What’s the issue?
Chairman Glick appears to have a very expansive view of the power granted to FERC to revoke a pipeline’s previously granted certificate.
Why does it matter?
The FERC certificate is not only an authorization to construct a pipeline, but is also the authorization to operate that pipeline. If the certificate can be revoked for Atlantic Bridge, Rover or Midship, that would be the equivalent of a death sentence for those pipeline projects.
What’s our view?
While we do not think Chairman Glick’s view is currently shared by a majority of the Commission, or that it would ultimately be upheld by the courts, there is a risk that it could become the majority view following the replacement of Commissioner Chatterjee this summer. In addition, Chairman Glick has expressed some unsettling views concerning the fairness of past actions by FERC, which may bias him against pipelines. While these views would be troubling if held by any single commissioner, they are even more so when held by the head of the Commission that serves as prosecutor, judge and jury of a pipeline company’s conduct.
Each new FERC open meeting since Commissioner Glick became chairman in January has darkened the cloud over the future of the pipeline industry under his leadership. Following last month’s open meeting, we discussed in FERC Inquiry Puts at Least $27 Billion in Pipeline Projects at Risk the troubling decision he issued, joined by Commissioners Clements and Chatterjee, to ask for briefing regarding certain “concerns” raised about Algonquin’s Weymouth compressor station -- even though that station was placed into service in January. During this month’s open meeting, FERC issued three orders concerning enforcement matters against Rover Pipeline, Midship Pipeline and Spire STL Pipeline.
While the Rover decision appears to be consistent with past practices, the Midship and Spire orders are radical departures from the longstanding practice of allowing staff to handle such matters. In his opening statement at the meeting, Chairman Glick reminded pipeline developers that when they receive a certificate, with conditions, they need to take that responsibility seriously and that FERC “is not going to look the other way.” He stated that, in his view, FERC has several options and "revocation of the certificate itself, must be on the table” for projects that fail to meet their responsibilities. During a press briefing following the meeting, Chairman Glick was reported as stating that the three enforcement actions are designed to “send a clear message to certificate holders.”
The Three Enforcement Actions
The Rover Pipeline order dates back to the application period for that pipeline. In 2015, even before the application was filed, there was a question raised about the impact the proposed project might have on a home built in the 1800s. The undisputed facts are that the applicant bought the house and razed it. The question before the Commission was whether the applicant had violated the Commission’s requirement that applications “contain full and forthright information” because these actions were not immediately disclosed. The order entered last week was an order to show cause against Rover in which Rover will be given the opportunity to both contest the findings of FERC Staff contained in an 81-page report that accompanied the order and the proposed fine of $20.16 million.
Despite being what appears to be a routine resolution of a longstanding issue, the decision was accompanied by concurrences filed by all three Republican members of the Commission. Perhaps the most telling of those concurrences is the one filed by the newest member, Commissioner Christie, in which he notes his own discomfort with the fact that Congress has entrusted FERC with the power of prosecutor, judge and jury. He emphasized that while he voted to issue the order to show cause, he views that order as “only the first step in a process and my vote today is not a prejudgment as to the ultimate resolution of this matter with respect to either a finding of a violation or any penalty.”
Unlike the Rover order, which follows past practices of issuing an order to show cause based on a finding by FERC Staff of a purported violation, the Spire STL order embarks on a new and unexplained path with regard to enforcement of FERC certificate conditions. The issue under consideration is the applicant’s compliance with the restoration conditions in the certificate order with regard to agricultural lands that were impacted by the project. The order itself acknowledges that, while the Commission has the authority to enforce such conditions, its practice has been to refer such issues to the staff in the Office of Energy Projects, “as they are able to address compliance issues in an efficient and timely manner” because they have the “specialized knowledge of certificate requirements, project route and facilities, existing environmental resources and land uses along the project route, and landowner concerns.”
Despite this practice and the fact that Commission staff worked closely with the Illinois Department of Agriculture (Department) with respect to the agricultural mitigation measures it had suggested and which were incorporated into the certificate conditions, the Commission “elected to take up the Department’s compliance allegations in the first instance here,” based solely on the alleged but undisclosed “unique circumstances” of those conditions.
The actions ultimately taken by FERC in the order are not that different from traditional actions required by FERC staff in enforcing the conditions in a certificate. Commissioner Danly dissented in part from the order because he views the reasoning as legally infirm, but the only clue he provides as to why FERC would not follow its practices in this case is because the landowners had made a sympathetic argument. The landowners were represented by counsel and supported in their complaints by the Department, but the extent of comments received on this project after it was placed into service are not exceedingly out of the ordinary, with only twenty-five such filings being made. Our review of other projects placed into service since 2011 shows that Spire has had more comments filed after its in-service date than the typical project.
While FERC jumping into the middle of a routine staff process as it did in Spire STL is problematic, its actions, and particularly the concurrence by Chairman Glick in the Midship Pipeline case, are the most disconcerting event to come out of last week’s open meeting orders. As in Spire STL, the issues addressed in the Midship order concern Midship’s efforts to resolve routine landowner restoration issues following the end of construction which primarily concern agricultural lands crossed by the project. The key distinction between the Spire STL case and Midship would appear to be the sheer volume of such issues. As seen above, Midship has received almost 150 post-in-service comments compared to Spire STL’s 25, but 123 of those complaints were filed by a single consulting company on behalf of a number of landowners who are apparently clients of that company. This same company has been involved in two other recent cases where it was responsible for 40 to 80 percent of the post-in-service comments filed in those cases as well.
While it is troubling to think that all members of the Commission felt it was necessary to intrude on a staff function in this case and in the Spire STL case, the truly distressing part of the decision is Chairman Glick’s concurrence, especially when considered in conjunction with the Weymouth decision from last month.
Chairman Glick’s Concurrence in Midship
Chairman Glick states that while he agrees with the order, he wrote his concurrence to “express my deep frustration with the disregard that Midship has shown for landowners and communities along the route.” A single commissioner’s frustration, even if expressed by the chairman, would not be a problem, but what he views as the remedy certainly could be. He states that a certificate of public convenience and necessity “imposes on the holder concomitant responsibilities, including the responsibility to satisfy every condition in the certificate.” More importantly, he noted that the failure to comply with all of those conditions should lead to a referral to the Office of Enforcement for civil penalties and, if warranted, to the revocation of the certificate of public convenience and necessity itself. It is this unprecedented assertion of authority to revoke a certificate that should be of grave concern to everyone in the industry, especially given the issuance of the Weymouth order last month.
Chairman Glick cites a single case from 1983 for the proposition that there “can be no question that the Commission has the authority to revoke a certificate for violation of its terms or where the parties refuse to uphold the terms of the original contract on which the certificate was predicated.” And this view is held by the chairman, who, in an interchange with Commissioner Danly at this most recent open meeting, encouraged intervention by all those parties that have “been screwed by the Commission over the years” in certificate proceedings. If the chairman assumes that the Commission has acted this way toward participants in prior FERC proceedings, it is hard to understand how he can remain unbiased in the enforcement investigations he has the power to direct and the enforcement decisions in which he will participate. That the chairman of the Commission, which, as Commissioner Christie noted in his concurrence in Rover, serves as prosecutor, judge and jury, has espoused these prejudicial views should be of grave concern to all in the industry.
The apparently low bar for which Chairman Glick believes the death penalty for a pipeline is appropriate contrasts significantly with the authority that the industry itself believes FERC possesses. In the past week, both Algonquin and the Interstate Natural Gas Association of America (INGAA) filed briefs in the Weymouth proceeding that was launched at last month’s open meeting. In Algonquin’s view, the Natural Gas Act (NGA) does not authorize the Commission to reconsider a final certificate order to impose additional conditions or to revoke a final certificate order in the circumstances of that case. INGAA goes even further and asserts that the Weymouth order cited no authority that allows it to reconsider or revoke a final certificate and that “is because there is none. Courts have made it clear that the NGA does not permit the Commission to revoke a certificate of public convenience and necessity that has become final.” Interestingly, INGAA relies on the very same decision as that cited by Chairman Glick, but finds that it stands for the opposite proposition, namely that the “NGA allows FERC to ‘issue’ certificates and to attach ‘terms and conditions’ to them, but not to ‘revoke,’ ‘rescind,’ ‘suspend,’ or anything of that nature.”
Clearly, the current chairman believes that FERC has “screwed” many parties in the past and he appears to be on a mission to correct that behavior. Whether the other four commissioners will allow that to occur remains to be seen, but for now the industry has been put on notice that there is a new Sheriff in town.