Washington Watch: FERC Environmental Compromise Results in Authorization of New LNG Project

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The Federal Energy Regulatory Commission (FERC) recently authorized the first liquefied natural gas (LNG) export terminal in years. Is this an exception that proves the rule or a harbinger of things to come?

“We welcome the prospect of U.S. LNG exports in the future since additional global supplies
will benefit Europe and other strategic partners.”
— Barrack Obama

Last December, Chairman Neil Chatterjee struck an item from the FERC’s open meeting agenda: A proposed order authorizing the construction of Venture Global Calcasieu Pass LLC’s Louisiana LNG export terminal and an associated interstate gas pipeline, TransCameron Pipeline LLC. Apparently, the chairman didn’t have the votes to approve the order. Commissioner Kevin McIntyre (R) was critically ill, and Commissioner Bernard McNamee (R) had just been confirmed but was not yet ready to vote. That left only the chairman and the remaining two commissioners, Cheryl LaFleur (D) and Richard Glick (D), who had previously expressed concerns with granting authorization for new natural gas projects, absent more extensive environmental review to address climate change. Fast forward two months: FERC authorized both the LNG export terminal and the associated pipeline. What changed?

First, some background information. Section 3 of the Natural Gas Act (NGA) addresses imports and exports of the natural gas, with responsibility bifurcated between the Department of Energy (DOE), which has jurisdiction to authorize the import or export of the natural gas commodity and FERC, which has jurisdiction over the siting, construction and operation of import/export facilities. Venture Global had previously received from DOE authorization to export domestically produced natural gas (in liquefied form). That left FERC to address the physical export facilities.

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Global Venture’s proposed LNG export terminal along the Calcasieu Ship Channel is designed to liquefy and export up to 12 million metric tons per year. The terminal would include a new 720 MW generation project, which would power terminal activities. The export terminal would receive gas from a new 23.4-mile, 42-in. diameter pipeline being developed by TransCameron. In late February, FERC authorized the export terminal (under NGA Section 3) and the associated pipeline (under NGA Section 7(c)) by a vote of 2-1-1, that is, the Chairman and Commissioner McNamee voted “yea,” while Commissioner LaFleur concurred, and Commissioner Glick dissented.

The key to passage was the project’s Environmental Impact Statement’s (EIS), which discussed the “direct” greenhouse gas (GHG) impacts from the export terminal, including the power plant. The EIS estimated that the operations would result in emissions of up to 3.9 million metric tons per year of carbon dioxide equivalent (CO2e). To put this estimate in perspective, the EIS noted that in 2016 there were 5.8 billion metric tons of CO2e, meaning that the export terminal had the potential to increase CO2e emissions by only 0.07 percent at a national level. The “direct” GHG analysis was all that was required by FERC’s EIS, because several years ago the DC Circuit held that only DOE was responsible to assess the “indirect” upstream and downstream impacts of exporting LNG.

Commissioner LaFleur would have preferred more, like using the Social Cost of Carbon to help address the NEPA mandate that the agency consider whether the project actions “significantly affect the quality of the human environment.” She recognized, however, that “monetizing climate damages through the Social Cost of Carbon does not readily lend itself to the Commission’s environmental review of natural gas facilities….” Accordingly, the GHG analysis in the EIS was enough to persuade Commissioner LaFleur to conclude that the project was “not inconsistent with the public interest.” Commissioner Glick, however, was unpersuaded, contending that the majority had side-stepped FERC’s obligation to determine the extent to which the project would contribute to climate change.

Nevertheless, the Chatterjee was pleased with the compromise and shared credit: “Commissioner McNamee showed just how he got his reputation as being a ‘lawyer’s lawyer’ through his attention to the law and work to find common ground. And Commissioner LaFleur was supportive of this project and constructive in working to reach our agreement.” News of the LNG export terminal’s approval was well received by the natural gas industry, but FERC’s Chairman has recognized that he’s got to follow up with more LNG approvals. That may be challenging.

“Unless you are willing to compromise, society cannot live together.”
— Alan Greenspan
Membership Changes

In January, Commissioner McIntyre died after battling brain cancer during his entire term at FERC, first as chairman and more recently as commissioner. A lawyer by trade and only 58 years old, McIntyre leaves behind a wife and three children. His term at FERC was set to expire in June 2023. His death leaves FERC with only four Commissioners, two Republicans and two Democrats, which in turn opens the possibility of no action due to split votes.

Later in January, Commissioner LaFleur, FERC’s longest serving commissioner, announced she would not be seeking a third term. She was first nominated by President Barack Obama in 2010 and was confirmed for a second term by the Senate in 2014. Significantly, she served as chairman from July 2014 until April 2015, as well as acting chairman from November 2013 to July 2014 and January to August 2017. In fact, for a little over a month in the summer of 2017, LaFleur was the only member of FERC! Her term expires on June 30, but she can stay on until the end of 2019, if not replaced. She has indicated that she would likely stay on the job until a successor is in place.

LaFleur had hoped to stay on longer. But those hopes were dashed during a call from Democratic Senate leadership — read that as Senate Minority Leader Chuck Schumer (D-N.Y.) — during which she was informed in no uncertain terms that she would not be nominated for another term, payback of sorts for then Acting Chairman LaFleur’s decision in 2014 side to approve a proposal by the New York electric grid operator — to attract new electric generation into an undersupplied area — over the objections of Senator Schumer. In 2014, the Senate confirmed LaFleur to a second term by a vote of 90 to 7. Schumer was one of the seven to oppose the nomination.

In February, Schumer recommended Alison Clements, a clean energy lawyer, to replace LaFleur. Clements is currently a director at the Energy Foundation, previously spent nine years at the Natural Resources Defense Council, and before that worked as a lawyer in private practice. Ms. Clements has an undergraduate degree in environmental policy from the University of Michigan and a law degree from George Washington University.

Prior presidents have generally accepted Senate leadership recommendations for federal government positions, such as FERC commissioners. In the current political environment, it remains to be seen whether President Trump will accept Schumer’s recommendation. When there are two FERC vacancies (one from each party), the administration and the Senate often pair two nominees as a package, in order to “grease the skids” in the confirmation process. But there’s no word yet about a replacement for Commissioner McIntyre.

“For as in the government of states it is sometimes necessary to bridle one faction with another, so it is in the government within.”
— Francis Bacon

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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