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The Virginia Mountain Valley Pipeline Boondoggle

Two pipelines– the Mountain Valley Pipeline (MVP) and the Atlantic Coast Pipeline (ACP)—now being constructed in Virginia have been the source of massive controversy.

This article will deal with the MVP, saving the equally controversial ACP for future discussion.

The MVP consists of 304 miles of pipelines (with an additional 8 miles) that will transport natural gas by connecting new and existing pipelines throughout the southern Virginia-northwestern West Virginia region.

Construction is currently underway, as are legal challenges to the project, which was approved by the Federal Energy Regulatory Commission (FERC) in October 2017.  FERC voted 2-1 that the pipeline’s public benefits will offset any negative impacts.

Those undertaking the project were also required to convince FERC that market demand exists for the gas conveyed by their pipeline.

FERC ruled that there was a market demand for the gas, by basing its ruling on contracts made between the pipeline’s owners and its shippers, overlooking the fact that both entities are part of the same corporate structure.

(There are shades here of the Enron “cooking the books” boondoggle, where inflated, and ultimately fictional, profits were “generated” simply by shifting money from one wing of the corporation to another.  After its collapse, Enron’s CFO spent years in jail for devising “ghost” subsidiaries whereby money transferred from Subsidiary X to Subsidiary Y counted as an asset-gain in the latter’s accounts (and thus Enron’s overall), even though no “gain” was actually generated.  A former Wall Street banker who decided to become an academic in the humanities by doing a PhD in my department at Duke described such ruses to me as “postmodern accounting”.)

This aspect of corporate structure was latched onto by opponents of the pipeline, who contended in court that since these contracts between the pipeline’s owners and its shippers were really between wings of one corporation (Mountain Valley Pipeline LLC), they were not based on genuine negotiations between two independent parties that would have shown a viable market taking public need seriously into account.

These intra-corporation contracts were, in effect, the resultant of “postmodern accounting”?

The case is now before a 3-judge panel of the US Circuit Court of Appeals for the District of Columbia (aka the DC Circuit), which has in the past tended to side with FERC in its judgments.

The judges at the court hearing appeared to side with the lawyers for FERC and MVP when the latter countered the pipeline’s opponents’ argument (regarding MVP’s alleged failure to demonstrate a genuine market need for the pipeline) by saying MVP would never have invested $4.6 billion in the project unless it was convinced a market existed for the gas pumped through the pipeline.

The Roanoke Timeshas provided excellent coverage of the pipeline controversy, and reportsa key exchange between the judges and the attorney for the pipeline’s opponents during the court hearing:

“They’re putting skin in the game, which tends to show they are using their best judgment about future demand,” Judge Gregory Katsas said in one of several questions put to Luckett (the attorney for the pipeline’s opponents).

And the pipeline’s capacity is fully subscribed to the Mountain Valley shippers, is it not? asked Judge David Tatel.

Yes, Luckett responded, but 80 percent of the end users — the homeowners, businesses or power plants that will actually burn the gas — have yet to be identified and are based solely on speculation.

That may be so, Judge David Sentelle interjected, but the Mountain Valley shippers “are purchasers. They are buyers. They are creating a demand for the gas that is passing through the pipeline.”

The judges will issue a written decision within 3 to 6 months.

Judge Katsas seems seriously ignorant of the history of capitalist enterprises, when countless entrepreneurs have “put skin in the game” only to bankrupt themselves and have the public pick up the tab for their ensuing failures.

Plenty of boondoggles have involved people with “skin” in this or that game.

WorldCom had a market capitalization of $175 billion (alas all due to the dot.com bubble) when it went belly-up in 2002.

Many had “skin in the game” when General Motors and Chrysler were driven into bankruptcy in the last decade.

Katsas may perhaps need to read Capitalism for Dummiesbefore he writes his decision.

Judge David Sentelle appears to believe in a version of the utterly discredited Say’s Law (“supply creates its own demand”), judging by the interjection he directed at Attorney Luckett.

Sentelle may perhaps need to read Economics for Dummiesbefore he writes his decision.

Any judge who accepts that a genuine market transaction occurs when Division X “sells” to Division Y of the same corporation is likely to confirm the adage that the law is an ass.

This would be akin to my insisting that a genuine exchange occurs when I move coins from the left pocket to the right pocket of my coat.

Furthermore, MVP started to fall foul of regulators the moment work began on the pipeline a year ago.

MVP has been cited for violations of Virginia’s Stormwater Management Act, over problems with runoff from land clearance causing erosion and sedimentation. To quote The Roanoke Times:

A lawsuit filed by Virginia’s Department of Environmental Quality accuses construction crews of breaking the rules more than 300 times in the six counties — Giles, Craig, Montgomery, Roanoke, Franklin and Pittsylvania — through which the pipeline will pass.

Mountain Valley has also lost two permits awarded by federal agencies following FERC’s initial approval of the pipeline.

MVP is now having to reapply for these permits. Whatever the outcome of this reapplication, there is furious and entirely understandable opposition to the project.

Local people have had their land seized by the government without right of appeal, under the “eminent domain” process, for the construction of a pipeline whose sole known beneficiary will be a private corporation.

Protesters on these seized tracts of land have camped in tree-tops to halt construction.

The pipeline will traverse a region of outstanding natural beauty, cutting across national parks including the Jefferson National Forest in Virginia and West Virginia and the Appalachian Trail.  It will pose a threat to the streams, rivers, and drinking water of this area, as well as its forests, endangered species, and fisheries.

A clue to the presence of these risks is afforded by the fact that the National Forest Service, in order to accommodate the pipeline, lowered its standards for water quality, scenic impacts, and destruction of canopy within the Jefferson National Forest.

Also to be taken into account are the safety risks posed by leaks and explosions from the pipeline. Living in one of the counties affected by the pipeline I drive frequently through small towns with designated “explosion risk zones” cutting right through them.

Economic gains are of course touted by supporters of the pipeline (including the corporate Democrat governor of Virginia, now in deep trouble over another issue involving a racist past), such as more jobs, enhanced tax revenues, and increased local spending.

To be fair, there have already been gains from tax revenues, but the other supposed gains have yet to transpire.

At the same time, the viable economies of small towns are already being threatened in a serious way, not least because property values in places adjacent to the pipeline are falling, in some cases precipitously, especially those right next to an ““explosion risk zone”.

Communities established over the course of a couple of centuries or more are being destroyed, in the name of “gains” that in the main are merely projected.

The pipeline, whose lifetime is entirely contingent on the vagaries of the fracking industry, will almost certainly become surplus to requirements many decades fewer than it took to fashion these long-established functional communities.

And nothing has been said so far of the costs incurred by any despoliation of the region’s ecosystem.

These communities are being ridden-over roughshod by a something chronic in the US today, namely, government of the corporations, by the corporations (admittedly by surrogacy), and for the corporations.

This corporatocracy privatizes profit and “socializes” risk, so there is thus no other word for it: in the land of the free, the American people, in this case the citizens of Virginia and West Virginia, are in essence being told to go f— themselves.