Reform Is Long Overdue for FERC’s Gas Pipeline Reviews
By Gillian Giannetti, Natural Resources Defense Council
It’s been almost two years since the Federal Energy Regulatory Commission announced that it would take a fresh look at its 20-year-old policy that guides its reviews of new gas pipeline projects, and almost 18 months since NRDC and others filed more than 1,600 comments with the agency on this very question. Since that time, FERC has been silent on the status of its review. A new NRDC-commissioned report released today brings this important issue back into focus and highlights the key areas for reform.
Authored by renowned energy expert Dr. Susan Tierney of Analysis Group, FERC’s Certification of New Interstate Natural Gas Facilities: Revising the 1999 Policy Statement for 21st Century Conditions summarizes the key calls for action outlined by the thousands of public officials, landowners, academics, environmental organizations, think tanks, utilities, industry participants, and private citizens who filed comments with the agency. The report is a supplement to Tierney’s November 2017 report, which made the initial case for FERC to revise its policy.
Based on the comments filed, and to “restore confidence that FERC will approve only those pipelines that are in the public interest,” the report recommends that “the agency should adopt and implement numerous changes.” These are:
Incorporating an “all relevant factors approach” to determine pipeline need
Right now, FERC essentially relies on “precedent agreements”—contracts between a pipeline developer and a “shipper” (someone who wishes to reserve capacity on the pipeline)—to determine whether a pipeline is needed and required by the “public convenience and necessity,” per the Natural Gas Act. The thinking is that if a developer is able to secure contracts for its capacity, there must be a market demand for the project.
Here’s the problem. While commercial interest is clearly relevant to determining need, it is not the only relevant factor, a fact that has been recognized by agencies as far back as the 19th century. Other factors, including energy demand projections, the existence of other pipelines, community and landowner impacts, and environmental impacts, are also relevant to the inquiry.
Moreover, precedent agreements may not even demonstrate market demand. These agreements increasingly are between companies within the same corporate umbrella. While such affiliate contracts may be legitimate, they do not show external market demand. And due to a variety of incentive structures, including a guaranteed 14 percent return on equity for new pipeline companies, pipeline developers can still turn a profit even if there is never any market demand for the project. Concerns about FERC’s over-reliance on affiliate precedent agreements span the industry; even two pipeline companies filed comments with FERC about this issue.
FERC’s misplaced confidence in affiliate agreements is particularly concerning in cases where the pipeline takes land via eminent domain, as, without further inquiry, there is no way to determine whether the project is for a public use, a requirement for a taking under the Constitution.
Ensuring fairness and due process for landowners
Several procedural mechanisms currently make it impossible for most affected parties, including landowners, to challenge a FERC approval in court before the project is already built and in service. The system is bad enough that, last summer, a federal judge described it as a “Kafkaesque regime.” Most of the comments from those outside the gas industry call on FERC to implement a variety of reforms to protect landowners, including restricting the use of so-called “tolling orders” (which indefinitely delay FERC action and thereby hold up judicial review) and “conditional” certificates (which enable pipeline companies to fell trees and take land while the project is still under review).
Conducting a robust environmental review
The National Environmental Policy Act, or NEPA, requires FERC to consider all of the direct, indirect, and cumulative impacts caused by a proposed project. Currently, FERC takes a narrow and controversial approach to this review, often ignoring the greenhouse gas emissions induced by the project. This undercuts FERC’s entire NEPA analysis, and also impairs its public interest analysis under the Natural Gas Act, as a project’s environmental impacts clearly relate to whether the project is required by the public convenience and necessity.
Prioritizing accuracy over speed
Tierney notes that “many in the pipeline industry are frustrated with the current time frames for pipeline reviews and seek shorter reviews of applications.” While improving efficiency should be an ongoing goal of any agency, “the complex issues related to project need and environmental impacts, and considerations related to the potential exercise of eminent domain, call for FERC to take whatever time is necessary to ensure a full and fair collection and consideration of the evidence.” When FERC authorizes a pipeline, it has immediate and irreversible impacts on people who may never reap the benefits of the project. Lands and livelihoods are taken and permanently altered, and those along a pipeline project are subject to significant health and safety risks (see here for one particularly egregious example). FERC needs to be viewed as an agency that protects the public interest by ensuring orderly infrastructure development, not as a clearing house for unneeded projects. Given that over the last 20 years, FERC has denied only two pipeline projects (while approving 474), the evidence suggests that more scrutiny is needed.
FERC Chairman Neil Chatterjee told reporters last month that for “something as fundamental and significant as changing our pipeline approval process and a review of the 1999 certificate policy statement, that’s something that you need a full complement of five [commissioners] and consensus on to have durability for the future.” FERC currently has two vacancies. While FERC awaits new commissioners, it should not let its review become stagnant. Instead, the agency can move the conversation forward by providing further opportunities for public comment, including through technical conferences, both in Washington and in communities at the forefront of the pipeline industry.
As Tierney’s report highlights, the call for change is loud and diverse. We call on FERC to take this review seriously and ensure that its policy is consistent with its role as the “guardian of the public interest in determining whether certificates of convenience and necessity shall be granted.”