Second Quarter Looks to be Pivotal for MVP, the Electric Industry and FERC

At Arbo, we help you understand both long-tail and short-tail risks that often cannot be tied to a specific future date, but there are also scheduled events that we can help you monitor. Being prepared for a known event before the day begins can allow you to not only monitor that event, but also act to take advantage of or mitigate against the market’s potential reaction.

We think the second quarter could turn out to be a pivotal one for MVP, for the electric industry and for FERC itself.

Bookmark Arbo’s Midstream Calendar: www.goarbo.com/midstream-calendar

MVP Will Lay Out a Path Forward While Facing Continuing Challenges

Over the last couple of weeks, MVP was rebuffed by the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) in its request to have the entire court rehear two decisions rendered by a three-judge panel of that court that voided the federal government’s approval of a permit to cross the Jefferson National Forest and a determination that the project would not adversely impact endangered species. By the end of this quarter, MVP will need to decide whether it is going to appeal those two decisions to the U.S. Supreme Court, or simply accept those decisions and work with the Biden administration to have both of them reissued.

A decision to appeal one or both cases may be an early indication that the project is not confident in its ability to get both approvals reissued in a manner that is both timely and can survive yet another review by the Fourth Circuit. However, appealing to the Supreme Court is not a quick way to resolve an issue either. Both Atlantic Coast Pipeline and PennEast won their appeals to the Supreme Court, but ultimately abandoned their projects, at least in part, because of the delay caused by those appeals. Any appeal by MVP would likely mean a positive decision would not come until June 2023, which would likely push the in-service date off until 2024, at the earliest. However, the prospect of yet another round of reviews by the Fourth Circuit is not a welcome one either.

Even while it is making those decisions, MVP will also be arguing to the Fourth Circuit that it should uphold the decisions by Virginia and West Virginia to issue a Water Quality Certificate for the project. Upholding those two certificates will be crucial for the project ultimately getting approval from the U.S. Army Corps of Engineers to complete all of the remaining water crossings. Those arguments will likely be made to the same panel that issued the adverse decisions discussed above, so we expect it to be a rough set of arguments as that panel seems intent on blocking the completion of the project.

The Supreme Court May Put Limits on EPA’s Authority Over Power Plant Emissions

In Will the Supreme Court Bar EPA from Regulating Greenhouse Gasses? and ArView Alert: West Virginia v. EPA (SCOTUS), we discussed a case argued to the Supreme Court in February about the Environmental Protection Agency’s authority over emissions from power plants. A decision in that case will likely come sometime in June and most certainly by June 26, which is the last day of the Supreme Court’s term. That decision could limit the authority the EPA has over emissions from power plants, but may also call into question whether FERC has authority to consider emissions from such plants as part of its certificate authority over pipelines that provide gas to such power plants.

FERC’s Expansive View of Its Authority May Be Checked by the Courts and Congress

In Ultra, Gulfport & Chesapeake at Center of Battle of FERC vs. Bankruptcy Courts, we discussed FERC’s newly expansive view of its power to control the bankruptcy proceedings of every shipper on every interstate pipeline in the nation. We noted there that the bankruptcy courts had unanimously rejected FERC’s view of its powers, but that didn’t stop FERC from appealing those decisions. Earlier this year, the U.S. Court of Appeals for the Fifth Circuit confirmed our belief that FERC’s view was an overreach.

In an opinion issued concerning Ultra Petroleum’s bankruptcy, FERC characterized its interest as a battle of titans between the authority vested in it by the Natural Gas Act and the power vested in the bankruptcy courts by the Bankruptcy Code. But the Fifth Circuit was not impressed with FERC’s self-styled titanic powers, and stated that “what FERC casts as a pitched battle is actually a settled truce.” The court reaffirmed its decision in a case from almost twenty years ago, In re Mirant Corporation, that found that when it came to the rejection of contracts in bankruptcy, even those that were filed at FERC, that FERC had no co-equal role to play in the bankruptcy proceedings. The court affirmed that FERC should be allowed to participate, if it chose, in helping the bankruptcy court strike the right balance between the public interest and the bankrupt entity’s need to reorganize, but that was its only role. The panel noted that, by Fifth Circuit rules, it was “not permitted to stray from Mirant’s holding even if we were so inclined (which we are not).” There is another oral argument scheduled for this quarter before the Fifth Circuit concerning the Gulfport bankruptcy. In the notice of that argument, the court indicated that the parties should be prepared to discuss how that case is any different from the Ultra decision. We think it is not and would not want to be the attorney defending FERC’s expansive views of its authority yet again.

Chairman Glick agreed with the FERC decisions concerning FERC’s authority over all bankruptcy proceedings of shippers and has been leading the charge on FERC’s assertion of authority over GHG emissions from all projects that connect to a pipeline, which we discussed in FERC’s New Rule on GHG Ignores the Precedent It Relied On. However, as we discussed in FERC Reverses Course, But Some Celebrate Prematurely, after substantial pushback from Congress on this newly found authority as an environmental regulator, FERC retreated and cast its policies as mere drafts. The future of these policies will most likely turn on whether Chairman Glick is reappointed as his term officially ends on the last day of this quarter. He could be renominated and confirmed by the Senate which would extend his term for five more years, or a replacement for him could be named. Even if a replacement is named, Chairman Glick can continue to serve until that replacement takes office or until the end of the current Congressional session in December.