FERC Certificate Approvals — Are They Really Taking Less Time?

What’s the issue?

The average time it took for FERC to review and approve a pipeline project grew almost exponentially during the last decade as the number of projects seeking approval also grew. Now that the number of projects is down, the question is will the time frames improve, and in particular, will timelines improve for compression projects.

Why does it matter?

A key factor in bringing a project online is being able to accurately estimate how long it will take to obtain the necessary regulatory approvals. As compression projects become a focus of the industry, accurately predicting their timelines becomes increasingly important.

What’s our view?

At first glance, it appears that the timeline for getting approval from FERC is improving, but that may be a mirage driven more by the fact that the mix of projects seeking approval has changed. Compressor projects have not “returned to normal” from the early years of the past decade. Also, the use of electric turbines or lower emissions from gas turbines do not seem to speed the process. However, that could change under a Democrat-led FERC, which may factor emissions intensity into its approval process.

At our webinar last week, we noted that the timeline for getting a FERC approval had improved over the last couple of years when compared to the extended timelines experienced in the middle of the last decade. This improvement can be seen in the following graph.

As seen above, the timeline for FERC review and approval has returned to levels more like those in the early part of the last decade. However, the surprising bad news, as we discussed on the webinar, is that the timeline for the simpler projects that FERC typically reviews, i.e., projects involving only new or modified compressors, has not experienced this “return to normal” as seen below.

Today we look deeper into the data for both overall projects and those simpler compressor-only projects to determine if there is an explanation for these seemingly contradictory results. As we discuss below, it appears that the improvement in the overall numbers may have more to do with the mix of projects that are being submitted for FERC review than any improvement in FERC’s overall performance. We also look at whether reducing the intensity of emissions or the use of electric-powered turbines improves the timeline for approval.

The Return to Normal May Be Deceiving

The first graph above shows clearly that one factor that could have influenced the extended timelines in the middle of the last decade was the substantial increase in both new projects being filed and the backlog of projects that FERC had to work through. That backlog and tremendous workload has greatly diminished, and so it was comforting to see that the overall timelines were coming down with them.

But when we looked at the average timelines for basic compressor-only projects, there did not appear to be a similar reduction in the timeline for approval. So we decided to dig a little deeper into the types of projects in search of a reason.

Both common sense and our data show that projects that require the preparation of an Environmental Impact Statement (EIS) generally take longer to work their way through the review and approval process than those that require only an Environmental Assessment (EA). This is because there is simply more work required to prepare an EIS and more opportunity for public comment. These projects are also typically much larger in scope and therefore more likely to draw attention from opposition groups. A review of the projects by FERC fiscal year shows that, along with the increase in the sheer number of projects in the middle of the last decade, the percentage of projects that required the preparation of an EIS also increased.

As seen above, the percentage of projects submitted for FERC review that required the preparation of an EIS grew from less than 5% in 2011 to almost 40% for the 2017 fiscal year. In the years since then, the percentage has dropped precipitously to zero for the 2020 fiscal year. This tremendous drop in the percentage of cases requiring the preparation of an EIS is most likely the primary driver in FERC’s overall improvement for the time it takes to process the applications filed in 2018 and 2019. In other words, FERC isn’t getting faster at processing applications, it is simply getting fewer of the time-consuming cases to process.

This means the second visual above is important to keep in mind because, although the FERC overall average is improving, the timeline for the simpler projects is not. In fact, it has become much worse since the early years of the past decade. This distinction is even more important to keep in mind because, as shown in the visual immediately above, these compression-only cases have become the predominant type of project, growing from less than 10% in 2017 to 50% of all FERC projects in 2020.

Do Compressor Emissions Matter?

As we discussed in A Suggested ESG Metric for Midstream Benchmarking, an Environmental, Social and Governance (ESG) standard that appears in almost all lists of such factors that are important for the energy industry is emissions. Although the current Commission is split over whether it needs to factor in the downstream emissions from the projects it reviews, the Commission does require each project sponsor to provide information regarding the expected operational emissions from its proposed compressor projects. Although, as we discussed in that Insights, an electric compressor does have emissions, just from the power plants that provide it electricity, FERC has been willing to ignore those emissions when considering the operational emissions of electric-powered turbines. This puts gas-fired turbines at somewhat of a disadvantage, so we looked at whether the emissions from a compressor station impacts the expected timeline for FERC approval.

In the 2018 and 2019 fiscal years, there were only two compressor-only projects that proposed using electric turbines. One project, the Gateway Expansion project, had only an electric turbine and the other one, the Empire North project, had both gas and electric turbines. Neither project’s timeline appears to have benefited much, if at all, from the inclusion of electric turbines, as each took over one year to be approved, which is very consistent with the average timeframes for those years and somewhat higher than the median.

We also looked at the CO2e emissions reported by gas compressor-only projects in each of those years to see if there was any correlation between the emissions reported and the time it took them to obtain approval from FERC.

As seen above, there appears to be almost no correlation between the intensity of emissions and the timeline for approval. However, if there is one at all, it shows that the projects with higher intensity emissions get their certificates more quickly. What the above chart also shows, however, is that there is a substantial variation in the projected CO2e emissions per 1000 hp of installed capacity. This intensity measure could become important to ESG investors and may become a factor for a Democrat-led FERC that is focused on greenhouse gas emissions.