Manchin Strikes a Permitting Reform Deal That Also Fast Tracks MVP Construction

Originally published for customers August 3, 2022.

Late on Monday, what could best be described as a term sheet was released, putting a bit more substance around a portion of the overall deal that Senator Joe Manchin struck last week with Senator Schumer, Speaker Pelosi and President Biden to advance what is now being called the Inflation Reduction Act. Since the beginning of Biden’s term, the Democrats in Congress have been trying to enact a bill commonly referred to as the Build Back Better bill, but have been stymied repeatedly by Senator Manchin’s refusal to agree to the previous versions.

The Inflation Reduction Act (IRA) is essentially portions of the Build Back Better bill that Manchin, Schumer, Pelosi and Biden agreed on in a surprise announcement last week. Even environmental groups admitted that the bill represents the single largest financial commitment in response to the climate emergency ever. But because it is a compromise with Senator Manchin, there are also incentives in the bill for hydrogen, carbon capture and sequestration, and commitments to continue leasing public lands for oil and gas development if leasing of renewables occurs. However, our focus today is on a single sentence in the one page summary of the agreement about a provision not found in the IRA itself. That sentence notes that the “agreement calls for comprehensive Permitting reform legislation to be passed before the end of the fiscal year.”

The term sheet released on Monday provided additional information about the permitting reform aspects of the agreement and the final portion of that term sheet says simply that it requires all “relevant agencies to take all necessary actions to permit the construction and operation of the Mountain Valley Pipeline and give the DC Circuit jurisdiction over any further litigation.” While such a result would certainly be good news for MVP, the deal is far from being law and there are still some holes in the agreement that could further delay or kill the project if they are not remedied in the actual text of any proposed legislation.

Many Hurdles to Overcome Before Any Deal is Done

The MVP deal is merely part of a much larger permitting reform package and that permitting reform agreement was a condition for Joe Manchin agreeing to support the IRA. Therefore, before MVP sees any benefit from the agreement that Senator Manchin has struck, the IRA must pass and the permitting reform package must also be enacted without having the MVP portions removed from it. Neither of those outcomes is guaranteed.

First, the IRA is being passed through the reconciliation process to avoid the filibuster rules in the Senate, but that means all aspects of that bill have to meet the requirements of the reconciliation process that limits the matters in a bill to those that are essentially taxing or spending matters. Thus, the permitting reform could not be included in the IRA, and instead Senator Manchin will have to trust the others that they will bring it to a vote following passage of the IRA. But even under the reconciliation process, the IRA needs a majority vote to pass, i.e., 51 votes, (or 50 if the vice president breaks a tie) in the Senate. It is expected that all 50 Republicans will vote against the measure, meaning that all fifty Democrats must be present and vote for the measure. This may be complicated by the absence of Democrats with Covid because the Senate requires a member to be present in order to vote. In addition, Senator Sinema from Arizona has also expressed opposition to some aspects of the IRA and she has yet to indicate how she intends to vote.

Second, assuming the IRA is enacted, then the permitting reform legislation that is outlined in the term sheet must be drafted and enacted, supposedly by September 30. That act will require a majority vote in the House and 60 votes in the Senate. It is rumored that Senator Schumer and Speaker Pelosi agreed with Senator Manchin to include the permitting reform measures as part of some bill that is considered “must pass” legislation, such as a bill to continue funding the operations of the government. That could ease its passage; otherwise, it would be difficult to see how the required votes can be obtained because many Democrats will likely oppose aspects of the permitting reform legislation and it is far from certain that Republicans will be inclined to help Senator Manchin get it passed, since they feel he betrayed them by reaching an agreement on the IRA, when they thought he had permanently joined them to block any passage of legislation using the reconciliation process.

Benefits to MVP

Assuming that all of the above hurdles are overcome and the permitting reform legislation is passed, the benefits to MVP could be substantial, but we still see some real risks that are not addressed by the language in the term sheet. For those of you who don’t follow every detail about MVP until it comes up in the news again, we set forth below our current regulatory path for the project as it existed following FERC’s decision back in April to authorize MVP to complete the crossings of over a hundred streams using the open cut method.

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The language in the term sheet would seem to address two key risks to the completion of the project, namely the reissuance of the permit to cross the Jefferson National Forest and the Biological Opinion/Incidental Take Statement with respect to endangered species. Both of those are solely within the control of the Biden administration and would be covered by the language requiring “relevant agencies to take all necessary actions to permit the construction and operation of the Mountain Valley Pipeline.” However, given the legislation isn’t likely to pass until the end of September and that MVP just submitted a revised Biological Assessment to the U.S. Fish and Wildlife Service on July 29, we don’t see those permits being issued before October 31, even if everything goes swimmingly for the project.

The project also needs a permit from the U.S. Army Corps of Engineers, but that permit must incorporate the conditions found in the water quality certificates issued by the states of Virginia and West Virginia. Those certificates have been issued, but are currently pending appeal before the Fourth Circuit. The term sheet discusses giving “the DC Circuit jurisdiction over any further litigation,” but that language does not clearly indicate that all pending cases would be automatically transferred from the Fourth Circuit to the DC Circuit. The two appeals are not currently scheduled for oral argument in September, but if the Fourth Circuit thinks it might be stripped of jurisdiction, it may schedule them for argument so that it can render a decision before the legislation passes.

As an independent agency, it is unclear that any commitment by President Biden to “take all necessary actions to permit the construction and operation of the Mountain Valley Pipeline” would be binding on FERC. However, Chairman Glick’s renomination is currently pending before Senator Manchin’s committee and will likely remain pending while the legislative process grinds along so that Senator Manchin has a clear understanding of whether Chairman Glick is on board with the administration’s plans. There are two key actions that Chairman Glick controls: the decision to extend the construction window and to authorize the restart of construction. He does not need to wait until all permits are received to reauthorize the start of some construction, but we still expect that he will do so.

With respect to the decision to extend the construction window, FERC’s prior extension from three years ago is still pending appeal before the DC Circuit. While the language directing “further litigation” be sent to the DC Circuit would indicate that Senator Manchin prefers that venue over the Fourth Circuit, there remains a risk that the DC Circuit will find FERC’s prior extension to be faulty or may indicate that a supplemental environmental impact statement should be prepared before granting the currently pending extension. Such an action by the DC Circuit could substantially delay any action by FERC on that application, even if Chairman Glick is on board with the administration’s plans.

Taking all of this into consideration, we have revised our regulatory path chart assuming that the permitting reform legislation is enacted by the end of September.

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As seen above, if Senator Manchin can successfully enact a measure that promotes the Mountain Valley Pipeline, we think the odds of the project going into service by the end of 2023 grow substantially from a current estimate of only 27% to 70%. It would also be possible for that timeline to be accelerated to as early as April 1, 2023 if everything falls into place. However, that timeline would be conditioned on all of the decisions described in the above chart being decided in MVP’s favor by about December 1, 2022, presuming that the project needs an additional five months, especially during winter, to complete construction. While such a result is possible, we think it is likely less than 25% given all of the hurdles that must be overcome by the end of this year.