Logistics is 7.4% of US GDP. Pipeline transportation represents just half a percentage point of that 7.4% total. Proponents of pipelines argue that when pipelines are properly constructed and maintained they have fewer carbon emissions associated with moving natural gas and oil than trucks or railcars. But pipelines are facing headwinds from advocacy groups; these nongovernmental organizations (NGOs) argue that all too often pipelines are not properly constructed or maintained. They argue that pipelines far from being an environmental solution, are too often a hazard that society should not be willing to accept.
Big investment funds are starting to see increasing risks associated with investing in companies and sectors that do not have strong environmental, social, and governance (ESG) records. NGOs willing to engage in lawsuits are certainly one nexus of those increased risks. These lawsuits pit small, often thinly funded advocacy groups against large corporations and high paid law firms. And in these battles, the Davids are increasingly beating the Goliaths.
A Case in Point: The Mountain Valley Pipeline
Mountain Valley Pipeline is in trouble. The Mountain Valley Pipeline (MVP) is a natural gas pipeline being constructed from southern Virginia to northwestern West Virginia. The project will consist of over 300 miles of pipelines. If completed, the pipeline would have the ability to ship 2 billion cubic feet of natural gas per day from the Marcellus and Utica shale formations to markets in the Mid and South Atlantic regions of the United States. The primary owner of the pipeline is Equitrans Midstream. Groups fighting to stop the pipeline includes the Sierra Club and very small partner organizations like Wild Virginia, Protect Our Water, Heritage, Rights (POWHR), Virginia Scientist, and Appalachian Mountain Advocates.
Mountain Valley Pipeline has had a mountain of challenges to overcome since filing a formal application with the Federal Energy Regulatory Commission (FERC to construct and operate the pipeline. In a one- two punch, on January 25th, the Fourth Circuit Court of Appeals once again rejected permits issued by the U.S. Forest Service and the Bureau of Land Management allowing Mountain Valley Pipeline to cross three and a half miles and four streams in the Jefferson National Forest in Virginia and West Virginia. The Richmond-based court ruled that the federal agencies “inadequately considered the actual sedimentation and erosion impacts” of the pipeline, “prematurely authorized” the use of a stream-crossing method and “failed to comply” with a Forest Service rule governing forest management.
On February 3rd, the other punch landed. The same three-judge panel threw out the U.S. Fish and Wildlife Services’ assessment of how the Mountain Valley Pipeline (MVP) would impact two endangered fish species: the Roanoke logperch and the candy darter.
“If a species is already speeding toward the extinction cliff, an agency may not press on the gas. We urge the Fish and Wildlife Service to consider this directive carefully while reassessing impacts to the two endangered fish at issue, especially the apparently not-long-for-this-world candy darter,” Judge James Wynn wrote in the court’s opinion.
“We recognize that this decision will further delay the completion of an already mostly finished pipeline,” Wynn added, “but the Endangered Species Act’s directive to federal agencies could not be clearer: ‘halt and reverse the trend toward species extinction, whatever the cost.'”
Wild Virginia (David) vs. Equitrans Midstream (Goliath)
As of December 31, 2021, the Equitrans Midstream was the largest owner of the Mountain Valley Pipeline with a 47% stake in the project. Equitrans Midstream (ETRN) defines itself as a natural gas gatherer that holds a significant transmission footprint in the Appalachian Basin. The company has 766 employees.
ETRN has invested $2.5 billion in this project, including $284 million in the last fiscal year. In 2020, the company had net income of $364.4 million. One of the lawyers working for ETRN is Donald Verrilli, Jr. Mr. Verrilli is a former a former solicitor general of the U.S. and a partner at a partner with Munger, Tolles & Olson.
While not the largest of the NGO’s, Wild Virginia played a vital role in this fight. In the last annual report Equitrans Midstream complained that “the majority of environmental justice litigation matters appear to be focused on whether state or federal agencies with permitting or other decision-making responsibility have adequately considered environmental justice issues during the decision-making process.” Advocacy organizations, like Wild Virginia, raise environmental justice issues in connection with permitting legal challenges.
At Wild Virginia, a lawyer named David Sligh, the Conservation Director, looked at every single permit, poured through thousands of pages of documents on a line-by-line basis, and identified places where he believed the language was either misleading or an outright misrepresentation. He then takes his findings to partner organizations that do the court litigation.
Mr. Sligh said the ETRN’s troubles are entirely self-inflicted. “They’re having these difficulties because they didn’t do the job right from the very beginning. Both the company and the agencies that have been supposed to review these things and do a thorough analysis simply didn’t do their jobs.” In last year’s Wild Virginia annual report the advocacy group reported that they submitted a letter to Virginia’s State Water Control Board showing the MVP violated requirements on a much greater scale than they had previously admitted. Wild Virginia exposed over 1,500 violations.
Where ETRN has 764 employees and the money to pay for several high-priced law firms, Wild Virginia has 4 employees and, according to a Form 990, received $246,000 in contributions and grants. Those contributions don’t just fund salaries, Mr. Sligh and the Director of the organization are not particularly well paid. The contributions also fund volunteer activities; helps pay for monitoring water quality at over 100 sites; and stays up to date on proposed rules, regulations, and projects – and submits comments and recommendations on those rules and regulations. When fighting the system, community outreach and support is a particularly important activity that needs to be funded.
How Has David Done?
Goliath is hurting. In 2021, net loss attributable to Equitrans Midstream common shareholders was $1,439.0 million. If you had invested $100 in ETRN in 2018, that was worth $66 according to their annual report. A $100 investment in the S&P 500 would have led to a return of $186.
Investment firms, like Seeking Alpha, made the rather obvious point that “The unfavorable court decision sharply increased the investment risk of these securities.” But they also made the point that “Any time you have a major project delay … skittish banks may cut off additional funding and (this may) considerably raise capital costs. The minute any court issues an unfavorable opinion, like this one, then … the stock (is) no longer an investment grade vehicle…”
The primary owner of MPV, Equitrans Midstream, admitted in the risks section of this year’s annual report, which came out shortly after the rulings, that “there is no guarantee that the MVP Joint Venture will ultimately receive all necessary authorizations …” to complete this project.