project provides the foundation for the further build out, construction, and development of energy-related NGL processing facilities at the site, including the construction and operation of a propane dehydrogenation plant (“PDH”). The further build out, construction, and development of the MHIC would result in additional job creation both in connection with the construction of any additional processing facilities as well as the on-going operation of these additional facilities. Presently, there are 125 employees at MHIC, which is a significant improvement for a site that was expected to have only 50 employees during the ramp down of the refinery assets, followed by no employees once the refinery assets were completely dismantled and the site permanently closed.

    The completion of the initial phase of the project, which relies chiefly on existing pipeline infrastructure, is expected to transport an estimated 70,000 barrels per day of NGLs to the MHIC. Earlier this month, SPLP announced an additional $2.5 billion project to construct a new pipeline along the same route, called Mariner East 2, which is anticipated to provide an additional capacity of 275,000 barrels per day of NGLs. The Mariner East 2 pipeline is expected to be operational in Q4 2016, subject to regulatory and permit approvals.

    The Mariner East project will create the opportunity for additional job growth, not only from construction, but also from allowing the MHIC to develop into a real energy and feedstock products hub in our Region. That, in turn, will make our Region much more attractive to new and expanded manufacturing operations due to the proximity of needed fuel and feedstock.

    SPLP understands that expanding the capacity for the transport of NGLs is not only about jobs and the economy—notwithstanding that these are both laudable goals. It is also about making the transport of NGLs reliable: SPLP lived, as we all did, through the regional and national emergency last winter of propane shortages and propane price spikes. Shortages and price spikes were caused not by a lack of supply, but by pipeline transportation constraints. Hence, the Mariner East project will allow for 1) the delivery of a more reliable and plentiful Pennsylvania-generated propane supply via intrastate transportation along the Mariner East pipeline to local markets in Pennsylvania, and 2) the Region to help Pennsylvanians stay warm this winter, and do so affordably.

    In fact, the PUC had already recognized in its decision in July, which granted Sunoco Pipeline’s petition (which was unopposed) to extend its already existing public utility service into Washington County, that:

    [A]pproval of the Petition is in the public interest, as [Sunoco Pipeline’s] proposed provision of intrastate propane service will result in numerous potential public benefits. [Sunoco Pipeline] intends to commence intrastate propane service from Delmont, Pennsylvania, moving the origination point further west and closer to the Marcellus Shale region, to its Twin Oaks [Delaware County] facility. While this will enable Sunoco to implement one aspect of the overall planned Mariner East Pipeline project, it will also enable the Company to immediately address the need for uninterrupted deliveries of propane in Pennsylvania and to ensure that there is adequate pipeline capacity to meet peak demand for propane during the [2014-15] winter heating season. It will further assist shippers in avoiding the added expense and risks associated with trucking the propane from the Marcellus Shale region to Mechanicsburg.

    A localized challenge and two non-governmental organizations (“NGOs”) attempted in objections before the PUC to deny the decades-long confirmed status of Sunoco Pipeline as a Pennsylvania public utility corporation and its petroleum transportation services as public utility service.

    The PUC put those counterintuitive and counterfactual claims to rest in its vote on October 2 and in its October 29 Opinion and Order. The Commission pointed to Certificates of Public Convenience (“CPCs”) that were conferred to SPLP or its predecessors, Sun Pipeline Company and Atlantic Pipeline Corporation, dating back to 1930. A CPC is a PUC-issued document evidencing the Commission’s finding that the service provided by the utility is “necessary or proper for the service, accommodation, convenience, and safety of the public.” SPLP’s CPCs had long certificated SPLP as a public utility to transport petroleum and refined petroleum products across the Commonwealth. It is fundamental public utility law that CPCs are prima facie evidence of the holder’s public utility status. Moreover, SPLP had previously appeared before the Commission repeatedly for various approvals, applications, or petitions, without any question as to its public utility status.

    At the same time, the Commission opined on several points that are of note with respect to public utility law as it applies to petroleum liquids pipelines.

    The Commission flatly rejected the challengers’ theory that the pipeline’s existing CPCs covered crude oil and/or gasoline, but not NGLs such as ethane and propane. The Commission noted that the products covered by the CPCs are “petroleum products” and it had no trouble concluding under existing case law and statutory law that “petroleum products” is a broad term that includes both ethane and propane.

    The Commission also had no difficulty concluding that the direction of flow of product is not limited to an east-to-west direction as the challengers had maintained. In the past, flow originated from the refineries in southeastern Pennsylvania to the west and the north. But the energy extraction revolution of today calls for a west-to-east flow. Importantly, the Commission correctly concluded that it would be bad public policy to impose a directionality limitation. To do so, it said, would result in unnecessary construction of redundant pipelines while existing lines would “sit useless.” This restriction would “force the unnecessary expenditure of billions of dollars, which costs would be absorbed by the energy-using public through increased commodity prices.”

    Finally, the Commission held that public utility certification for pipelines is not aimed at any specific pipe itself or any specific route. The Commission summed it up this way in the Motion as approved:

    [A] succinct summary of Sunoco’s existing authority in the Commonwealth is that it possesses the authority to provide intrastate petroleum and refined petroleum products bidirectionally through pipeline service between the Ohio and New York borders and Marcus Hook, Delaware County through generally identified points. Accordingly, this authority is not contingent upon a specific directional flow or specific route within the certificated territory. Moreover, this authority is not limited to a specific pipe or set of pipes, but rather, includes both the upgrading of current facilities and the expansion of existing capacity as needed for the provision of the authorized service within the certificate territory.

    This decision is not only an important one in public utility law relating to liquids pipelines, but it is also very good news for the future of the Commonwealth and our Southeast Region. Our Region is in constant competition for productive energy molecules with the Gulf Coast. Without critical transportation pipelines linking the Marcellus basin to the East Coast, energy producers in western Pennsylvania and Appalachia will have little choice or opportunity but to ship the molecules to the Gulf Coast, and by doing so, ship new jobs and manufacturing growth there, too—all to our Region’s detriment. Sunoco Logistics has publically pledged that it will continue to work cooperatively with all municipalities along the route, as it always has. The arrival of low cost energy supplies and feedstock here will encourage the attraction and support of a manufacturing expansion in our area the likes of which we have not seen in many generations—and which will last for many generations. The embarrassment of riches that our Region boasts in terms of location, ports, transportation facilities, educated workforce, and educational and medical institutions could transform our Region into the Silicon Valley of energy and manufacturing development. This will result in paycheck dividends to our citizens for generations to come.