Gas pipeline expansion in U.S. Pacific Northwest in financial trouble

The expansion of a major natural gas pipeline in the U.S. Pacific Northwest, called the GTN Xpress project, is in doubt after its owner said it is “financially not viable” unless it can obtain permission to spread costs onto other utilities not associated with the project. 

The GTN pipeline ferries gas from Canada into the Pacific Northwest, delivering gas to Washington, Idaho, Oregon, and California. GTN has sought to expand the system’s capacity by upgrading a series of compressor stations. Called GTN Xpress, the expansion project would result in a substantial increase in Canadian gas pumped into the region.

The U.S. Federal Energy Regulatory Commission (FERC) gave the project a greenlight to begin construction last October. But in a new federal court filing, GTN raised doubts about the project’s financial viability.

The details are legally complex, but in essence GTN attempted to obtain approval from federal regulators for what is called “rolled-in rate treatment,” which boils down to the ability to spread the costs of the project onto the customers of utilities that would not even benefit from the additional gas provided by the expansion. 

GTN Xpress has contracts for the additional gas capacity with two utilities in the northwest — Cascade Natural Gas and Intermountain Gas Company — along with a Canadian gas producer called Tourmaline.

If FERC approved rolled-in rates, GTN could spread costs of its Xpress project on to utilities that are part of the GTN system, but which are not buying gas from the Xpress expansion. One example is Puget Sound Energy, a Washington state-based gas utility, which receives gas from the existing GTN pipeline, but has not signed up to buy additional gas from the Xpress project. The utility raised objections to having to pay for Xpress as far back as 2021.

“PSE supports the X-Press project, but believes GTN has not adequately supported the rationale to charge customers rolled-in rates for the project,” a spokesperson for Puget Sound Energy told Gas Outlook.

As it turned out, when FERC approved the project last October, it also rejected GTN’s request to obtain rolled-in rate treatment. In other words, GTN would not be able to push costs onto other utilities.

That is apparently a big problem for GTN. In a recent court filing, the company revealed for the first time that its project is on the rocks.

“Without rolled-in rates, tens of millions of dollars of GTN’s costs would be unrecoverable, making the Project financially not viable unless GTN can re-negotiate rates with its existing or expansion shippers or FERC ultimately rules that rolled-in rates are appropriate,” GTN wrote in documents filed in federal court in May.

The company said that, in the interim, it would not proceed with construction, and would instead hope to fight it out in court to obtain the rolled-in rates.

“It’s an admission from GTN that the project is a lot more uncertain than anyone realised,” Audrey Leonard, a staff attorney with Columbia Riverkeeper, an Oregon-based environmental NGO that has litigated against GTN Xpress, told Gas Outlook.

Columbia Riverkeeper has since filed a petition to FERC, asking the agency to rescind GTN’s construction authorisation, arguing that the pipeline company misled regulators when it said that the project was immediately ready to move forward with construction. In addition, the revelation that the project may not be financially viable is grounds for FERC to pause its construction authorisation, Riverkeeper argued.

“It’s not fair to burden existing customers with the expansion for unneeded infrastructure,” Leonard said.

GTN’s parent company, TC Energy, did not respond to questions from Gas Outlook.

Gas expansion that may not be needed

The sudden turmoil facing GTN Xpress heightens scrutiny on a project that has faced pushback for years.

It isn’t just environmental advocates who are opposed to the project. The governors of California, Oregon, and Washington have opposed it, and the attorneys general from those three states have actively fought against its approval. “There is no evidence” that the project is needed, the attorneys general from the three states said in a joint filing to FERC last year.

The reason is pretty straightforward. Building new gas infrastructure in order to ramp up the volume of gas imports from Canada would undermine the region’s climate targets. GTN Xpress would expand the volume of gas flowing into the Pacific Northwest, at a time when state policies in Washington, Oregon, and California are aimed at — and require — ramping down gas consumption.

As Gas Outlook previously reported, utility commissions in a growing number of states are stepping up scrutiny of the business-as-usual growth forecasts submitted by gas utilities around the country.

That is true in the Pacific Northwest as well, where Oregon and Washington utility regulators have begun probing utility growth forecasts — including Cascade Natural Gas, a central Oregon gas utility and one of the main customers of the additional gas on GTN Xpress.

In a 2023 report, technical staff at Washington’s utility regulator criticised Cascade Natural Gas’ assumption that it would need more gas from GTN Xpress. “Cascade’s analysis on [GTN Xpress] is conspicuously inadequate,” and “conspicuously in the past tense,” the report said, referring to the utility’s assumption that past growth in demand means increases in consumption would continue decades into the future.

Meanwhile, in addition to admitting that its Xpress project may not be financially viable, GTN disclosed another intriguing problem facing the project. In the same documents filed in federal court, GTN said that its contracts with its three customers expire in November 2024 and will need to be renegotiated.

“The big question is does Cascade in fact need that capacity anymore?” Carra Sahler, a staff attorney and the director of the Green Energy Institute at Lewis and Clark Law School in Portland, Oregon, told Gas Outlook.

Both Oregon and Washington have implemented a variety of climate laws targeting gas use in the region, from new building codes and a cap-and-invest programme in Washington, to a statewide regulatory programme in Oregon that aims to cut emissions from gas utilities in half by 2035 (that programme was put on hold because of a legal challenge, but is currently being redesigned and is expected to be enacted).

Moreover, the federal Inflation Reduction Act provides enormous pots of money for renewable energy and electrification, further undercutting the commercial case for expanding gas infrastructure when there are cheaper and cleaner alternatives.

In other words, utilities like Cascade Natural Gas signed up for the GTN Xpress capacity in a different era, before the regulatory screws tightened on the gas industry, and before dramatic advances in renewable energy. Utility regulators didn’t have a problem with gas utilities buying extra gas back when Xpress was originally proposed several years ago. But since then, a lot has changed.

“Do they still need as much gas as they thought they did back when that contract was negotiated in the first place?” Sahler said.

The Washington Utilities and Transportation Commission (UTC) did not respond to a request for comment.

A presentation from Cascade in April acknowledges that policies in a variety of states to rapidly scale up electric heat pumps sends a signal that gas demand could be reduced.

It is unclear what may happen, but the pending expiration of Cascade’s contract with GTN could create an opportunity for regulators to ask tougher questions about the need for the project, and it also may create an opportunity for Cascade to walk away from the Xpress project.

Cascade Natural Gas did not respond to questions from Gas Outlook.

“I would say that this definitely creates an opportunity for the utilities to rethink their investments,” Lenoard said. “Particularly Cascade, who has faced heat from the Washington UTC in Oregon PUC for their investment in GTN Xpress.”