What’s the issue?
Appointments and actions taken by President Biden on his first day in office and the actions taken and comments made by current FERC commissioners at Tuesday’s open meeting may lead to a complete halt in interstate natural gas pipeline construction.
Why does it matter?
If the views expressed by the current FERC commissioners were to become the framework under which pipelines are reviewed and constructed, the risk to a project going into service would grow exponentially and could result in no further projects even being proposed due to that increased risk.
What’s our view?
The views expressed by the current Commission members seem to be based on some fundamental misunderstandings of the process, regulatory and legal standards by which pipeline projects are approved and constructed. If the industry is unable to correct those misunderstandings and a third Democrat who holds similar views is appointed to the Commission, the risk to a project being put into service will grow to the point where it will not be economically viable to even propose new pipeline projects.
President Biden was inaugurated just this Wednesday, but his nominees for key energy-related posts and his first-day executive orders have certainly cast a pall over the pipeline industry. In addition, on Tuesday of this week, in what can only be described as a less than productive meeting chaired by former Chairman Danly, the two Democrats, Commissioners Glick and Clements, and one Republican, Commissioner Chatterjee, espoused views about the process for approving and constructing pipelines that, if they were to become FERC policy, would likely lead to a situation where even proposing a new project would become commercially unviable.
Today we look at the backgrounds of President Biden’s nominees and the significant provisions in his first-day executive orders, and then turn to the troubling open meeting that was held on Tuesday at FERC. As we discuss below, the revolving door between industry and the government has been replaced with one between opposition groups and government, and the first-day directives will likely lead to much higher regulatory hurdles for pipeline infrastructure. Finally, the FERC meeting revealed a host of fundamental misunderstandings by the current Commission that the industry will need to work to correct if it hopes to keep providing needed infrastructure to the country.
In the past, in both Democratic and Republican administrations, there was often room for individuals who had worked for companies in private industry to bring their knowledge into government service for their former regulator. This was often referred to as a revolving door — but based on our review of the backgrounds of the top six appointees that will have oversight with regard to the energy sector, this door has been shut tight in the current administration.
We looked into the employment history of the nominees for Secretary of the Interior, Secretary of Energy, Deputy Secretary of the Interior, Environmental Protection Agency (EPA) Administrator, Chair of the Council on Environmental Quality (CEQ) and the Deputy Administrator of the EPA. As seen above, the most common prior experience is in a non-elected government role. But many of the nominees have also spent considerable time working for non-governmental organizations (NGO) that are generally opposed to pipeline infrastructure. This new revolving door is perhaps best illustrated by the nominee for the chair of the CEQ, Brenda Mallory, who served as General Counsel for the CEQ, but then moved to the Southern Environmental Law Center (SELC). The SELC was the lead NGO that opposed the Atlantic Coast Pipeline and also opposes many infrastructure projects across the South. The nominee for the head of the EPA, Michael Regan, currently serves as Secretary of the North Carolina Department of Environmental Quality. He has previously worked at the EPA, but when not in government, he worked for the Environmental Defense Fund.
The big headline from President Biden’s first-day executive orders was obviously his decision to revoke the presidential permit for the Keystone XL pipeline. But that is just one of many provisions in his orders that will impact the pipeline industry. Some of the other significant directives in those orders include:
As we discussed last Friday in The Trump Administration’s Last FERC Meeting – Seven Bcf/day of Projects Are Pending, President Biden demoted Chairman Danly and appointed Commissioner Glick as Chairman. The key determinant of when there will be three Democrats, though, is whether former Chairman Danly will resign as Chairman Bay did when he was demoted by President Trump. At Tuesday’s open meeting, Commissioner Danly spoke about working with his colleagues on an issue over the coming years and indicated he would see everyone at February’s meeting. So it seems he intends to stay at least for a while, but many suspect he will leave before his term expires on June 30, 2023.
Commissioner Chatterjee’s term ends on June 30, 2021 and he seemed to be campaigning to stay on the Commission, perhaps if Danly steps down early, by praising President Biden and Senator Manchin, the head of FERC’s oversight committee, profusely. Commissioners Christie and Clements just joined the Commission, so they are expected to remain for the foreseeable future. So for now, it appears that we have a five-member Commission headed by a Democrat but with three Republicans. However, Commissioner Christie did not vote on any matters concerning Mountain Valley Pipeline, the importance of which we discuss below. Also, Commissioner Chatterjee stated that he was “eagerly anticipating” the chance to “forge compromises on issues like how the Commission handles greenhouse gases when it evaluates certificates. I’m confident we’ll be able to craft a path forward.” So it appears that the ideological split may be overcome even with a 3-2 Republican majority, but the wild card in that equation is Commissioner Clements, who expressed views we discuss below that may make her unwilling to join any such compromise, at least for a while.
As we previewed last Friday in The Trump Administration’s Last FERC Meeting – Seven Bcf/day of Projects Are Pending, this week’s agenda was promising, but we questioned whether Chairman Danly had the votes needed for many of the items to be approved. In fact, he did not have the votes and so the meeting only created confusion instead of clarity.
Because of his new power as Chairman, we will focus on some of the issues Chairman Glick discussed on Tuesday. First, there were three matters on the agenda related to Mountain Valley Pipeline (MVP). All three were apparently deadlocked at 2-2 because Commissioner Christie did not vote on any MVP matters, although he voted on most others. We will never get to see those orders because they were not approved, but we do expect that Chairman Glick will try to craft orders that can get three votes; the key for that will likely be Commissioner Christie because Chairman Glick made it pretty clear that the 2-2 split was on a key legal disagreement. He indicated that two of his colleagues, presumably Commissioners Chatterjee and Danly, approved of FERC’s “piecemeal approach to authorizing resumption of construction.” Both Commissioners Glick and Clements appear to believe that FERC should issue a stop work order the moment any permit required for a project is stayed or voided by a court. While Commissioner Clements paid lip service to the problems that arise from constantly starting and stopping construction, they both apparently feel that project-wide stop work orders issued in the face of a lost permit is the only “logical” way to proceed.
For now, the tied vote on the first issue, a rehearing request of an order that partially lifted a stop work order, means that MVP can continue its construction in the areas that the FERC staff has authorized. The tied vote on the second matter, though, means that MVP did not get the right to commence construction within the Jefferson National Forest. On the third matter, the tied vote means that MVP did not get the authority it needs to modify its crossing methods for the first 77 miles of the project so that it could proceed without a permit under section 404 of the Clean Water Act. Until Commissioner Christie decides to vote on MVP matters, this will likely remain the status of the project because, even as chairman, it would appear that Chairman Glick doesn’t have the votes to change the status quo.
Also on the agenda were rehearing requests on FERC staff decisions to allow Sabal Trail and Algonquin to put compressor stations for their projects into service. The “draft” orders that were rejected by a majority consisting of Commissioners Chatterjee, Clements and Glick would have denied the rehearing requests. Because the draft orders were not approved, the temporary result is that the rehearing requests are denied. For Sabal Trail, this seems to be much ado about nothing because its station was placed into service on May 1, 2020. Even if FERC were to grant rehearing at this point, forcing an operating station out of service would be an extraordinary remedy for an error by FERC staff in approving an in-service request.
For Algonquin, the case involves its Weymouth compressor station, which has not yet been placed into service. If a rehearing is granted, FERC could still revoke the staff’s approval without having to stop an operating station. Still, the issues being discussed at the meeting appear to be ones that should have been addressed at the time the certificate was granted, namely public interest, health effects of blowdowns in the era of COVID-19, environmental justice and safety.
If the three members seeking to grant rehearing hold that such issues can be revisited at the time the project is ready to be placed into service, that will signal a substantial new risk for all projects. We expect Chairman Glick to direct the preparation of orders in both of these cases that can be agreed upon by the three who voted “No” at Tuesday’s meeting. That could occur very quickly and could be voted out on any day through the notational voting method that allows the Commission to act between open meetings.
The final issue that the two Democrats and Commissioner Chatterjee refused to approve was apparently a repeal of the Instant Final Rule we discussed in FERC’s New Regulation That Will Lengthen Project Timelines. That rule limits FERC’s ability to authorize construction while rehearing requests on a certificate order are able to be filed and prior to FERC acting on any that are filed. From the discussion of the order at the meeting, it was difficult to tell exactly what it would have done, but it appears that it would have repealed the rule and adopted a more limited policy that addressed some of the industry’s concerns about the rule. However, there was no appetite from the three voting “No” to “walk back the protection provided to landowners.”
The discussions at the open meeting were instructive, however, on some key issues that should be of grave concern to the pipeline industry. It would appear that the two Democrats are in favor of revising the Certificate Policy Statement, which Chairman McIntyre proposed doing in 2018 and which we discussed in Development or Disruption? FERC Begins Review of Project Approval Process. However, the apparent solution that the two seek would be catastrophic to the industry and appears to be premised on a fundamental misunderstanding of the process used to obtain other required permits.
Commissioner Clements indicated that she wants the policy to require a much more robust environmental analysis, including a greenhouse gas emissions analysis that is “at least as strong as that required by the DC Circuit.” It is this language that may make any compromise between Chairman Glick and Commissioner Chatterjee unacceptable to her. Even more troubling is that both Democrats appear to want to prohibit FERC from issuing a certificate order until all other permits required under federal law are obtained. They refer to this as prohibiting FERC from issuing “conditional” permits, as it does now. They assert that this will stop the harm caused to landowners from condemnations being commenced prior to a project obtaining all required permits and would limit the likelihood of a court overturning those other permits. In a footnote to a concurrence they filed in a decision related to PennEast, Commissioners Glick and Clements recognized that “there may be instances where access to land along a proposed pipeline route is necessary to complete the surveys that may be required for certain federal authorizations” — but they dismissively state that FERC or maybe Congress could resolve those issues once FERC ends “its current practice of issuing conditional certificates.”
There are at least three fundamental flaws in this analysis. First, many permits cannot be obtained until the facilities and route being approved are defined and the certificate order is what does that. If the certificate is withheld until all permits are received, the applicant will forever be in a Catch 22 in that the applicant needs the certificate to get the permits but needs the permits to get the certificate. Second, in almost every case, and not just sporadic “instances,” the use of condemnation is required to gain access to land to complete the studies needed to obtain the required permits. Third, the condemnation action that is commenced to obtain access does not transfer a permanent interest, but rather is used to obtain access rights. Also, the harm complained of by landowners is not from the condemnation itself but from the issuance of a notice to proceed with construction. If the current majority of commissioners maintains these misconceptions, and especially if a third Democrat who also harbors these misconceptions is added to the Commission, the industry will be at far greater risk than it is now, as the delays inherent in a policy of not issuing conditional certificates is unlimited.
Finally, as discussed above, if there is a majority on the Commission that believes it is appropriate to reassess the public interest, environmental impacts, environmental justice and safety issues just before a project is placed into service, or perhaps even after it is placed into service, the commercial viability of projects will be essentially eliminated. Who would be able to expend the capital needed to build a project only to have the whole project be subjected to reapproval before it can be placed into service? If the industry is unable to correct these serious misconceptions, it risks losing all ability to properly plan, construct and operate projects.
Browse recent blogs about a similar topic.
Pipeline expansion projects are often underwritten by “long-term” contracts with shippers. Many projects at the beginning of the last decade are nearing the end of that “long-term” and if the project was anchored by producers, the changing gas markets may mean those contracts will not be renewed.
We look at the status of the larger FERC projects that are pending and at the more controversial items on the agenda for today.