On April 19, 2018, the Federal Energy Regulatory Commission (“FERC”) released a Notice of Inquiry (“NOI”) in Docket No. PL18-1-000 regarding its long-standing policy on the certification of new interstate natural gas pipeline facilities (“Certificate Policy Statement”)1. The NOI requests stakeholder input on a broad range of topics, including how FERC should evaluate project need, use of eminent domain, the environmental review process, and overall efficiency and effectiveness improvements to pipeline certification. Given the attention this proceeding will receive, and the importance of the issues opened for comment, parties with an interest in the construction of new or expanded pipelines – including pipeline companies, shippers, and pipeline affiliates of LNG terminals – should consider filing comments in this proceeding. Comments are due within 60 days from the forthcoming date of publication of the NOI in the Federal Register.

Background

To construct or operate an interstate natural gas pipeline including an interstate pipeline interconnecting an LNG terminal, owners are required to obtain a certificate of public convenience and necessity from FERC pursuant to section 7 of the Natural Gas Act. FERC evaluates applications for certificates under its Certificate Policy Statement, adopted in 1999, which establishes criteria for determining whether there is a need for a proposed project and whether the proposed project will serve the public interest. Specifically, the Certificate Policy Statement requires FERC to balance public benefits against potential adverse consequences in evaluating a proposed project, with the goal of appropriately considering: (i) whether a project will enhance competitive transportation alternatives compared to existing infrastructure, (ii) the possibility of overbuilding, (iii) subsidization by existing customers, (iv) the project’s responsibility for unsubscribed capacity, (v) avoidance of unnecessary disruptions of the environment, and (vi) avoidance of unneeded exercise of eminent domain.

On December 21, 2017, FERC Chairman Kevin McIntyre announced the intention to review the Certificate Policy Statement. Chairman McIntyre explained at the time of his announcement that “much has changed in the energy world since 1999, and it is incumbent upon us to take another look at the way in which we assess the value and the viability of our pipeline applications.” As detailed in the NOI, since FERC issued the original Certificate Policy Statement, there has been a “revolution in natural gas production technology” resulting in significant production increases, new areas of natural gas production have opened, pipelines systems have reversed or become bidirectional, and natural gas-fired generation has greatly expanded.

FERC’s NOI

FERC’s NOI seeks to examine the agency’s current analytical and procedural approach to determining whether a proposed gas pipeline project is required by the public convenience and necessity and asks for detailed recommendations to address any perceived issues. Specifically, the NOI requests input on issues in four broad categories:

  • The methodology for determining project need, with particular attention to whether precedent agreements are necessary or sufficient indicators of need;
  • The exercise of eminent domain and general landowner interests;
  • Evaluation of environmental impacts of proposed projects;
  • Specific changes that could improve the efficiency and effectiveness of FERC’s existing processes, including pre-filing, post-filing, and post-order issuance.

During the NOI proceeding, FERC will continue to rely on the existing Certificate Policy Statement. FERC also clarifies that the NOI seeks only generic input, and the agency will not consider in the NOI docket any comments specific to ongoing certificate proceedings before FERC.

Commenting on the NOI, Chairman McIntyre stated that it should not be read as a “forecast of policy direction,” or as an indication that the current Certificate Policy Statement is ineffective, or that any changes ultimately will be made. He also stated that he has an “open mind” regarding all the issues identified in the NOI. In a separate statement, Commissioner Cheryl LaFleur, a Democratic appointee and the longest serving member of the current Commission, noted her interest in the topic of determination of need, including the current reliance on precedent agreements, whether FERC should undertake regional-level analyses of pipeline construction, and the appropriate time horizon for project evaluation. She also expressed an interest in FERC’s environmental review process, requesting stakeholder input on the topics of upstream emissions, downstream emissions, and the use of estimates of the social cost of carbon.

Impacts and Next Steps

Comments can be expected addressing several concerns that have arisen in recent pipeline certificate proceedings. For example, groups opposing new pipeline construction have questioned FERC’s reliance on precedent agreements – including those between pipelines and their affiliates – rather than factors such as existing unused pipeline capacity, potential displacement of need by renewables, or region-wide analysis, to demonstrate need for a project. Opposing parties in recent certificate application proceedings also have called for more detailed environmental review, including more extensive analysis of upstream and downstream greenhouse gas emissions related to the proposed pipeline.

Pipeline advocates can be expected to comment on common project pitfalls, including concerns with process predictability, consistency, and timing. FERC signaled its openness to addressing these issues in the NOI, stating that it is “committed to carrying out the goals” of the Trump Administration’s Memorandum of Understanding Implementing One Federal Decision Under Executive Order 13807, designed to streamline environmental reviews and permitting, and to which FERC is a signatory (our prior client alert on this topic is available here). Commissioner Neil Chatterjee echoed this sentiment in a separate statement issued with the NOI, advocating for “clearly-defined rules of the road.”

The NOI provides the pipeline industry and other stakeholders with an opportunity to inform FERC’s policy for evaluating natural gas pipeline proposals in the future. The NOI is available here, and comments are due 60 days following publication of the NOI in the Federal Register.