Originally published for customers August 12, 2022.
What’s the issue?
As part of his agreement with Senator Schumer to support passage of the Inflation Reduction Act, Senator Manchin also claims to have struck a separate deal with Senator Schumer, Speaker Pelosi and President Biden to enact a permitting reform bill by the end of September.
Why does it matter?
So far, we only have a term sheet of the provisions that Senator Manchin says will be included in this permitting reform bill. But almost everyone agrees that if we are going to evolve our energy systems here in the U.S., reforms will be needed.
What’s our view?
While the term sheet certainly has some intriguing ideas in it, we do not believe it will either be a cure-all for traditional energy projects or even for just the projects needed for an energy evolution in the coming decades. While it is a good start, much more needs to be done.
As part of his agreement with Senator Schumer to support passage of the Inflation Reduction Act (IRA), Senator Manchin also claims to have struck a separate deal with Senator Schumer, Speaker Pelosi and President Biden to enact a permitting reform bill by the end of September. So far, we have only a term sheet of the provisions that Senator Manchin says are included in this permitting reform bill. But almost everyone agrees that if we are going to evolve our energy systems here in the U.S., reforms will be needed.
While the term sheet certainly has some intriguing ideas in it, we do not believe it will be a cure-all for traditional energy projects or even for just the projects needed for an energy evolution in the coming decades. While it is a good start, much more needs to be done.
Because the IRA was passed through the Senate under the rules for a reconciliation bill, matters that did not involve spending or taxes could not be included in that bill. Therefore, permitting reform had to be kept out of that bill, but was apparently a key component to getting to a deal with Senator Manchin. As we explained in Manchin Strikes a Permitting Reform Deal That Also Fast Tracks MVP Construction, it appears that Senator Manchin realized that passing such a bill as a stand-alone measure would be difficult, so he also supposedly received assurances that it would be included as part of some “must-pass” legislation to be considered by Congress before the end of September.
To date, all we have is a one page term sheet for what was discussed between the parties, which contains seven key components:
We discussed the last item in Manchin Strikes a Permitting Reform Deal That Also Fast Tracks MVP Construction, and will today discuss the three that with some tweaks would be the most important for interstate pipelines, which would be making changes to the Clean Water Act, addressing litigation delays and clarifying FERC authority.
Beginning with the Constitution Pipeline project, which was approved by FERC in 2013, states like New York and New Jersey have been using the authority granted to them under section 401 of the Clean Water Act to delay or kill FERC-approved pipeline projects. But section 401 has also been used, or some would say abused, to block other projects, such as hydro projects, and some fear it will be similarly used to block electric transmission lines. The term sheet appears to address these perceived abuses by making a number of provisions clearer in the existing statute.
As proposed in the term sheet, the revision to the Clean Water Act would require applicants for a water quality certificate to include in the request they file with the states and tribes any available information on potential water quality impacts from their projects. But, it would also require each state or tribe to adopt clear requirements for what else must be included in an application, or else adopt federal standards for such requests. The states and tribes would be limited in their review to determining a project’s compliance with previously adopted water quality standards. It would make clear that the states and tribes must take one of four actions on the request within one year after it is received: issue the certificate; issue it with conditions; deny the request; or waive the state’s or tribe’s authority to act. Finally, to avoid gamesmanship around this one-year time limit, it would prohibit the states and tribes from requesting an applicant to withdraw a request, or to stop/pause/restart the one-year clock.
Many, but not all, of these changes have already been imposed by various courts around the country. Amending the statute to adopt these legal interpretations would put projects in all parts of the country on an equal footing. Environmental purists act like this is a radical departure from the current law and some in the industry promote it as a cure-all for prohibiting states from blocking projects that they don’t like. We view it as neither. But stopping the courts in various parts of the country from putting their own stamp on the statute’s language would be a great benefit by bringing certainty that does not currently exist.
The early poster child for this concern was also the Constitution Pipeline project, which we discussed back in 2019 in Constitution’s Baaack — Litigation Lessons for ACP/MVP and Others. As we noted then, the litigation phase of that project had taken almost as long as the permitting phase and the delay eventually killed the project. Similar litigation delays ultimately doomed Atlantic Coast Pipeline and PennEast, and now threaten to do the same to Mountain Valley Pipeline.
The term sheet addresses this concern in two ways: by setting a statute of limitations for court challenges to any required permit and requiring any court that remands or vacates a permit to set and enforce a reasonable schedule for the reissued regulatory action, not to exceed 180 days. It also addresses a concern that has only arisen in the Fourth Circuit with regard to the Atlantic Coast Pipeline and Mountain Valley Pipeline projects. A somewhat unique provision in that court’s operating procedures, which typically assigns a newly filed case to a randomly selected panel of three judges, has been interpreted by that court as requiring all cases involving all permits for these two projects to be assigned to the same panel of judges. The term sheet would require all appellate courts to use random assignment for all future appeals.
The setting of a statute of limitations is only helpful if the time period is very short, like perhaps only 60 days, and which would run from the date a permit is issued. Statutes of limitation even as short as one year would still allow gamesmanship in the filing of appeals to coincide with a project’s start of construction. Also the random assignment of judges seems to be a fairly limited problem, but one that would seem worthy of fixing, if for no other reason than to restore the Fourth Circuit’s reputation as a non-political institution.
But we would suggest as well that the legislation set time limits for the appellate review of the challenges to these permits. The slow pace of appellate review can be a death knell for a project that likely has already been through a lengthy regulatory review phase. The recent challenges to aspects of Mountain Valley Pipeline and Atlantic Coast Pipeline show just how long these cases can linger at the appellate level.
As seen above, the time for the courts to reach a decision on various appeals involving just these two projects ranges from a low of 149 days to a high of 617 days, with a median of 311 days or about ten months. Such lengthy reviews can create tremendous uncertainty for projects that typically try to complete construction within one year following FERC approval. Perhaps the proposed bill could also include a deadline of 180 days for the appellate review of these permits, just as it is proposing such a limit for the reissuance of permits that are vacated by the courts.
At a recent Senate Energy and Natural Resources Committee hearing there was some debate by the witnesses over whether and how to regulate the transportation of hydrogen. One witness was suggesting the more light-handed regulatory approach used for oil pipelines under the Interstate Commerce Act, while others were recommending regulation more like that for natural gas pipelines under the Natural Gas Act. The term sheet doesn’t tell us much about what was agreed on with regard to the proposed regulatory regime because the entire statement about hydrogen is simply: “Clarify FERC jurisdiction regarding the regulation of interstate hydrogen pipeline, storage, import, and export facilities.”
We suspect that the clarification will be one that is more consistent with the Natural Gas Act because, as many witnesses noted, hydrogen can already be blended into the natural gas pipelines at percentages of up to about 20%. We have previously noted that ability under existing tariffs in Is Blending Hydrogen with Natural Gas Already Allowed on Northeast Pipelines? However, if the bill revises the Natural Gas Act to make it clear that it also includes hydrogen, both in blended and pure forms, we would hope that they take time to “clarify” FERC’s authority to consider upstream and downstream greenhouse gas impacts of the pipelines being approved. Just as it makes little sense for FERC to have the authority to deny a certificate for a pipeline under the guise of climate change for doing what it is intended to do, which is deliver natural gas, it should also not be within FERC’s authority to deny a certificate for a hydrogen line because three FERC commissioners dislike the method used to produce the hydrogen. If that clarification is made as part of this statute, then it will be the most significant provision of the whole permitting reform bill.
We still have not seen the actual language of this proposed bill. As we noted above, Senator Manchin has indicated that he has an agreement to include the proposed measure in some sort of “must-pass” legislation such as a continuing resolution to keep the government operating through the elections this Fall. That would avoid the need for him to wrangle the necessary sixty votes to pass it in the Senate if it were a stand-alone measure. There is great skepticism about the extent of the “agreement” between the four principals, Senator Manchin, Majority Leader Schumer, Speaker Pelosi and President Biden, and many suspect the other three may eventually find a way out of the agreement. For now, though, we wait for the bill’s language and will monitor the process as it unfolds between now and the end of September. Before then, however, we also don’t expect any hearings to be held on Chairman Glick’s renomination until the fate of this bill is known.