Despite some headwinds, U.S. employment is healthy. The latest government data shows 222,000 new jobs last month, well ahead of expectations. Yet there's a potential hiring boom that's on hold because the federal agency that approves energy infrastructure projects doesn't have enough commissioners to take a vote. The Senate has to vote on any nominees, and with nothing on the docket to fill the vacancies and time running out before the Senate heads to recess in August, several pipeline projects, and as many as 75,000 jobs, are at risk of further delay.
Drilling down into the issue
Currently, the five-commissioner Federal Energy Regulation Commission (FERC) has only one member, and it needs at least three to conduct business. President Trump has nominated Neil Chatterjee and Robert Powelson, both of whom received approval from the Senate Energy and Natural Resources Committee more than a month ago. That committee's general counsel, Richard Glick, is the third person Trump has lined up.
The White House and Senate Democrats are blaming each other for the delay. At issue is that the first two nominees are both Republicans, and the Senate's tradition is to confirm FERC commissioners in bipartisan pairs. So until Trump formally nominates Glick, who is a Democrat, and he wins the committee's approval, the Senate won't vote on either of the other two nominees.
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Because of the lack of a quorum of at least three commissioners, which FERC hasn't had since February, it can't approve new pipeline projects. And the current delay on nominations means FERC probably won't be able to approve projects at its next scheduled meeting on July 20. With the upcoming congressional recess, it's possible that FERC might continue to lack a quorum until it meets again in late September, which would cause additional delays to several projects that the industry currently has in the pipeline for approval.
What's at stake
According to a CNBC report, 15 projects are currently on hold, representing up to $25 billion of private investment and an estimated 75,000 jobs. One of the largest is the $5 billion Atlantic Coast Pipeline, a 600-mile natural gas pipeline that utilities Dominion Energy (D -0.51%) and Duke Energy (DUK 0.07%) have under development. The system would move natural gas from the gas-rich Marcellus and Utica shale plays of West Virginia down to market centers in Virginia and North Carolina -- where demand currently outstrips system capacity -- as well as support new natural gas power plants that both Duke and Dominion are developing. The utilities estimate that the new pipeline will save consumers an estimated $377 million per year starting in 2019, when it should enter service. Further, according to estimates, the project would support 17,240 jobs during construction, along with another 2,200 full-time jobs, which should combine to generate $2.7 billion of economic activity across the region.
Also on hold is Canadian energy infrastructure giant Enbridge's (ENB 1.68%) 255-mile NEXUS Gas Transmission project. The $2 billion project would support roughly 6,800 construction jobs that would collectively pay a projected $650 million in wages, which in turn, the company says, would fuel an estimated $830 million of economic activity. Like the Atlantic Coast Pipeline, NEXUS would move gas from the prolific Marcellus and Utica shale gas region to high-demand markets, though in this case, it would transport gas from Ohio to Michigan.
Initially, Enbridge expected to receive FERC approval for the project in the first quarter of this year, which would have positioned the company to put it in service by the end of 2017. However, given FERC's inability to approve the project, Enbridge might not even start construction this year.
In addition to NEXUS, Enbridge is a stakeholder in the $1 billion PennEast project, which is also on hold because of the political infighting. The project, which would move gas from Pennsylvania to New Jersey, has the potential to support more than 12,000 jobs while saving Garden State consumers $830 million per year on their energy bills.
In short, the holdup at FERC is delaying a big wave of economic activity.
Investor takeaway
Not only is this political infighting preventing tens of thousands of shovel-ready jobs from getting filled and holding back hundreds of millions of dollars in energy-related savings, but it's also delaying the impact these projects will have on the cash flow of the companies developing the pipelines. For example, Enbridge is currently undergoing a building boom that it anticipates will fuel 12% to 14% compound annual growth in its cash flow through 2020, which should support 10% to 12% annual dividend growth through 2024. However, continued delays in NEXUS and PennEast are likely to push back the in-service dates of those projects and cause a ripple effect by delaying the associated cash flows that would support dividend growth. That could affect investors, who might not see the income growth they're expecting Enbridge to deliver over the next few years. It all ultimately serves as a reminder to investors that political infighting is a risk they can't take too lightly.
