FERC May Tip Its Hand on Certificate Policy Statement Changes

What’s the issue?

FERC has embarked on a review of its 1999 Certificate Policy Statement and has asked to receive all comments by April 26, 2021, although the industry has requested that the date be extended to June 10, 2021.

Why does it matter?

Changes to the Certificate Policy Statement will likely determine how difficult it will become to obtain a certificate from FERC going forward and will have a tremendous impact on the industry for decades.

What’s our view?

While the Certificate Policy Statement is critical, the commissioners may tip their hands on a number of key issues when FERC rules, perhaps as early as next month, in another proceeding it launched in January. In that proceeding, FERC is reviewing its practices with respect to issuing notices to proceed with construction following the issuance of a FERC certificate and has said it intends to rule in that case no later than May 3. The industry is looking to narrow a rule issued last year, but opposition groups and the FERC questions about that rule may broaden its impact and will likely be an early indicator of the views of individual commissioners on critical issues that will be addressed in the Certificate Policy Statement.


 

At its February meeting, FERC reissued a Notice of Inquiry asking for input on its 1999 Certificate Policy Statement. The revised Certificate Policy Statement is expected to govern all aspects of the process used by FERC to review and approve applications for the construction and operation of natural gas pipelines into the future and perhaps for decades to come. It will be critical to the future of the industry, and for that reason, the industry filed a request to extend the deadline for comments from April 26 to June 10. FERC has not yet ruled on that extension request, but we would expect it to be granted.

However, before it ever asked for comments on the Certificate Policy Statement, and in one of the first orders issued by the Commission following his elevation to the chair, Chairman Glick issued an order in January in which FERC asked for additional input on a rule it had issued during Chairman Chatterjee’s tenure. This rule limited FERC’s ability to issue notices to proceed with construction of pipeline projects while rehearing requests of the certificate order were pending. We discussed this instant rule soon after it was issued in FERC’s New Regulation That Will Lengthen Project Timelines.

The industry challenged that instant rule, and in response, on January 26, FERC issued an order that did not really address any of the challenges but instead solicited further briefing from all stakeholders on questions that actually would broaden the scope of the existing rule. The order also solicited comments on whether FERC should modify its practices or procedures to address concerns regarding the exercise of eminent domain while rehearing requests are pending before the Commission.

The briefs have all been filed and today we look at how those arguments may lead the commissioners to reveal their views on some critical issues that are likely to be addressed in the revised Certificate Policy Statement -- but which may come into play even sooner than that if the chairman changes the Commission’s practices with or without a rule like the one being considered in the instant rule proceeding.

FERC Practice Prior to June 2020

To understand how significant the questions are that the parties are discussing in response to the FERC’s request for briefing on the instant rule it issued in June 2020, it is necessary to understand what FERC was doing before that instant rule was issued and how its practices have changed since then. Prior to June 2020, FERC had for years issued conditional certificates of public convenience and necessity. These certificates were conditional because they were almost always issued prior to the time the applicant had all of the property rights and permits needed to complete the project. This was the case because it was often necessary for the pipelines to use eminent domain proceedings to gain access to properties of objecting landowners. These proceedings were necessary to complete the studies needed to support other permit applications required to commence construction and obtain the property rights necessary for the permanent placement of the pipeline on landowners’ property.

In the conditional certificate, FERC delegated to its staff the obligation of determining when to allow various activities to move forward after confirming that all other required permits for those activities have been obtained. It was FERC staff’s practice to grant this authority in increments as the necessary approvals were obtained. So, for instance, if an activity, such as setting up a wareyard, did not require any additional permits, FERC staff would allow that process to begin based solely on receipt of the certificate. Similarly, if one aspect of the project, such as construction of a compressor station, could commence before the permits for the pipeline portion of the project were obtained, FERC staff would allow full construction of the compressor station to commence.

While FERC staff was exercising its delegated authority under the certificate, there were usually two legal paths proceeding in parallel. First, the issuance of the FERC certificate, even if it was conditional, gave the applicant the authority under the Natural Gas Act to condemn any property rights necessary for the approved project. This condemnation right allowed the project sponsor to gain access to the properties that it had been unable to obtain by voluntary transfer to complete any studies required to complete applications for permits needed to commence construction. But the condemnation actions also generally allowed construction to begin on those properties if FERC staff had authorized such work under the delegated authority in the certificate.

The second parallel path was the appeal process for the FERC certificate itself. Following the issuance of the FERC certificate, any party has thirty days in which to file a request for rehearing. FERC then, purportedly, had thirty days in which to rule on that rehearing request, but typically issued a “tolling order” which extended that deadline indefinitely. Because a party appealing the FERC decision cannot do so in the courts until FERC rules on the rehearing request, this indefinite delay meant that parties objecting to the FERC certificate were barred from challenging the FERC certificate in court. However, FERC staff could allow construction to begin, and in many times be completed, prior to FERC actually ruling on the rehearing request. It is this “inequity” that FERC attempted to redress in the instant rule it issued in June 2020.

What the Instant Rule Said

The instant rule that FERC issued was very short. It provides simply that:

“With respect to orders issued pursuant to 15 U.S.C. 717b (LNG Terminals) or 15 U.S.C. 717f(c) (projects approved under Section 7(c) of the Natural Gas Act) authorizing the construction of new natural gas transportation, export, or import facilities, no authorization to proceed with construction activities will be issued: (a) until the time for the filing of a request for rehearing under 15 U.S.C. 717r(a) (which allows for up to 30 days for such requests) has expired with no such request being filed, or (b) if a timely request for rehearing is filed, until the Commission has acted upon the merits of that request.” (Parentheticals added.)

This rule was generally viewed as creating a minimum of a thirty-day delay in FERC staff’s ability to issue a notice to proceed with construction as FERC awaited any rehearing requests.

 

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As seen above, based on the past practices of FERC staff, a thirty-day delay in the notice to proceed with construction would have impacted a substantial portion of all projects approved in the decade leading up to the issuance of the instant rule. If one assumes that FERC would revise its behavior and start issuing merits decisions within thirty days, that would mean a minimum of a sixty-day delay in the issuance of notices to proceed with construction, which would have impacted even more projects.

However, as we suspected at the time, FERC has not been able to modify its past practices to issue merits decisions within 30 days, and has instead taken to issuing a notice on the thirtieth day that states that the rehearing request “may be deemed” denied and then indicates whether FERC intends to revise its order or let it stand. If a project applicant gets a notice stating that FERC intends to rule on the merits at a later date, it would appear that the instant rule would prohibit FERC staff from issuing a notice to proceed with construction until that order is issued, which, given past FERC history, could be many, many months later.

The U.S. Court of Appeals for the Second Circuit recently ruled that a party that seeks rehearing and receives one of these notices can choose to either appeal immediately following the issuance of the notice or wait until the revised order is issued. The risk of waiting, however, is that if FERC changes its mind and does not issue a revised order, the party that sought rehearing may miss the filing deadline for its appeal to the courts.

How FERC May Proceed From Here

FERC asked a wide range of questions in the order it issued in January and has received an equally wide range of responses, from recommending repeal of the instant rule to requests to broaden and expand it so that it lasts even longer, and includes limits on the use of eminent domain while rehearing requests are pending. Given the questions asked, the presence of the two Democratic commissioners, and the fact that Commissioner Chatterjee issued the original rule while he was chairman, we do not expect the rule to be repealed. We do however expect some refinements, like adding references to the two types of notices that FERC now routinely issues in cases where rehearing is requested and defining exactly what activities cannot be authorized by FERC staff during the pendency of the rehearing requests.

At a minimum, we would expect the following to be included in any future refinement of the rule. First, we expect the revised rule to define the nature of the construction activities that are restricted to include anything that requires tree clearing or ground clearing on any land that is not under the voluntary control of the project sponsor, but would not include use of commercial properties currently disturbed or activities on property owned in fee by the applicant. The prohibition would certainly extend for the first 30 days following the issuance of the certificate, and if a rehearing request is filed by anyone other than the applicant and those in favor of construction starting, such as the shippers on the project, then the prohibition would continue until FERC issues the notice 30 days after the rehearing request ends. If the notice indicates that FERC intends to revise its initial decision, we would expect the prohibition to continue until that order is entered or FERC indicates that it has changed its mind and will not be revising the original order.

Possible Areas for Expanding the Order and How That May Impact the Certificate Policy Statement

In a rehearing order issued earlier this week with regard to Mountain Valley Pipeline, Chairman Glick and Commissioner Clements dissented on the grounds that FERC should not be in the business of “piecemeal” approvals of activities and that all construction should be barred until all permits for the entire project are obtained and in force. This position is similar to ones taken in some of the comments filed in this proceeding, which urges the Commission to either stop issuing conditional certificates entirely or to prohibit construction until all other required permits are obtained.

Whether the two Democrats can persuade one of the Republicans to join them on this issue is an open question. Commissioner Danly certainly would not, but Commissioner Chatterjee may be persuaded if the limit applied only to properties involved in an eminent domain proceeding. It appears that Commissioner Chatterjee’s main concern is with the impact on such landowners and he may be persuaded to broaden the prohibition to include all activities on land subject to eminent domain until all permits for the entire project are obtained and the time for rehearing has passed.

The other variation of this theme is that many of the opponents to projects have suggested that FERC issue a stay of the certificate until all rehearing requests have received a merits decision. While the industry has argued a blanket stay request in a rule would not be legal, we could certainly see the Commission indicating that it would entertain stay requests of the certificate to prohibit eminent domain from proceeding while the rehearing requests are adjudicated. Again, given Commissioner Chatterjee’s concern for landowners, he may be persuaded to join such a statement.

The final concern that arises from the comments filed in this proceeding is that the industry has made persuasive arguments that it would be illegal for the Commission to stay construction while other permits are obtained, or to stay the FERC certificate while the rehearing process is completed. These arguments, however, may lead Chairman Glick to an even worse position in that he simply may choose to no longer vote on a project’s certificate until it has received all required permits to begin construction. Certainly, since he has taken over the chairmanship, there have been no expansion projects that have received a vote, even though many of them would appear to be ready for such a vote.

 

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As seen above, there are a number of expansion projects that have completed their environmental review but have yet to receive a vote. Even simple projects with little opposition, like WBI Energy Transmission’s Bakken Expansion Project, which recently filed a letter asking FERC to rule on its application, have not yet been voted on. It is hard to see how the industry would fight such a tactic because, as one opposition commenter noted, there simply is no time deadline for a FERC certificate. WBI asked for a decision by the date of April’s open meeting, and if it does not get a vote at that meeting, it could be a very troubling sign.

If you would like to discuss in detail the comments FERC has received with respect to this rule, please contact us.

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