The Federal Energy Regulatory Commission is seeking stakeholder comments through a Notice of Inquiry as it contemplates updating its policy statement on how FERC-jurisdictional facilities are reviewed and authorized.

In a move that could revamp the Federal Energy Regulatory Commission’s (FERC’s or the Commission’s) 19-year-old policy statement on its certification of new natural gas transportation facilities (Interstate Pipeline Certification Policy Statement or Policy Statement),[1] FERC issued a Notice of Inquiry (NOI) last Thursday that seeks stakeholder perspectives to help the Commission explore whether, and if so, how, to revise existing policies regarding its review and authorization of interstate natural gas transportation facilities under Section 7 of the Natural Gas Act (NGA).[2] The NOI seeks stakeholder input on whether FERC should adjust (1) its methodology for determining whether there is a need for a proposed new interstate gas pipeline project; (2) FERC’s contribution to applicants’ exercise of eminent domain and landowner interests related to proposed projects; (3) its evaluation of environmental impacts of proposed projects; and (4) its timeline for determining whether it will authorize applications for construction and operation of proposed projects.

Purpose and Possible Need for an Update to the Policy Statement

FERC explained that it is issuing its NOI in light of significant changes that have occurred since it issued its 1999 Interstate Pipeline Certification Policy Statement. Such developments include (i) a technological revolution in gas production; (ii) increased use of natural gas as a fuel source for electric generation; (iii) increased landowner concerns over the use of eminent domain; and (iv) an increased interest in FERC’s evaluation of upstream and downstream greenhouse gas environmental impacts resulting from project construction and operation. Technological enhancements have led the United States to become a net exporter of natural gas in 2017 through a combination of increased pipeline exports to Mexico, reduced imports from Canada, and increased liquefied natural gas (LNG) export activity.

Adhering to the requirements of the NGA and the National Environmental Policy Act (NEPA), FERC’s Interstate Pipeline Certification Policy Statement was implemented to outlay the factors FERC must balance when determining whether a proposed project meets its public interest standard. First, as a threshold matter, FERC determines whether a proposed project’s “anticipated public benefits outweigh its residual effects on economic interests.” For example, incremental expansion projects that have minimal rate impact on existing customers whose capacity is presubscribed are more likely to pass this test.

If that threshold inquiry is answered in the affirmative, FERC will complete an analysis of a proposed project’s environmental impacts and use those findings to reach its conclusion on whether a project is required by the “public convenience and necessity.” Through its Policy Statement, FERC aims to “appropriately consider” factors such as enhancing competitive transportation alternatives, overbuilding of pipeline infrastructure, disruption of the environment, and the exercise of eminent domain. FERC’s NOI attempts to further these goals through its solicitation for stakeholder input on whether its policy should be updated in light of all the changes that the industry has seen over the last 19 years.

Project Need

FERC’s NOI first addresses its concerns about project need. FERC requests comments on topics such as (i) whether it should change how it determines if there is adequate public need for a proposed project; (ii) what type of factors it should examine if FERC were to look beyond the existence of precedent agreements for proposed projects; and (iii) whether it should consider distinguishing between precedent agreements with affiliates and non-affiliates when considering a proposed project’s need.

In practice, FERC assesses whether a project’s proposed construction and operation has a specific need, satisfying the public interest, by identifying how much project capacity has been subscribed by shippers through precedent agreements; however, FERC’s NOI seeks stakeholder input on whether FERC should consider factors beyond the mere existence of precedent agreements. A potential option FERC references involves adopting the practice of certain state regulators that review local distribution companies’ fuel and capacity purchases to determine whether utility expenditures are prudent. FERC also highlighted that it currently does not distinguish between affiliate and non-affiliate precedent agreements in considering the need for a proposed project but may want to change its current practice.

Eminent Domain and Landowner Interests

FERC also invites stakeholder comments on whether it should reevaluate how it considers the right of eminent domain in proposed applications. This includes whether applicants should take additional measures to minimize the condemnation of landowner property and whether FERC’s current certificate process adequately considers landowner interests. As described above, FERC’s approval of Section 7 certificates must account for an applicant’s expected acquisition of property through eminent domain. A project applicant may only assert the right of eminent domain after FERC authorizes a project.

Environmental Impacts

FERC asks stakeholders to, among other issues, weigh in on whether FERC should consider calculating the potential greenhouse gas (GHG) emissions from upstream activities (such as drilling) and/or downstream activities (such as power plant end use consumption). Under NEPA, FERC must incorporate a proposed project’s environmental impacts into the balance of factors it weighs pursuant to its public convenience and necessity standard. Specifically, FERC’s evaluation of proposed projects’ impacts on climate change resulting from indirect increases in greenhouse gas propagation has been an issue that environmental groups and other stakeholders have challenged in various recent FERC proceedings. The challenges have been raised in light of Sierra Club v. FERC, Case No. 16-1329 (DC Cir. 2017), a decision by the US Court of Appeals for the DC Circuit that directed FERC to revise the environmental impact statement used to support its Section 7 certificate authorization for the Southeast Market Pipelines Project. There, the DC Circuit stated that FERC failed its NEPA analysis because it was required to provide a quantitative estimate of downstream GHG emissions that would result from burning the increased supply of natural gas that pipelines would transport as a result of the Southeast Market Pipelines Project’s construction and operation. The court stated that if FERC was unable to do so, then it was required to explain why.

Improvements to the Efficiency of the Commission’s Review Process

In an effort to streamline its certificate review process, FERC finally asks stakeholders to comment on whether it should shorten certain aspects of its authorization process, such as its pre-filing, post-filing, and post-order issuance procedures. FERC also asks whether there are certain classes of projects that should be subject to a shortened process. FERC may be particularly receptive to comments it may receive to this portion of its inquiry in light of President Donald Trump’s Executive Order 13807 earlier this year, which directs agencies to make timely decisions and complete all federal environmental reviews and authorization decisions for major infrastructure projects within a two-year timeframe.

Next Steps

FERC emphasized that during the pendency of its inquiry, FERC intends to continue to process natural gas facility certification matters consistent with its original Policy Statement, and to make determinations on the issues raised in those proceedings on a case-by-case basis. Additionally, in FERC’s open meeting, held April 19, 2018, Commission Chairman Kevin McIntyre emphasized that FERC’s issuance of the NOI does not necessarily mean that any adjustments suggested by stakeholders will necessarily be made to its Policy Statement. Comments are due by June 25, 2018.