FERC Majority Blocks the Path Forward for Pipeline Projects

Originally published February 18, 2022.

What’s the issue?

At yesterday’s open meeting, FERC adopted two key policies with respect to the approval of pipeline projects. The first was a substantial revision to its 1999 Certificate Policy Statement. The second policy addresses how FERC will review the greenhouse gas emissions from a proposed project.

Why does it matter?

These two policies will dictate whether any pending cases are eventually approved, but will also likely dictate the terms of approval for all pipeline projects for the next decade.

What’s our view?

We expect both policies will be challenged either immediately or when they are first applied to one of the pending projects. We believe that certain aspects of both policies will eventually be overturned by the courts, but the application to pending projects until that occurs may doom one or more projects with delays and costs that were simply not expected when the projects were originally filed.


 

At yesterday’s open meeting, FERC adopted two key policies with respect to the approval of pipeline projects. The first was a substantial revision to its 1999 Certificate Policy Statement. The second policy addresses how FERC will review the greenhouse gas emissions from a proposed project. These two policies will dictate whether any pending cases are eventually approved, but will also likely dictate the terms of approval for all pipeline projects for the next decade.

We expect both policies will be challenged either immediately or when they are first applied to one of the pending projects. We believe that certain aspects of both policies will eventually be overturned by the courts, but until that occurs, the application to pending projects may doom one or more projects with delays and costs that were simply not expected when the projects were originally filed.

 

Certificate Policy Statement

FERC issued its first and only Certificate Policy Statement on September 15, 1999. It was the subject of a number of rehearing requests that were addressed in a revised policy issued on February 9, 2000, and even that version received additional rehearing requests. The final version of the policy was adopted on July 28, 2000. That policy was the basis for FERC’s actions with respect to pipeline applications for the following twenty years. However, in April 2018, Chairman McIntyre issued a notice of inquiry which sought comments on four key aspects of the policy. As we discussed then in Development or Disruption? FERC Begins Review of Project Approval Process, those aspects under consideration included: (1) how to assess project need; (2) use of eminent domain; (3) assessing environmental impacts; and (4) process improvements. Within ninety days following the issuance of the notice, FERC received almost 3,000 comments in response to the notice of inquiry, but then the whole process ground to a halt.

Presumably, Chairman Chatterjee could have issued a revised policy statement during the time he had a slim 3-2 Republican majority, but he apparently chose not to do that, and instead left that job to current Chairman Glick. Within his first month as chairman, Chairman Glick issued a supplemental notice of inquiry that solicited comments on additional areas of concern to him. We discussed those issues and the comments that were filed in response in The Future of Pipeline Projects at FERC — Reading Between the Lines. As we noted there, FERC received over 150 comments in response to this renewed request, but at a high level, the two extremes are about as far apart as they could be. The industry’s position can best be summarized by the repeated statements in almost every filing by the industry that “significant changes to the Certificate Policy Statement are not warranted.” Conversely, the extreme view on the other side may be best exemplified by the comment filed by a consortium of environmental groups that asserted that “at a minimum, the Commission should presume that there is no need” for new gas infrastructure and require applicants to overcome this presumption “with data and analyses demonstrating that building gas infrastructure serves the public interest.”

With that as a backdrop, we noted that the replacement for Commissioner Chatterjee, which ended up being Commissioner Phillips, would be crucial. Following yesterday’s open meeting, we now know how badly it went for the industry, and the result is that the environmental opposition must be celebrating. Commissioner Phillips fully supported the revisions to the Certificate Policy Statement that were put forward by his fellow Democrats. However, those changes were so drastic that Commissioner Christie described the new policy as not a reasonable update of the 1999 policy, but as the majority’s decision to “assume it has the power to rewrite both the Natural Gas Act and the National Environmental Policy Act.”

The new policy requires the applicant to provide “information about the intended end use of gas to help explain why a project is needed,” which of necessity will call into question every producer-sponsored project across the country and may call into question projects needed for exports of gas either by pipeline or to LNG terminals. The Commission will broaden its consideration under the Natural Gas Act of the benefits and harms caused by a project and, in particular, the harms to environmental justice communities and to the climate (see the following discussion) and will deny an application if the total adverse impacts outweigh the benefits of the project and those impacts are not mitigated or minimized. The revised policy will apply to all pending cases and the applicants will be expected to supplement the record, if necessary. All stakeholders will have the opportunity to comment on any additional information filed, which will just further delay all of the pending cases.

 

GHG Emissions Policy – Major Challenges

While Chairman Glick waited to get a Democratic majority on the Commission, he also held a technical conference “to discuss methods natural gas companies may use to mitigate the effects of direct and indirect greenhouse gas emissions resulting from Natural Gas Act sections 3 and 7 authorizations.” As we noted in FERC Democrats Seek to Assume Role of Carbon Emissions Regulator, the industry basically took the position that the Commission had no authority to regulate upstream or downstream greenhouse gas emissions, but the environmental groups argued that not only do they have that authority, but that they must factor the climate impact of such emissions into the calculus for whether a single pipeline project is in the public interest.

After yesterday’s meeting, the Commission adopted what was described as an “interim” rule on ghg emissions, but Commissioner Christie stated that it is such “a confusing mess of a policy that the majority sticks an interim label on it.” But he warned that no one should be confused by that label because, like the revised Certificate Policy Statement, it will be applied immediately by the Commission to not only all future cases filed, but to all of those currently pending.

Perhaps the only clear demarcation in the new ghg policy is that the Commission has determined that any project with projected ghg emissions from both its operations and downstream uses that exceed 100,000 metric tons of carbon dioxide each year will be presumed to have a significant impact on the human environment. That presumption, which would apply to any project designed to transport more than about 5,000 dth/day of gas, will mean that all such projects will subjected to a full environmental impact statement rather than an environmental assessment, and will be expected to propose mitigation for all such impacts to reduce or offset those emissions to below that level. However, as Commissioner Danly indicated, any effort to do so does not mean the project will win approval. As he put it, the Commission’s new policy basically is to tell a project developer to “go off and conduct as much mitigation as you can, come back, and we will tell you if it's good enough or not. And oh, by the way, whatever it is you try, even if it's pretty good, we may still make as a condition of your certificate . . . further mitigation, which when you [are] given the certificate, you may find that the economics of the project have been so drastically altered that you cannot accept the certificate as conditioned.”

 

Pending Projects

A quick look at our platform shows there are a number of projects that will need to go off and do as Commissioner Danly has suggested, even though they have been waiting for a certificate for some time.

 

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All of the above projects exceed the 5,000 dth/day threshold for having a presumed significant impact on the environment and so will need to re-justify not only the need for their project under the new standards, but also propose mitigation measures sufficient to reduce their annual projected emissions, both operational and downstream, to below 100,000 metric tons per year.

There is another raft of projects awaiting the completion of their environmental review and they will be the first to be exposed to the full delay caused by the adoption of these new standards in the midst of that process.

 

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Needless to say, we agree with the statement made by Commissioner Christie that it is a false narrative to claim the changes are intended to bring about legal durability to FERC’s certificate orders. Commissioner Christie described that argument as “Orwellian” because the revised policies provide the environmental groups, whose goal is to stop every single natural gas project, with a “broad array of new avenues to attack every certificate this Commission approves.”

If you would like a copy of either of the new policies, please contact us.

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