Regional Energy Access – A Study in FERC Dysfunction Both Democrat and Republican

Originally published for customers March 3, 2023

What’s the issue?

When Transcontinental Gas Pipe Line was planning its Regional Energy Access project, it would have been fair to assume that the project could easily be placed into service by December 1, 2023. However, little did the project sponsor understand how FERC’s actions over the coming months would impact this one project and demonstrate how ill-advised FERC policy changes would be.

Why does it matter?

FERC, under both Republican and Democratic chairmen, has adopted policies that it was repeatedly warned were not needed and would hinder gas pipeline development.

What’s our view?

Sadly, for the Regional Energy Access project, it is the first project to be subjected to the full impact of these policies and provides a case study of how woefully FERC understood its own policy changes. Acting Chairman Phillips can correct much of this for Regional Energy Access and return FERC to a fully functioning entity, but the mistakes of his predecessors are not making that easy.

 


 

When Transcontinental Gas Pipe Line (Transco) was planning its Regional Energy Access (REA) project, it would have been fair to assume that the project could easily be placed into service by December 1, 2023. However, little did the project sponsor understand how FERC’s actions over the coming months would impact this one project and demonstrate how ill-advised FERC policy changes would be. FERC, under both Republican and Democratic chairmen, has adopted policies that it was repeatedly warned were not needed and would hinder gas pipeline development.

Sadly, for the Regional Energy Access project, it is the first project to be subjected to the full impact of these policies and provides a case study of how woefully FERC understood its own policy changes. Acting Chairman Phillips can correct much of this for Regional Energy Access and return FERC to a fully functioning entity, but the mistakes of his predecessors are not making that easy.

 

Regional Energy Access

Even before the proponent of a pipeline expansion submits a project for the pre-filing process at FERC, it has likely been working on that project for months, and perhaps years, to sign up the required customers and prepare preliminary designs that inform both the projected cost and schedule for the project. These efforts will underpin the decision to move forward with the project both by the pipeline and the anchor shippers. Thus, when Transco filed on June 11, 2020 to enter FERC’s pre-filing process, the anticipated in-service date of December 1, 2023 was likely already embedded in the precedent agreements with the anchor shippers for the project.

 

Republicans Issue Regulation in Search of a Problem

At the time Transco was conducting the work needed to prepare REA for filing, it would have had no way of knowing that just two days before that request was filed, the Republican-led Commission, with the assent of current Commissioner Danly, would issue an “instant final rule” that drastically changed the timing of all projects. On June 9, 2020, FERC issued a very short rule that simply provided that FERC would not authorize construction for an approved project for the first 30 days following the issuance of the certificate and would extend that period if a request for rehearing was filed “until the Commission has acted upon the merits of that request.”

Just one day after Transco filed to enter FERC’s pre-filing process, we noted in FERC’s New Regulation That Will Lengthen Project Timelines that because FERC’s “instant final rule” bypassed the usual public comment process, the new rule raised more questions than it answered. In particular, we were concerned about the tremendous lack of clarity in the very brief rule and noted it would be critical to see how FERC defined construction. As we noted then, in “our data, we consider the construction commencement day as the day on which the project first receives authority to begin general construction work. However, many projects seek limited authority well before then to do work like preparing construction yards, clearing trees or delineating wetlands.” Even under our definition of construction, our data showed that the vast majority of projects up to that time had been able to commence construction within the first sixty days following issuance of an order.

 

Projects started prior to FERC instant rule timing

 

As seen above, approximately 60% of all projects that had started construction in the decade or so prior to the issuance of FERC’s instant rule were able to do so within 60 days of the issuance of the final order. We also noted that if FERC interpreted the term construction to include the pre-construction activities we exclude from our definition, then the impact of the rule could cost a project six months or more on its schedule. The reason for this concern, as we noted, was that many of these “pre-construction activities are often necessary to meet time of year restrictions with regard to endangered species. If these limited activities are not allowed and a project misses a timing window, the project could be delayed at least one entire season, until the time of year window reopens. This means that even the 30-day delay waiting for the rehearing period to pass could lead to a delay of six months or more.”

 

Democrats Make it Worse

Future Chairman Glick, not to be outdone by his Republican colleagues, dissented against the initial “instant final rule” because in his mind it did not go far enough. In his dissent, he noted that he would also have prohibited a pipeline from exercising eminent domain rights in court until FERC acted on any rehearing requests. Given that FERC had issued the rule without putting it out for public comments, it received a number of rehearing requests from the pipeline industry. But while under Republican control, FERC failed to act on those requests. Not surprisingly, once Chairman Glick was in control of the Commission, he acted on those rehearing requests and made the rule even worse by making it consistent with his original dissent. In the revised rule issued on May 4, 2021, FERC also announced a “general policy with respect to stays” of all certificate orders so that eminent domain proceedings could not commence until the time period under the rule expired, “subject to a particularized application of the policy on a case-by-case basis.”

This revised decision led Commissioner Danly to dissent, even though he had supported the adoption of the original rule. He now called for the entire rule to be repealed. Commissioner Christie concurred with the revised policy on the basis that nothing in the policy would prevent a developer from “continuing expeditiously with all development activities that do not involve construction or the use of eminent domain against unwilling property owners.” As the original policy and the revised policy had done, however, Commissioner Christie failed to define what he considers to be construction. This second attempt at the rule also was the subject of a number of rehearing requests by the pipeline industry.

FERC revised the rule one last time, on August 2, 2021. The changes made were minor tweaks to the language of the rule and only Commissioner Danly dissented, who renewed his call for repeal of the rule he had originally supported.

 

REA, Already Delayed, is First to Suffer the Full Consequences of New Rule

In addition to the new rule being adopted almost simultaneously with its filing, REA has already suffered from the decisions of former Chairman Glick to subject all pipeline expansion projects to the preparation of a full environmental impact statement (EIS). We have previously discussed this policy in Timing of Restarts for Keystone, El Paso and Freeport and Some Good News for MVP, where we noted that Acting Chairman Phillips has reversed this mandate and is now letting FERC staff use its professional judgment in making this determination. If we compare REA to the similarly sized projects that had completed their review at the time it filed its pre-filing application, we see that the project has been substantially delayed.

 

Environmental Review Time

 

Sadly for REA, by the time it formally filed its application on March 26, 2021, Chairman Glick had already implemented his policy and so even though less than half of historically comparable projects were required to prepare an EIS, REA was required to do so. This decision delayed the review of REA by almost nine months compared to comparable projects that only required an Environmental Assessment (EA) and over one month even for historical comparable projects for those requiring an EIS.

Even more significantly, the time it took FERC to issue the order, as measured from the application date, was much longer than the historical norm.

 

FERCS Time To Order

 

As seen above, the time it took for FERC to issue REA’s order was ten months longer than the norm for comparable EA projects and four months longer than the norm for comparable EIS projects.

 

But Then REA Got Caught by FERC’s New Rule

By the time REA received its order on January 11 of this year, it was up against a significant time deadline to put the facilities into service for the winter of 2023 and 2024 as required by its precedent agreements with its shippers. In particular, as we had projected back in 2020, REA was facing a time of year restriction that required it to complete all tree-clearing by March 31 of this year or be required to wait until November 16, 2023, when the tree-clearing window reopened.

FERC’s order imposed a stay of the certificate under the revised policy “during the 30-day rehearing period and pending Commission resolution of any timely requests for rehearing filed by the landowner, up until 90 days following the date that a request for rehearing may be deemed to have been denied.”

On January 17, REA moved to have that stay lifted by demonstrating that it had obtained all property rights necessary for the tree-clearing and that it would not exercise any eminent domain rights until the time period under the policy expired. That motion to lift the stay was opposed by various environmental groups. However, on February 15, 2023, FERC issued an order lifting the stay, but FERC noted that its decision did not “waive the Commission’s regulation . . . precluding the issuance of a notice to proceed with construction during the pendency of the rehearing period.” However, the day before that order was issued, on February 14, Transco filed a motion seeking such a waiver and asking that FERC issue an order no later than March 3, today, to allow it to begin tree-clearing operations, so that it could complete them by March 31.

As we have discussed above there is no definition in the poorly crafted regulations issued by FERC that defines the term “construction.” So it is certainly possible that FERC could issue the notice to proceed with tree-clearing without granting a waiver of the regulations. Similarly, although FERC has not faced this issue in the past, it could waive the regulation and allow the tree-clearing to commence. Either of those actions would likely be appealed to the courts and may not be resolved in a manner that would allow the tree-clearing to be completed in a timely manner.

Under the regulations, FERC could also issue a decision denying the rehearing requests and then authorize the tree-clearing. This would be the method that would have the best chance of withstanding an appeal, but may be impossible within the time frame requested by Transco. Finally, FERC could just live with the consequences of its ill-advised regulation, which would likely mean a delay of about eight months for the REA project and no additional gas for its shippers for the coming winter heating season. Whether that is consistent with Commissioner Christie’s viewpoint when he agreed to the new regulation is yet to be seen. How Acting Chairman Phillips extracts himself from this prison in which he was placed by his Republican and Democratic predecessors may be the most pivotal decision of his tenure as chairman.

 

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