Washington Watch: Will Climate Change Alter FERC’s Certification Process for Natural Gas Pipelines?

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Historically, the Federal Energy Regulatory Commission (FERC) has been relatively apolitical, with political party affiliation not being a good barometer of a commissioner’s vote on a particular issue. But recent FERC orders indicate that climate change politics can signal some commissioners’ decisions involving authorization for new, interstate natural gas pipelines. Below, we discuss those orders and how they may foreshadow the outcome of the pending Notice of Inquiry (NOI) on possible policy changes to FERC’s process for evaluating new pipeline construction proposals.

“Maybe climate change is a threat, and maybe climate change has been tarted up by climatologists trolling for research grant cash. It doesn’t matter.”
— P.J. O’Rourke

Climate Change

“If you don’t like the weather in Oklahoma, wait a minute and it’ll change.”
— Will Rogers

“Global warming” and “climate change” are often used interchangeably, but refer to two different things. Global warming means the relatively recent increase in temperatures around the world, while climate change includes global warming, but also refers to a veritable host of horribles, such as, melting ice caps, rising sea levels, and extreme weather events. Climate change activists believe the underlying cause is greenhouse gas (GHG) emissions from the production and consumption of fossil fuels (e.g., natural gas) and argue that reduced production and consumption will ameliorate climate change. That explains why they generally oppose new pipeline development–limiting new pipeline development effectively caps production and consumption.

FERC’s Certificate Policy Statement

“A policy is a temporary creed liable to be changed, but while it holds good it has got to be pursued with apostolic zeal.”
— Mahatma Gandhi

Section 7 of the Natural Gas Act (NGA) requires that a pipeline must obtain from FERC “a certificate of public convenience and necessity before it extends, acquires, or operates any facility for the transportation or sale of natural gas in interstate commerce.” FERC grants certificate authorization upon finding that the pipeline is required by the “public convenience and necessity,” a term not defined in the NGA, but rather left to FERC’s discretion. To make the finding, FERC considers several factors, which have changed over the years, as pipelines have evolved from merchants to transporters and were memorialized in a 1999 “Policy Statement.”

Under the Policy Statement, FERC balances the public benefits of the pipeline project against the potential adverse consequences. If the benefits outweigh the potential adverse effects, FERC addresses environmental issues, as required by the National Environmental Policy Act of 1969 (“NEPA”). NEPA directs federal agencies to incorporate environmental consideration in planning and decision-making. FERC satisfies the requirement by preparing an environmental assessment (EA), but larger projects require more detailed analysis–an environmental impact statement (EIS).

Notice of Inquiry

“Sometimes an active policy is best advanced by doing nothing until the right time – or never.”
— James Baker

Much has changed in the two decades since FERC issued the Policy Statement, e.g., the shale revolution and increased dependence on natural gas by the electric industry to become more dependent upon natural gas-fired electric generation. Existing pipelines simply cannot satisfy requested levels of transportation service from new supply areas to markets across the country. Meanwhile, certificate applications for new pipeline projects have been met with stiff resistance from environmental interests. As such, FERC issued an NOI (Docket No. PL18-1-000) seeking comments, by July 25, 2018, about possible revisions to the Policy Statement. In the main, the NOI asks whether, and if so how, FERC should adjust its (1) methodology for determining whether there is a need for a proposed project, including consideration of precedent agreements and contracts for service as evidence of such need; (2) consideration of the potential exercise of eminent domain and of landowner interests related to a proposed project; and (3) evaluation of the environmental impact of a proposed project.

A Politically Divided FERC

“To err is human. To blame someone else is politics.”
— Hubert H. Humphrey

Recent certificate orders reveal that the battle lines have been drawn over FERC’s role in addressing climate change issues in certificate proceedings. As discussed in a prior column, the DC Circuit vacated certificates that FERC issued in the Southeast Market Pipelines (SMP) proceeding–three related projects to provide transportation service to markets in Florida and the Southeast–because FERC had not estimated the projects’ downstream effects of GHG emitted by power plants that will burn the transported gas. In response, FERC issued a supplemental EIS that quantified downstream GHG emission, but did not attribute any discrete environmental effects to those emissions and, later, by a 3-2 vote along party lines, reinstated certificate authorization (Docket No. CP14-554-002). The Democrats dissented, claiming that downstream GHG emissions are indirect environmental impacts of the pipeline project and must be considered under NEPA.

The Democrats also argued that FERC’s environmental analysis did not utilize the Social Cost of Carbon (SCC)–a tool that estimates the net present value of climate change impacts over the next 100 years (or longer) of one additional ton of carbon emissions today. FERC explained that the tool is not applicable to new pipeline decisions, that FERC lacks jurisdiction over the production or consumption of natural gas (where the tool could be useful), and that “monetized” climate change damages are inherently subjective, involving a number of different assumptions for the 100-year analysis. The Democrats recognized these shortcomings, yet claimed it would help develop a more complete record.

RELATED: Robert Powelson to Step Down as FERC Commissioner in Mid-August

The majority and minority positions became more entrenched in subsequent orders. In Dominion Transmission Inc., Docket No. CP14-497-001, FERC explained that “environmental effects resulting from natural gas production are generally neither caused by a proposed pipeline project nor are they reasonably foreseeable consequences of our approval of an infrastructure project….” Therefore, FERC found that the underlying EA appropriately omitted the impacts from natural gas development and consumption: “When those effects are not indirect or cumulative effects, and thus are not environmental effects of the proposed action, the Commission is not required to consider them under NEPA.” The Democrats dissented, labeling this a “change in policy” and advocating for more climate change analysis using SCC.

Democrats echoed their calls for increased climate change analysis again, when FERC granted Florida Southeast Connection, LLC certificate authorization to construct a new lateral to serve a gas-fired generation plant being developed by an affiliate (Docket No. CP17-463-000). Additionally, one Democrat also questioned whether precedent agreements among affiliates can establish that a natural gas pipeline is needed.

Finally, Tennessee Gas Pipeline Company’s Broad Run Expansion Project received certificate authorization to replace old compressors with newer, more efficient, clean-burning compressors (Docket No. CP15-77-000). On rehearing, FERC rebuffed claims that it should have required the pipeline to submit information about specific upstream production or downstream uses, reasoning that neither the pipeline nor its shippers would likely know the source of any gas, and that the gas would simply be delivered into the pipeline grid: “The Commission does not know where the gas will ultimately be consumed or what fuels it will displace, and likely neither does the entity over which the Commission has jurisdiction, i.e., the transporting pipeline.”

The Democrats were unsatisfied and issued separate statements. One agreed with the majority’s decision to uphold the certificate authorization, but laid down a marker: “I do believe that it [climate change analysis]should be thoroughly reexamined as part of our ongoing Notice of Inquiry on the Certificate Policy Statement.”

Predictions

“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.”
— Lao Tzu

The single biggest issue in the NOI appears to be, when reviewing a pipeline certificate application, whether FERC will analyze the direct and indirect environmental impacts of the project, both upstream and downstream, and, whether SCC will be part of any such analysis. Another issue will involve the role of affiliate precedent agreements in FERC’s “need” determination for a project. These “policy” issues are important: the greater the required showing of “need” and/or the more that upstream and downstream environmental impacts of a proposed pipeline are analyzed, the less likely the project is to receive certificate authorization.

“Let us not seek the Republican answer or the Democratic answer, but the right answer.”
— John F. Kennedy

Tellingly, the Democrats’ positions on these issues could lead to fewer pipelines being built. However, Republicans outnumber Democrats 3-2, so don’t expect the NOI to produce any major changes that would significantly hamper the development of new natural gas pipelines. That said, look for environmental activists to appeal the FERC certificate orders discussed above and support their arguments with quotes from the Democrats’ dissenting opinions. In the end, the courts may be the final arbiter of FERC’s certification policy.

Washington Watch is a regular report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Dorsey & Whitney LLC in Washington, D.C. Contact him at weiler.steve@dorsey.com.

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