Smart government
Are New England’s High Energy Costs Hurting Business?
Christopher Helman and Daniel Fisher | August 10, 2015

Why has economic growth slowed in parts of New England? There are a number of reasons, but the region’s high energy costs sit high atop that list. This piece, which was originally published in Forbes, explores that phenomenon, as it looks to trace the origins of these skyrocketing costs.

The magazine’s investigation reveals how convoluted regulations and warring special interest groups are colliding to drive uncertainty and disrupt large swaths of New England’s economy.

For more than 50 years Onyx Specialty Papers of South Lee, Mass. has carved out a niche selling unusual, high-value products like the Kevlar-reinforced paper used in automobile clutch plates. The company’s twin 100-foot-long paper machines sit in a 150-year-old brick building on the Housatonic River, churning out 12,000 tons of paper a year.

Pat Begrowicz and a business partner bought Onyx from industry giant Mead Westvaco in 2009. She cashed in her kids’ college funds to do so. Now she’s wondering whether that was such a great idea. The problem isn’t labor (starting pay for manufacturing jobs at her 155-employee company is $20 an hour) or even raw materials costs or markets. It’s energy.

Massachusetts has the third-highest electricity costs in the lower 48 states, after Connecticut and Rhode Island. Begrowicz pays about 14 cents per kilowatt-hour, more than double the national average of 6.5 cents. As a result, she figures she pays $1.2 million a year more than she needs to in order to run her machines. She takes a hit on natural gas as well, which Onyx burns to produce steam for the big revolving steel cylinders that dry the paper pulp slurry. Gas prices in Massachusetts, which also drive the high cost of electricity, are two times higher (about $11 per thousand cubic feet) than the national average. “I can’t recoup it,” she says, shaking her head.

The painful irony, of course, is that America sits in the midst of a historic natural gas boom that has seen prices plunge more than 75% since 2008. Just 200 miles to the southwest of South Lee lies the Marcellus Shale natural gas field of Pennsylvania, the biggest in America. From nothing a decade ago the Marcellus now produces 16.5 billion cubic feet of natural gas per day, about 20% of the national total. Pipeline companies are itching to extend their lines to bring plentiful gas into Massachusetts; Kinder Morgan KMI +0.87% has already signed up long-term buyers for the gas it would haul in via its stalled $3.3 billion Northeast Direct line.

But that’s not going to happen, at least not anytime soon. Despite the fact that Western Massachusetts’ GDP plunged 3.6% from 2007-13 (while the U.S. overall expanded 5.6% over the same time), opposition by small, well-organized groups to any new pipeline remains as ferocious as it is irrational. “We want to prevent the overbuilding of gas infrastructure and overreliance on gas, for economic reasons and climate reasons,” says Kathryn Eiseman, head of Massachusetts PipeLine Awareness Network advocacy group. Yet thanks to her group and others like it, in January 2014 New England’s power companies, lacking gas to make electricity, resorted to burning 2.7 million barrels of emergency fuel oil–more expensive and far more toxic, pumping out twice as much carbon dioxide as natural gas. So much for “economic and climate reasons.”

Call such irrationality the NIMBY tax–the unnecessary, exorbitant and more and more common cost of getting anything done in America. From subways to bridges to power lines and pipelines, the nation’s land, water and key infrastructure is increasingly being held hostage by a growing thicket of regulation, sophisticated opposition and a me-first philosophy that regards development, no matter the public good, as a potential assault on the sacred. From housing construction caps in San Francisco and the Keystone XL pipeline in Nebraska to bridge and subway construction in New York City and port expansion in Savannah, Ga., NIMBY has delayed, killed or inflated the expenses of more than 500 projects nationwide over the last decade at a cost to the economy of more than $1 trillion annually, FORBES conservatively estimates, though in truth those numbers are likely far higher.

The problem is being exacerbated by a furious wave of regulation-writing inWashington. According to the Government Accountability Office, the Obama Administration enacted 499 major rules across all federal agencies in its first six years, up 43% from the first six years of the George W. Bush White House. The GAO defines “major” regulations as having an annual effect of more than $100 million on the economy or significant impacts on prices, productivity, employment or international competitiveness. This summer, new regulations issued by the Environmental Protection Agency expanded the waterways over which it has some say by 4.6 million miles, infuriating landowners across the nation.

“What has happened by accident is that the legal approval system has evolved to be so complicated that any person who doesn’t like a project can exercise a legal veto,” says Philip K. Howard, whose new book, The Rule of Nobody, documents the madness. The effect, Howard says, is “bureaucratic mental illness.” It’s the kind of sickness that now threatens a country that was once defined by advancement and progress.

Of course, it was not always like this. From the global trade booms brought about by the Erie and Panama canals to Depression-era electrification programs that lifted millions of Americans out of poverty and darkness to the rollout of the Interstate Highway System, which transformed the country into a single, seamless economy, the history of the United States was once the history of watershed infrastructure projects, completed quickly, and the opportunities they created.

But by the 1960s the pendulum had swung too far, most famously in New York, where an unparalleled public construction boom driven by the Triborough Bridge & Tunnel Authority’s bare-knuckle chairman, Robert Moses, overshot the mark, destroying neighborhoods and rending the city’s social fabric, igniting a revolt against the bulldozer-driven “urban renewal” movement of the time.

Meanwhile, Americans woke up to the reality that rampant industrialization was destroying the environment. In 1962 Rachel Carson published Silent Spring, which led directly to the banning of the toxic pesticide DDT. In 1963 the Clean Air Act was passed in part to alleviate L.A.’s noxious smog. In 1970 President Richard Nixon created the Environmental Protection Agency. That same year was the first Earth Day. In 1978 toxic horrors were discovered under a new housing development at Love Canal, N.Y., leading to the 1980 creation of the Federal Superfund program to clean up industrial disasters. That same year marks the first recorded usage of the phrase “Not in My Backyard.”

It didn’t take long for newly minted NIMBYs to realize the tools they had been handed. The law that created the EPA required all sizable federal project plans to include an environmental impact statement. Courts decided that it wasn’t enough to declare what the impacts would be–agencies also had to inform the public on how they intended to address those impacts. The problem, though, is that every agency can weigh in on environmental impacts, but no single agency has authority over the process, allowing environmentalists to litigate over every word in every impact statement. Richard Geddes of the American Enterprise Institute says one local transportation official told him that “if I take $1 of federal money for a state transportation project, it can add 11 years to the process.”

Forty-five years later the unanticipated result is a sophisticated NIMBY-industrial complex of activists and lawyers that has grown increasingly proficient at weaponizing all this well-intended regulation to stall even green projects and explode their costs.

Take Vermont, where New England NIMBYs sought to block an electric transmission project that would bring zero-carbon hydropower to the region from Canada. The plan, proposed by the company Transmission Developers, owned by Blackstone Group, is to build a 1,000-megawatt line under Lake Champlain to Ludlow, Vt., where it would patch into the grid near the decommissioned Vermont Yankee nuclear plant (closed in 2014 due to pressure by activists who–you guessed it–didn’t want a reactor operating in their backyard).

But if you think subbing hydropower for nuclear power would satisfy the region’s NIMBY forces, think again. Boston’s Conservation Law Foundation intervened because of the plan’s “impact on the aquatic environment” and potential competition with renewable projects in New England. Greg Cunningham, CLF vice president and director of its Clean Energy and Climate Change program, explains that hydropower “is not a zero-carbon resource, so that needs to be accounted for.” Dams, he says, create sediments that release higher levels of CO 2 in their early years, and the land behind the dam needs to be clear-cut of CO 2 absorbing trees to make way for the reservoir. Faced with the potential for endless litigation, Transmission Developers CEO Don Jessome cut a deal with the NIMBYs: Drop your opposition and in return we will invest nearly $300 million over 40 years on Conservation Law Foundation pet causes like solar and wind.

This group offers a perfect example of the sophisticated way the NIMBY industry works today. While it doesn’t stand to make any money directly from this settlement unless Transmission Developers violates its terms, that’s hardly the norm for this lawyer-driven organization, which frequently sues small businesses for alleged violations of environmental laws. A scan of federal court records shows it has filed 14 such suits in the last two years and more than 100 since 1987, including a string of cases against marinas, used-car lots and other companies the Conservation Law Foundation accuses of polluting lakes and rivers. In most cases the foundation initiates the complaint based upon an aerial inspection and negotiates a “consent decree” filed with the court under which the nonprofit agrees to drop its charges in exchange for tens of thousands of dollars in legal fees payable to it and similar-size donations to environmental groups it selects.

Most of the targets FORBES contacted declined to talk on the record, citing confidentiality agreements, but one did: John Jalbert, owner of Methuen Motor Mart in Methuen, Mass., who agreed in April 2015 to pay the Conservation Law Foundation $30,000 over three years and another $20,000 in the form of donations to a local group. Jalbert’s crime? His lot is situated next to the Merrimack River, and the foundation determined from a Google GOOGL -0.23% Earth photograph he might be polluting the river with oil and other substances from his cars–even though Jalbert says he has berms to protect against it and the consent agreement doesn’t require him to do anything more than agree not to pollute in the future.

“They came at me like a bulldog,” says Jalbert, even though he says no one from the foundation ever visited his location. (CLF says it did.) He refused to pay additional “monitoring fees” the group ordinarily charges its targets. “Thank God I fought ‘em on that, or they’d be down at my business every year, ringing my bell for money.”

This group and other organizations like Riverkeeper and WildEarth Guardians leverage the “citizen suit” provisions Congress inserted into federal environmental laws to allow neighbors and others to sue over pollution. It can also feel like a shakedown–it’s cheaper, after all, for a small businesses to pay $20,000 to $50,000 in fees to make something go away, rather than fight a small army of environmental lawyers.

“It’s quite lucrative,” says Francis Veale, who represented Jalbert. “They come in under the banner of they’re the white knights, but when you’re going to put a small guy who employs five to ten people out of business, that’s not so good.” Cunningham, of the Conservation Law Foundation, counters that the organization merely ensures adherence to federal environmental laws and sues companies when they are out of compliance with necessary permits.

Lawmakers on both sides of the aisle, and even some activist groups, to their credit, recognize there’s a problem. The American Recovery and Reinvestment Act of 2009 included language that encouraged faster permitting, though there’s little evidence it succeeded. This year Senators Rob Portman (R.-Ohio) and Claire McCaskill (D.-Mo.) introduced the Federal Permitting Improvement Act of 2015, which would streamline the environmental approval process and interagency coordination. The bill has bipartisan support and is even backed by the National Resources Defense Council.

And then there’s the Responsibly and Professionally Invigorating Development (RAPID) Act, which would speed permitting and remove duplicate processes. It passed the House last year. “Everybody agrees that approving critically important economic projects should be simple,” says bill sponsor Representative Tom Marino (R-Pa.).

Even the Supreme Court did its part, ruling in June’s Michigan v. Environmental Protection Agency decision that the agency should not be imposing draconian new air pollution rules (on mercury emissions in this case) without first considering the costs of implementation.

But just as quickly as red tape appears to get cut back, NIMBY lawyers find more ways to tie everything up. The latest legal tactic is so-called Title V litigation, based on a provision of federal law requiring the EPA to approve or deny a clean air permit application within 18 months. The EPA misses that deadline more than 80% of the time, and groups like the Sierra Club and WildEarth Guardians use the delays to try to block gas compressor stations and other critical elements of the energy grid.

Title V “is the basic air permit you need to build anything,” says William Kovacs, senior vice president for environment, technology and regulatory affairs with the U.S. Chamber of Commerce. “That sets in motion how the environmental groups control the EPA,” Kovacs says. “It’s missing the deadline that gives the environmental groups their leverage.” The EPA did not respond to requests for comment.

WildEarth has filed 53 suits in federal court since 2012, including one targeting 13 compressor stations and other gas-processing facilities owned by Anadarko, Whiting Petroleum WLL +5.86% and other companies. The Sierra Club has used Title V suits to try to block permitting for a dozen coal-fired electric plants.

“The battle over fracking upstream is over, so the focus is on the blood vessels now,” says lawyer Michael Krancer, a partner at Blank Rome and former Pennsylvania Secretary of Environmental Protection. “The Achilles’ heel is compressor stations and pipelines. It’s no longer a battle about what’s happening drilling-wise.”

What’s more, the EPA is still adding additional levels of permitting. It recently pushed through the so-called Waters WAT +1.28% of the United States Rule, which basically expands the bodies of water under its jurisdiction from 3.5 million miles to 8.1 million miles, by including streams and ponds that may overflow. The effect of the rule will be to slow projects down while developers figure out complex hydrology.

That’s music to the ears of Tonya Bonitatibus, executive director of Savannah Riverkeeper, who says she is fighting to block Kinder Morgan from developing a natural gas pipeline in Georgia in part because it crosses wetlands and rivers. “When they go to put this pipeline through, what they actually want to do is build a giant trench with a road on top of it. When you cut that bog or swamp in half like that, you essentially kill it. Even if it’s not a spill, there’s still damage.”

Richard Kinder, the billionaire cofounder of Kinder Morgan, insists he’s willing to work with local activists to find a way to make the project work and points out that it will increase environmental safety by getting millions of gallons of jet fuel and diesel off the region’s highways each year, where it is now being shipped by truck. “This will make that whole area more competitive,” he says. “That’s exciting.”

Bonitatibus insists she’s also open to a compromise but doubts it will happen, citing the company’s “arrogance.” “They would probably be further along if they worked within our culture,” she says, arrogantly. “There are ways to go about it. Can they afford it? Probably not.”

Can we afford it? It’s a question 21st-century America needs to start asking itself. And soon.

With additional reporting by Corinne Jurney.

Check out the full piece here: “NIMBY Nation: The High Cost to America of Saying No to Everything.” 

Fueled by legal advocacy groups, cries of Not In My Backyard are quietly costing the United States economy trillions. The ability of America to flourish is at stake.