Years ago, Nat King Cole sang, “Roll out those lazy, hazy, crazy days of summer.” But as temperatures climb in Washington, D.C., there is nothing lazy or hazy here — just crazy — with news ranging from presidential action on an international climate deal to Congressional energy legislation, federal agencies trying to reduce regulatory burdens and a much-needed quorum coming to the nation’s energy regulator.
Paris Climate Accord
The big news in Washington is President Donald Trump’s announcement that the United States will withdraw from the Paris Climate Accord and begin negotiations to re-enter under a new agreement with more favorable terms for the United States. The accord, which was executed by former President Barack Obama in December 2015 and became effective in 2016 without formal Congressional action, aimed “to strengthen the global response to the threat of climate change” by holding “the increase in the global average temperature to well below 2 degrees above pre-industrial levels.” Specifically, each country would use its best efforts through “nationally determined contributions” to curb carbon emissions. For the United States, the Obama administration hoped to achieve by 2025 a reduction of 26 to 28 percent below 2005 levels of greenhouse gas (GHG) emissions.
President Trump explained that complying with the Paris Accord would 1.) undermine U.S. competitiveness and jobs, costing the country’s economy nearly $3 trillion over the next several decades according to a study by NERA Economic Consulting; 2.) require U.S. taxpayers to contribute $3 billion toward a United Nations green climate fund, $1 billion of which was already paid by President Obama before he left office; 3.) impose unrealistic targets on U.S. carbon emissions, while giving countries like China a “free pass”; and 4.) produce a negligible climate impact, that is, reducing the global temperature rise by only 0.2 degrees in 2100 according to MIT researchers.
Notwithstanding the above, the president’s decision was not made easily, given that his Secretary of State and other advisors (including the First Daughter) urged him not to exit the deal. Plus, leaving won’t be quick. Under Article 28 of the accord, a signatory cannot withdraw until three years after the accord became effective (Nov. 3, 2016), and even then, the withdrawal won’t take effect for another year. Therefore, the U.S. exit from the Paris Climate Accord won’t take effect until Nov. 3, 2020, which is the date of next presidential election. The political implications of this decision won’t go away quietly or quickly and could become part of the next election debate.
Trump’s decision was not well received in Europe. The leaders of France, Germany and Italy quickly mounted a stiff, united stand, saying that the accord cannot be renegotiated. Shortly thereafter, the European establishment essentially “unliked” the United States and found a new Super Power friend: the European Union and China announced plans to form a new alliance to tackle climate problems.
A more pragmatic approach may have been to stay in the accord, continue to reduce carbon emissions (but not on the fast track envisioned by Obama) and inform the international community that the United States will support the UN green fund, but not with a $3 billion contribution.
Tribal Energy and Self Determination Act (S 245). Senator John Hoeven (R-N.D.) and a group of other senators have introduced a bill to streamline the permitting process for drilling and mining by authorizing tribes to conduct their own resource appraisals. In 2005, Congress tried to achieve this goal with Title V of the Energy Policy Act, but implementation was more burdensome than Congress intended. These issues are being revisited because Indian tribes have expressed concern with the number and complexity of Federal laws governing the development of tribal energy resources, leading to increased costs, delay and uncertainty for all parties, which in turn discourage development of tribal
Consider this: Tribes own just 2 percent of the land, but as much as 20 percent of the country’s oil and gas reserves. As such, reducing regulatory hurdles could unleash development of significant amounts of new energy resources. A previous house version of the bill was opposed by President Obama in 2015 because it exempted tribes from some environmental regulations. That won’t be an issue this time. In late May, the bill was reported out of the Senate’s Indian Affairs Committee without amendment.
Great Lakes Pipeline Safety (S. 1226). Legislation to increase safety of crude oil and products pipelines operating around the Great Lakes was introduced by Michigan Senators Gary Peters and Debbie Stabenow and referred to the Senate Committee on Environment and Public Works. Senator Peters stated: “Senator Stabenow and I are working together to hold Great Lakes pipeline operators to the highest standards and help protect against the catastrophic consequences of a worst-case spill that would endanger our environment and the multi-billion shipping, tourism and fishing industries supported by the Great Lakes.”
To that end, the legislation would 1.) change the classification of such onshore pipelines to a new special category that would hold pipeline operators liable for the same type of standards applicable to offshore pipelines, meaning that meaning operators could be responsible for covering all oil spill cleanup costs, up to $133.65 million; 2.) expand the Department of Transportation’s emergency authority to shut down pipelines; 3.) require the Coast Guard and the Environmental Protection Agency to review pipeline operator response plans submitted to the Pipeline and Hazardous Material Safety Administration (PHMSA); and 4.) require PHMSA to make facility response plans available online.
As reported in a column earlier this year, President Trump issued an executive order aimed at reducing the regulatory burden on the American people by requiring each federal agency to 1.) appoint a Regulatory Reform Task Force to evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement or modification; and 2.) “seek input and other assistance, as permitted by law, from entities significantly affected by Federal regulations, including State, local and tribal governments, small businesses, consumers, non-governmental organizations and trade associations.” In April, EPA sought similar public input and received 60,000 comments within 45 days. More recently, the Department of Energy asked the public for help identifying regulations that could be modified or eliminated.
Earlier this year, the Department of Transportation sought and received comments on reducing regulatory burdens for all its umbrella agencies, including the Pipeline and Hazardous Materials Safety Administration (PHMSA). Look for some action reducing regulatory burdens imposed by PHMSA and a commensurate reduction in the administration’s budget, which grew by more than 60 percent under President Obama. Finally, on May 31, DOT announced that Jeffrey Rosen, Deputy Secretary and second in command at the agency, was named Regulatory Reform Officer — a position required by the executive order referenced above.
The Federal Energy Regulatory Commission (FERC) has been in the news, but not for any regulatory action. FERC is typically comprised of four commissioners and a Chairman, who sits at the pleasure of the president. Two Republican commissioners (Philip Moeller and Tony Clark) stepped down in 2015 and 2016, respectively, leaving just Chairman Norman Bay and Commissioners Cheryl LaFleur and Collette Honorable, all three Democrats. But Bay abruptly resigned when informed earlier this year that he would no longer be Chairman. Instead that mantle was passed once again to the veteran regulator, LaFleur, who had previously served as Chairman.
After Bay departed in February, FERC had just two commissioners and lacked the quorum necessary to conduct most business, such as act on Natural Gas Act certificate applications to construct new pipeline projects or requests for electric utilities to merge. The last act of FERC with a quorum was to issue a “delegation order” aimed to preserve and expand the authority of its staff to act on important agency functions until new commissioners could be nominated by the president and confirmed by the Senate.
FERC’s delegation order 1.) delegated certain additional authority to its staff to act when the quorum disappeared, such as accept pipeline tariff filings subject to refund, grant extensions of time, act on uncontested tariff waiver requests and approve uncontested settlements; and 2.) affirmed that “all pre-existing delegations” would remain in effect, such as, the authority to approve uncontested hydroelectric licenses and license transfers, applications of power generators for certification as “qualifying facilities,” disposition of transmission assets and other jurisdictional assets, issuances of debt and certain gas pipeline certificates and service abandonments. Whether the “affirmation” of pre-existing delegations can remain effective once the Commission’s quorum disappeared has been an open question discussed by energy lawyers and regulatory wonks over coffee for the last four months and more recently by stakeholders formally challenging some of the Staff’s delegated orders as illegal. Ultimately, the courts may have to sort things out.
In the meantime, President Trump has nominated Neil Chatterjee and Robert Powelson to be FERC Commissioners with terms ending in 2020 and 2021, respectively. These two replacements are coming none too soon – on April 28, Honorable announced that she would not seek a new term when hers expires at the end of June.
On May 25, the Senate Energy and Natural Resource Committee held its confirmation hearing on Chatterjee and Powelson. The Senators’ questions were light. Both nominees expressed support for new infrastructure and suggested that they would look for ways to streamline the process for authorizing the construction of new natural gas pipelines and to coordinate better with other relevant federal agencies. It seems almost a foregone conclusion that the two nominees will be confirmed shortly.
But that does not end the FERC drama. The White House has identified neither Chatterjee nor Powelson as the next Chairman, raising speculation that LaFleur would remain in the position even after two new Republican commissioners take office. That would be unusual, but the Acting Chairman has expressed an interest in remaining at FERC until her term expires in 2019, was willing to accept the chairmanship temporarily and has done a yeoman’s job keeping the agency working during stressful times. All that said, President Trump has indicated that he will tap Kevin McIntyre, the co-chair of Jones Day’s energy practice to be the next FERC Chairman. It remains to be seen when McIntyre is nominated and whether he will be paired with a Democrat to replace Honorable. Though such pairing has been the norm when there are open Democratic and Republican FERC seats, some believe that the last Democrat seat may remain vacant, as payback for President Obama’s not filling the Moeller’s Republican seat that became vacant in 2015.
Indeed, if Obama had nominated a Republican replacement for Moeller, there would still be a fully functioning FERC quorum with at least three and possibly four members voting on needed infrastructure projects. That said, Trump didn’t help matters by waiting more than three months to nominate Chatterjee and Powelson. Still others believe that Trump might imitate former President Bill Clinton by nominating an “Independent” as the fifth commissioner. Time will tell.
Once the new commissioners are settled in, FERC will be busy addressing the backlog of applications and orders built up over the last few months. Plus pipelines and utilities that have been waiting for a quorum will file applications that have otherwise been ready. August is usually a slow month at FERC, but not this year. The FERC staff will be working hard and longing for Nat King Cole’s “ lazy, hazy crazy days of summer, those days of soda and pretzels and beer.”
Washington Watch is a bimonthly report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Stinson Leonard Street LLP in Washington, D.C. Contact him at email@example.com.