The Future of Pipeline Projects at FERC — Reading Between the Lines

What’s the issue?

At the last FERC open meeting, Commissioner Chatterjee indicated that it would likely be his last open meeting, but he did not give a firm departure date.

Why does it matter?

With his departure, the Commission is now split 2-2 along party lines with respect to pipeline projects. Thus, we don’t expect that any more pipeline projects will even receive a vote after his departure and before his replacement arrives. In addition, his replacement will be a Democrat and that person’s views will be critical to shaping not only the actions on pending cases, but, more importantly, how FERC decides to modify its policy regarding certificate approvals for the future.

What’s our view?

Looking at the comments that have been filed in response to FERC’s notice regarding its certificate policy statement, it appears that the pipeline industry would celebrate a continuation of the current policy, but is expecting changes in a number of areas and bracing itself against changes in others. There are some areas where at least one member of the pipeline industry concedes that changes to the current policy are possible. Boardwalk Pipelines indicated that it thought FERC may look beyond the face of affiliate precedent agreements. Similarly, Enbridge appears to have conceded that FERC could require mitigation of the operating greenhouse gas emissions of a project. It is very likely that these views will be incorporated into FERC’s future policy, no matter who replaces Commissioner Chatterjee. However, the views of Commissioner Chatterjee’s replacement could result in FERC adopting much harsher standards in not only these two areas, but in all of the others that it is considering as part of its review.

 


 

At the last FERC open meeting, Commissioner Chatterjee indicated that it would likely be his last open meeting, but he did not give a firm departure date. Following his departure, the Commission will be split 2-2 along party lines. The Commission also appears to be split about the conditions under which they will approve any pending pipeline projects. Thus, we don’t expect that there will be any more pipeline projects that even receive a vote after Commissioner Chatterjee’s departure until his replacement arrives. In addition, his replacement will be a Democrat and that person’s views will be critical to shaping not only the actions on pending cases, but, more importantly, how FERC decides to modify its policy regarding certificate approvals for the future.

Having reviewed the comments that have been filed in response to FERC’s notice regarding its certificate policy statement, it appears that the pipeline industry would celebrate a continuation of the current policy, but is expecting changes in a number of areas and bracing itself against changes in others. The views of Commissioner Chatterjee’s replacement will likely dictate how bad it could get for the industry -- and it could be very bad.

 

Chatterjee’s Departure Likely Delays All Pending Certificate Orders

In a series of tweets earlier this month, Commissioner Chatterjee indicated that this week’s open meeting would likely be his last, but he did not give a clear indication of when he intended to step down, other than that his decision was mainly driven by familial considerations. Press reports indicate that the Biden administration is considering a handful of possible candidates for his replacement, including a Massachusetts State Representative, Maria Duaime Robinson; Willie Phillips, chair of the Public Service Commission of the District of Columbia; Lauren Azar, a former aide to former Energy Secretary Steven Chu and a former Wisconsin Public Service Commissioner; and Tom Dalzell, a union business manager.

 

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As seen above, it has recently taken at least four months from the time a commissioner is formally nominated to the time the commissioner assumes office. Given that timeline, it seems almost certain that we will not have a new commissioner until at least the end of this year. This means that pipeline cases currently pending before FERC are unlikely to receive a vote before then because, in all recent certificate orders, the Commission would have been split 2-2 without Commissioner Chatterjee’s vote.

 

Commissioner Chatterjee’s Replacement Will be Crucial to Determining the Future of All Pipeline Projects

Soon after his appointment as FERC Chairman in December 2017, Chairman McIntyre initiated a proceeding to review FERC’s certificate policy statement, which was adopted in 1999 and has for the last twenty years guided the Commission with regard to its review of all applications by pipelines for a certificate of public convenience and necessity under section 7(c) of the Natural Gas Act. The Commission received almost 3000 comments on that initial inquiry by the end of August 2018. But both Chairman Chatterjee and Chairman Danly failed to take any action with regard to revising the policy statement, despite having a Republican majority for at least a portion of their terms. Thus, when Chairman Glick took control in January of this year, one of his first acts was to revive the review of the policy statement. He did this by requesting a renewed set of comments that focused on five key areas about which he has been concerned during his time in the minority:

(1) How to determine the “need” for a project and the Commission’s reliance on precedent agreements, even if those agreements are with an affiliate of the pipeline;

(2) Whether the Commission should limit a pipeline’s ability to use eminent domain, including prohibiting such use until a project has all required permits;

(3) Whether the Commission should assess the upstream and downstream greenhouse gas impacts of a project beyond the control of the pipeline, and whether to use a tool like the social cost of carbon in that analysis;

(4) Whether the Commission should improve the efficiency of its processes, and in particular with respect to public participation; and

(5) Whether the Commission should change its methods for assessing the impact of projects on environmental justice communities, including requiring mitigation of impacts and rejecting projects that can not be sufficiently mitigated.

 

Comments Are Often Predictable But There are Some Interesting Distinctions on Both Sides

The Commission has received over 150 comments in response to this renewed request, and a complete analysis of those comments would bore even the most ardent reader. But there are some interesting differences in the opinions expressed on both sides of the argument that offer an insight into where the Commission may end up, depending on the views of Commissioner Chatterjee’s replacement.

At a high level, the two sides of the argument are about as far apart as one would expect, given what is at stake when the Commission is setting its policy for perhaps the next twenty years. The industry’s position can best be summarized by the repeated statements in almost every filing by the industry that “significant changes to the Certificate Policy Statement are not warranted.” Conversely, the extreme view on the other side may be best exemplified by the comment filed by a consortium of environmental groups that asserted that at “a minimum, the Commission should presume that there is no need” for new gas infrastructure and require applicants to overcome this presumption “with data and analyses demonstrating that building gas infrastructure serves the public interest.”

Diving a little deeper however into the specific areas of concern shows that there are some areas where at least some parts of the industry think there could be room for accommodating additional measures, and where the opposition groups and other government agencies appear to think the most extreme positions are not appropriate.

 

Need

The industry generally supports the position that the current method of assessing need, which primarily relies on the existence of precedent agreements, should be continued. But the Boardwalk pipelines did indicate in their comments that the Commission could properly look beyond the precedent agreements if they are with affiliates to ensure that affiliate precedent agreements are not the result of unfair competition, including determining whether the area the pipeline is designed to serve is already adequately served; the impacts of the new project on other pipelines that serve that area; and whether the term of the affiliate’s transportation contract supports the construction of the affiliate project. Such ideas are likely to find their way into the final policy regardless of who Commissioner Chatterjee’s replacement is, but it would be far worse for the industry if the Democratic majority were to adopt the extreme presumption that no more pipelines are needed.

 

Eminent Domain

Again, the industry would be greatly relieved if FERC does not do more than it already has. Since FERC issued the request for comments in February, it has adopted a policy that effectively stays all certificate orders while landowner objections are resolved, which, as Energy Transfer noted in its comments, are all currently under appeal. However, the environmentalists and even the Coast Guard in some ways argue that FERC has not done enough.

The environmentalists are calling on FERC to stop issuing conditional certificates and to only issue a certificate once all other permits are received. Numerous industry participants noted the circularity problem this would create where the certificate is needed to gain access to lands to get the other required permits, but access cannot be obtained until the certificate is granted and eminent domain rights are received. The U.S. Coast Guard has apparently not understood that point, however, because in its comments, it also recommends that all “right to build and right-of-way concerns” be resolved before FERC issues the certificate and “recommends that FERC strongly consider changing its process to complete all environmental consultations” before it issues its order. The best the industry can probably hope for here is that FERC doesn’t do further damage and that it is able to win its appeal to reverse the damage FERC has already inflicted. However, Commissioner Chatterjee’s replacement could enable an even worse result with the adoption of a policy against issuing conditional certificates.

 

Greenhouse Gases and Social Cost of Carbon

On this issue, like the others, the industry is essentially calling for FERC to revert to the policy that was in place at the time the request for comments was issued. At that time, FERC was only looking at downstream greenhouse gas emissions if the end-use was known. But since the issuance of the request for comments, the Commission, enabled by Commissioner Chatterjee himself, has moved way past that. Currently, FERC is having staff prepare supplemental environmental impact statements to assess the downstream greenhouse gas emissions from the project, even when the end-use is not known. Here again, the comments from the most aggressive environmentalists suggest that FERC must go even further and analyze the “induced” upstream greenhouse gases and use the social cost of carbon to monetize the impact of all such emissions.

Like Boardwalk’s concession regarding precedent agreements, Enbridge has essentially conceded that FERC can seek mitigation from the pipeline for GHG emissions, as long as the mitigation does not extend beyond any direct emissions of the project over which the Commission has jurisdiction. While Enbridge seems to concede that mitigation is within FERC’s purview, it argues that FERC should not require offsets of any type as there “is no existing federal program or framework of the type the Commission is apparently considering, and systems for purchasing “offsets” from third parties are widely—and correctly—viewed with skepticism.”

That skepticism came to the forefront this week when Mountain Valley Pipeline announced that it would be the first pipeline project to purchase offsets for all of its operational GHG emissions. Under the announced plan, MVP “would purchase carbon offsets to make MVP’s operational emissions carbon neutral for the first 10 years of service.” This announcement was immediately met by the Sierra Club and other environmental groups as a “shameless ploy to greenwash this disastrous pipeline project.”

Interestingly, the argument against the use of the social cost of carbon seems to come from the Council on Environmental Quality (CEQ), which publishes the formula, and the Natural Resources Defense Council (NRDC). The CEQ, in its comments, notes that the social cost of carbon is a good tool when an agency determines that a monetized assessment of socioeconomic impacts is relevant, but that is almost never the case in a FERC proceeding. In addition, the CEQ notes that it is still working to develop guidance regarding its use in NEPA analysis.

Most interestingly, the NRDC in its comments argues that FERC should use the social cost of carbon, but then admits that the results are not useful in determining whether the GHG emissions and their monetized costs are significant. In fact, it states that all existing “approaches to evaluating the significance of GHG emissions in the context of individual projects are deeply deficient analytically.” In addition, the NRDC notes that FERC’s current method of calculating a project’s emissions and comparing it to existing emissions is meaningless and insufficient to interpret the significance. Despite these assessments, it seems unlikely that FERC will revert to the practices it used when the Republicans were in charge, but Commissioner Chatterjee’s replacement could very well form a majority that could implement a policy where any unmitigated upstream or downstream emissions will be deemed to disqualify a project from approval.

 

Efficiency of Certificate Process

This topic received the fewest comments. As the industry is seeking to hold on to what it has, it generally did not ask for the timelines to be compressed, but instead focused most of its comments on making sure that the timelines did not get even worse than they currently are. Here the replacement for Commissioner Chatterjee will impact the process most by what other changes he or she endorses, and what those all mean for the overall timeline for a project’s approval, or even more importantly, a project’s rejection.

 

Environmental Justice

The comments about environmental justice (EJ) ranged from the forest to the trees. Some comments focused mostly on process and involvement, but some got down to the specific tools to be used and whether the assessment should be at the census block or tract level. The industry is open to greater involvement of environmental justice communities and made many recommendations on how FERC could improve that process, but environmental advocates like the Clean Air Council suggested that such communities should essentially have a veto right over a project.

As it explained, FERC must give considerable weight to EJ communities’ opinions and ensure that those opinions inform the decision-making process: “Asking communities to comment, but then refusing these same communities' decision-making power only further disenfranchises EJ communities.” It is really unclear how much further the current two Democrats are going on this front. But the views of Commissioner Chatterjee’s replacement will likely be just as crucial in this area. The industry has no objection to involving such communities early and often, nor in coming up with specific processes to be used to determine when the issue is present in a project. But, the industry would certainly be harmed if such communities were given a veto right on a project, even if the views of the community could be determined.

We expect that nothing will be done with this policy until Commissioner Chatterjee’s replacement is named and takes office. That means that we likely won’t know more for four or five months. But who that replacement is will be critical in determining just how adverse to the industry the changes in the policy will be. In the meantime, we expect that all projects currently pending are unlikely to get a vote for the rest of this year as the Commission becomes deadlocked following Commissioner Chatterjee’s departure, whenever that finally occurs.

If you would like to discuss the Certificate Policy Statement, please contact us.

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