What’s the issue?
Twenty-five U.S. senators sent a letter to Chairman Glick expressing their concern that FERC was delaying action on pipeline projects while it reconsidered its certificate policy statement. Chairman Glick strategically waited to respond until FERC had acted on two very small projects at this month’s open meeting. Then just yesterday, Chairman Glick had staff issue notices of intent to prepare full environmental impact statements for five pending projects, including one so small that it qualified for construction under the pipeline’s blanket certificate but for an objection filed on the last day to object.
Why does it matter?
The concern of the U.S. senators is probably a welcome sight for the industry, but given the dissents of Chairman Glick and Commissioner Clements in the two cases he bragged about approving, the concern should really be focused on the fact that the Democrats announced they will reject all expansion projects, even if they are needed to provide heat and power to a state.
What’s our view?
The real concern for the industry and the U.S. senators is that Commissioner Chatterjee’s term ends in June and his replacement will be a Democrat. Both the industry and the senators should be most worried about making sure that Democrat does not agree with the views of the two current Democrats, as anything other than like for like replacement projects will, at a minimum, face interminable delays and most likely a rejection merely for fulfilling the purpose and meeting the need for which they are proposed.
Twenty-five U.S. senators sent a letter to Chairman Glick expressing their concern that FERC was delaying action on pipeline projects while it reconsidered its certificate policy statement. Chairman Glick strategically waited to respond until FERC had acted on two very small projects at this month’s open meeting. Then just yesterday, Chairman Glick had staff issue notices of intent to prepare full environmental impact statements (EIS) for five pending cases, including one so small that it qualified for construction under the pipeline’s blanket certificate but for an objection filed on the last day to object.
The concern of the U.S. senators is probably a welcome sight for the industry. But given Chairman Glick’s and Commissioner Clement’s dissents in the two cases he bragged about approving and the notices of intent to prepare a full EIS in five pending cases, the concern should really be focused on the fact that the Democrats essentially announced that they will deny all expansion projects, even if they are needed to provide heat and power to the residents of a state in the middle of winter.
While two small projects were approved, that was only because the three Republican members, after what could charitably be called a chaotic meeting, finally came together to override the dissents of the two Democrats. The real concern for the industry and the U.S. senators should be that Commissioner Chatterjee’s term ends in June, and his replacement will be a Democrat. Both the industry and the senators should be focused on making sure that Commissioner Chatterjee’s replacement does not agree with the views of the two current Democrats. Because, as we discuss today, if the current Democratic view becomes a majority, it seems unlikely that even the smallest of expansion projects will have any hope of being approved in a timely manner, and all such projects appear to be headed for rejection or being subjected to unacceptable conditions.
Democrats Begin to Show Their Hands
We have been waiting to see if Chairman Glick and Commissioner Clements believe FERC can approve any pipeline expansion projects -- and the answer now appears to be a resounding No. In the dissents that they filed at last week’s open meeting, they acknowledged that both of the projects were needed, as Tuscarora Gas Transmission had executed a precedent agreement with an unaffiliated local distribution company “to transport natural gas that will be used to cool homes and businesses and support electric generation,” and Northern Natural Gas had executed precedent agreements with unaffiliated local distribution companies “to transport natural gas that will be used to heat homes and businesses during the winter months.”
But in the view of the two Democrats, the greenhouse gas (GHG) emissions that would be created by the burning of the gas means that the residents of Minnesota and Wisconsin will need to just go without heat. According to the dissents, the GHGs created from the combustion of just 15,000 dth/day of gas are so significant that FERC is required to prepare a full EIS to approve such a project and must impose “measures that would mitigate the GHG emissions of the project.” In the alternative, the project sponsors could volunteer “to incorporate conditions into the certificate to mitigate those adverse impacts.” It is clear from the dissents that they are not talking about the GHG emissions from the construction of the project, nor from the operations of the facilities controlled by the pipeline, but, rather, from the resultant use of the gas that is being transported.
The theory that appears to underlie this unprecedented position is that GHG impacts are like any other environmental impact of a project and should be analyzed in the same manner. But that could not be further from the truth. The whole purpose of a proposed pipeline project is to facilitate the transport of gas to a location where it can be used, most often by combustion. The environmental impacts Chairman Glick likes to cite as being similar, such as impacts on wetlands or endangered species, are not the purpose of the project. Such impacts are merely incidental consequences that can often be mitigated while still achieving the purpose of the project. Thus, mitigation or avoidance may be appropriate for an incidental impact, but not for the main purpose of the project.
The fallacy of this entire argument is perhaps best shown by comparing the per capita carbon footprint for the various states.
In their dissents for the two projects approved last week, the Democratic commissioners are essentially arguing that the states of Minnesota, Wisconsin and Nevada should not be allowed to use a natural resource because of its impacts on the environment, unless they are willing to pay for mitigation for that intended usage, even though those three states are far from the worst emitters in the country. Even if the increased emissions from these new projects is included in each of these states’ emission calculations at the maximum calculated in the orders, the emissions hardly move the needle.
The Democrats provide no legal citation or precedent for this extraordinary power that they claim to possess. Chairman Glick regularly refers to the National Environmental Policy Act (NEPA), but that statute is a process statute and does not grant authority to any agency. NEPA merely requires the agency to consider the environmental impacts of an action, while also acknowledging the achievement of the action’s purpose. In all pipeline projects, the purpose of the project is the very impact that Chairman Glick seems to want to eliminate.
Time is Short
In Pipelines Take New Steps to Satisfy FERC Chairman - But Will it Be Enough?, we noted that there are a number of projects that are long overdue for action on their application. These projects apparently inspired the letter from the senators to FERC. However, the time for them to be approved seems to be quickly evaporating. In fact, for the four projects that received notices of an intent to prepare an EIS, their opportunity for a vote while there are three Republicans is likely now gone.
Chairman Glick has apparently adopted the prior behavior of his two immediate predecessors and is only issuing new approvals in conjunction with open meetings. We now have only one such meeting left before Commissioner Chatterjee’s term ends on June 30. While he is allowed to stay until Congress adjourns in December or until his successor is appointed, there is no guarantee that he will. In addition, Commissioner Danly did not participate in a number of decisions at the last open meeting, which could be an indication he may be in discussions with potential employers. If either one of them were to leave, that would put the Commission in a deadlock, which would mean that none of the remaining projects could be approved. Given this shrinking window of opportunity, the pending projects that did not get a notice of intent yesterday may want to do what Northern Natural did: provide information about the end-use of the gas and an estimate of the GHG emissions from that use, to at least allow the calculation that enabled the three Republicans to approve the two projects last week.
Approval May Not Be Enough
For those projects in the queue, getting approval before the third Democrat is appointed may not even be enough. Even mildly controversial projects will likely be the subject of a rehearing request. Until such rehearing requests are denied, a change in control at the Commission could likely result in a change in the outcome in response to the rehearing request. That is why it is critical for the industry and the senators who wrote the letter, including two Democrats from the Senate Energy and Natural Resources Committee, to be focused on Commissioner Chatterjee’s replacement. If the third Democrat agrees with the current Democratic members, the likelihood of any project in the queue going forward in a timely manner decreases tremendously, and the likelihood of a denial grows.
Delays Would be a Certainty, Denial or Unacceptable Conditions a Likelihood
If a third Democrat were to join the Commission and vote in the same manner as the current two Democrats, any project, including those pending, that proposed increasing throughput by at least 15,000 dth/day like Tuscarora will experience a substantial delay in approval. That delay is already assured for the four projects that received a notice of intent yesterday. Based on the projected date for issuance of the EIS in those cases, those projects will have taken, on average, 463 days to complete their environmental review, assuming FERC can meet what appear to be very aggressive deadlines, given that most of FERC staff take off for extended periods during the summer months.
The need for this long delay, according to the dissents, arises from the significant impacts to the environment of the GHGs created from combusting as little as 15,000 dth/day. According to the Democrats, this impact is so severe that the Commission is required by law to prepare a full EIS and not just an environmental assessment (EA). This decision alone would turn the environmental review process on its head. A GAO report found that for the key agencies that conduct environmental reviews, an EIS is prepared in about 8 to 12 percent of projects. That is consistent with our data that shows for FERC projects since 2008, 299 were processed using an EA, and only 38 required preparation of an EIS, which equates to 11%. If the 15,000 dth/day capacity increase is the threshold for the need to prepare an EIS, 263 of the 299 projects processed using an EA would now require an EIS, which would mean that FERC would be preparing an EIS for 90% of all projects. Again, based on the history, that would lead to a substantial delay, even ignoring the tremendous increase in the workload on FERC staff.
As seen above, the time to complete an EIS is typically about nine months longer than the time needed to complete an EA, which would more than double the timeline for the environmental review for those projects that previously would have been subjected to an EA but which would now require the preparation of an EIS.
But one of the notices of intent issued yesterday indicates that this delay will even impact projects that we previously did not monitor in our platform because they were so routine. By issuing a notice to Adelphia Pipeline yesterday, FERC has indicated that, in the future, it will prepare an EIS for projects that are so small they qualify for approval under the pipeline’s blanket certificate. If an NGO objects to the use of the blanket certificate, which is their right to do, FERC will skip from issuing an EA and will instead issue a full EIS for a project that, in the case in question, entails the addition of an electric motor-driven 3,000-horsepower compressor unit to generate an additional 16,500 Dth/day of capacity.
The dissents filed by the Democrats indicate that delay, however, is the least of the issues to be concerned about. The greater risk is that all projects that provide even a minimal amount of additional capacity will be denied a certificate entirely or perhaps conditioned in such a way that the costs will make compliance uneconomic. In a memorandum issued in February, the Biden administration tentatively fixed the social cost of carbon for emitting one ton of CO2 at $51. The calculation in the order issued last week for Northern Natural’s Northern Lights 2021 project shows that it would release 925,244 metric tons of CO2e per year. At the price of $51 per ton, that would equate to an operating cost of over $47 million per year just for the offset. In its application, Northern Natural estimated its annual cost of service to be less than $4.5 million. So fully offsetting the carbon emissions at a rate of $51 per ton would increase the cost of service more than ten-fold, which would undoubtedly make the project uneconomic.
The decision on Commissioner Chatterjee’s replacement is probably the most consequential one facing the industry in decades.