New FERC Conditions that Could be Project Killers

What’s the issue?

FERC’s open meetings have generally been non-events for the pipeline industry for the last year as Chairman Glick has essentially stopped approving project applications. However, at the open meeting in January, there were two decisions issued that went in favor of the particular pipeline involved, but which portend significant risk for the industry if the three Democrats on the Commission unite.

Why does it matter?

FERC can deny a pipeline’s project application, but it can also add conditions to an approval that essentially act as a poison pill that make it too risky to proceed with construction. In two decisions issued in January, it appears that the three Democrats may just be intent on adopting such an approach — which would essentially kill all pipeline development while allowing the Commission to claim it has approved the projects.

What’s our view?

The chairman of the Commission wields a lot of power alone, but when that is combined with the votes of two other commissioners, FERC can essentially add conditions to all certificates that make the construction of approved projects untenable.

 


 

FERC’s open meetings have generally been non-events for the pipeline industry for the last year as Chairman Glick has essentially stopped approving project applications. However, at the open meeting in January, there were two decisions issued that went in favor of the particular pipeline involved, but which portend significant risk for the industry if the three Democrats on the Commission unite.

FERC can deny a pipeline’s project application, but it can also add conditions to an approval that essentially act as a poison pill by making it too risky to proceed with construction. In the two decisions issued in January, it appears that the three Democrats may just be intent on adopting such an approach — which would essentially kill all pipeline development while allowing the Commission to claim it has approved the projects.

The chairman of the Commission wields a lot of power alone, but when that is combined with the votes of two other commissioners, FERC can essentially add conditions to all certificates that make the construction of approved projects untenable.

 

The January Decisions

At January’s open meeting, FERC approved two decisions, one involving Algonquin Pipeline’s Weymouth compressor station and the other concerning Adelphia Pipeline. In both decisions, the pipelines basically achieved what they wanted. Weymouth convinced FERC that it did not have the authority to shut down an operating project, and Adelphia received an extension of time to complete construction of its project. But in both cases, the two Republican commissioners partially dissented. While both decisions were victories for the projects under consideration, both decisions raise the specter of an emboldened FERC that embarks on a process that will essentially kill all pipeline projects while conditionally approving them.

 

Weymouth Decision

For the background on the Weymouth compressor station, you could read our discussion from a year ago in FERC Inquiry Puts at Least $27 Billion in Pipeline Projects at Risk, when the newly appointed Chairman Glick announced he was launching a proceeding to determine whether FERC should allow the compressor station to continue operating, even though FERC Staff had issued a delegated order allowing it to commence operations. As we noted then, the “mere fact that FERC is going down this path opens the industry up to a substantial new risk that it has never had to face.” One year later, Algonquin has apparently beaten down the challenge to the continuing operation of the station, but the decision is a very narrow one. The critical sentence from the order reads: “On the record before us, we are unable to find that the public interest requires setting aside the Authorization Order or imposing additional or different mitigation measures. Parties have not identified—and we have not found—any violations of the Certificate Order.”

However, two of the three Democrats, including Chairman Glick, filed concurring opinions in which they lamented the limited authority granted to FERC under the certificate conditions contained in the order granting Algonquin a certificate. Last month’s order noted that under the Natural Gas Act, FERC has “the power to attach to the issuance of a certificate and to the exercise of the rights granted . . . such reasonable terms and conditions as the public convenience and necessity may require.” But, the Commission’s review of post-certificate conditions does not allow parties to “relitigate the certificate proceeding.” Instead, FERC (or the delegated officer) may only review factors stated in the certificate as bearing on questions under consideration about whether to allow the project to commence construction or operation, respectively. Chairman Glick assured those who participated in the proceeding that in the future, the Commission would “work to better consider, address, and act on issues of environmental justice.” Commissioner Clements tied her response even more directly to future orders when she noted that the “certificate for the Atlantic Bridge Project was awarded under the Commission’s outdated 1999 certification policy statement.”

While the certificate conditions in the Atlantic Bridge project did not allow the Commission to consider matters beyond the factors listed in the certificate before allowing the project to go into service, last month’s order asserted that FERC has the authority to attach “reasonable terms and conditions as the public convenience and necessity may require” to any and all orders. We expect that at least two of the three Democrats do not think the current conditions found in most certificates are sufficient to meet that standard.

 

Adelphia Decision

The decision regarding Adelphia, likewise, went in favor of the pipeline project. Adelphia’s project was issued its certificate on December 20, 2019. That certificate, like all LNG and pipeline certificates, contained a condition that required the project be placed into service by a date certain, in this case within two years. There is nothing at all magical about the two-year limit and as we show below, that time period has been as long as ten years in some orders.

On November 1, 2021, Adelphia filed a petition asking for the in-service deadline to be extended by eighteen months to June 20, 2023. In the past, such applications have been generally granted via a delegated order issued by FERC Staff. However, as has become the custom, opposition groups have begun opposing every application filed by a project applicant including these routine requests, as they did with Adelphia’s application.

Adelphia’s application indicated that the delay in the in-service date for its project was caused by delays in the receipt of state environmental permits and other delays caused by the COVID-19 pandemic. In prior FERC decisions, FERC had noted that its regulations do not even require public input on extension requests and that it would allow interventions in such proceedings only by parties that had participated in the original proceeding. In Adelphia, however, FERC announced it was reversing this practice and would provide notice of any such applications and allow any party to timely intervene in that proceeding to raise any issues that could not have been raised in the original certificate proceeding.

In the Adelphia case, FERC allowed arguments asserting that (1) the delays were not beyond Adelphia’s control and (2) the environmental analysis that underlay the original certificate could no longer be relied upon. However, the Commission found that the project delays were, in fact, caused by the delayed receipt of required state permits and difficulty sourcing materials due to the COVID-19 pandemic. Such difficulties constituted good cause to grant an 18-month extension. As to the validity of the underlying environmental impacts, FERC found that an 18-month extension of an original two-year period would not be beyond the time period for which the environmental findings were valid.

While the majority issued the extension, the fact that it allowed new interventions and that it considered whether the environmental findings remained valid led to dissents by the two Republican commissioners. Commissioner Christie dissented from the decision to allow new interventions in the extension proceeding and warned that the “certain effect (whatever the purpose) of this new rule will be to facilitate even more unending litigation against the gas facilities needed to provide the public with the energy needed to keep the lights on and homes heated during cold winters. It will undeniably drive up the legal costs associated with building gas facilities, creating yet another disincentive to the construction of vitally needed infrastructure.” Commissioner Danly also dissented about this aspect of the order, but also warned parties to be aware of the bold statement by the majority that “environmental impacts are subject to change, and thus the validity of an order’s conclusions and environmental conditions may not be sustained indefinitely.” (Emphasis in original).

 

The Risks Are Great from These New Policies

While both of these decisions are wins for the pipelines involved, there are real risks for future projects buried in both. First, there is a substantial risk that the traditional limited post-certificate conditions will be revisited. If FERC ever approves another expansion project, we are likely to see new conditions in the certificate, including ones that must be satisfied prior to placing the project into service. If such conditions were to include a complete review of the project’s compliance with all aspects of the certificate or, even worse, a re-assessment of the need for the project, such a condition would likely be so unacceptable financially that pipelines simply will not undertake the construction of the project because it would forever remain at risk to the political whims of a changing FERC majority.

Similarly, as we note above, there is nothing magical about the typical two-year period following the issuance of a certificate, but there is also no requirement that FERC grant that long of a period in the certificate. Changes in the length of this period, with a full FERC review of any extensions, may make undertaking construction too financially risky. Given the continued opposition to almost every permit required for a project, the risk of post-certificate delays that would push a project beyond a required in-service date may make it untenable to even begin construction.

 

Projects That May be on the Bleeding Edge of these Issues

There is quite a backlog of cases pending at FERC since Chairman Glick has refused to approve any expansion projects. Earlier this week, TC Energy’s ANR Pipeline and North Baja Pipeline sent letters to FERC asking for prompt action on their pending projects, Alberta Xpress and North Baja Xpress, respectively. Both letters noted that the projects have been pending at FERC for an inordinate amount of time, 19 and 25 months. Interestingly both letters, while directed to the FERC Secretary, had a cc list that included all of the FERC commissioners as well as Senators Manchin and Barrasso. It remains to be seen whether, with a full complement of commissioners, FERC will begin approving projects. But if they do, these projects may be the first that may include new certificate conditions that could act as a poison pill for all development.

Similarly, late last week, National Fuel and Empire Pipeline filed a petition seeking an extension of the in-service date for their Northern Access 2016 project, which, as its name suggests, has been stymied for quite some time. The certificate order gave the project two years to be placed into service, or by February 3, 2019. In January 2019, FERC extended that deadline by three years to February 3, 2022. But in the filing last week, the project applicants requested yet another extension through December 31, 2024. Even the original extension was well beyond the 18 months approved in Adelphia and so it may prove to be an interesting test case for how long FERC is willing to go in granting such extensions. But Northern Access is far from alone.

 

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As seen above, there are a number of projects that have already received extensions and may need to seek another one, and many of them are much longer delayed than Adelphia has been. Any of these may not be able to get another extension from FERC.

If you would like more information concerning the history of extension requests, please contact us.

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