FERC’s New Gas Pipeline Certificate Notice of Inquiry: Unlikely to Change the Status Quo

On April 19, FERC issued a Notice of Inquiry (NOI) soliciting public comments on whether to revise its long-standing policy governing the processing and approval of new natural gas pipeline facilities under Section 7 of the Natural Gas Act. Although this opens the floodgates to public comment on very contentious issues, it is unlikely to result in significant changes in the process.

FERC has issued less than two dozen NOIs in the past decade. Typically, this is a vehicle used by FERC to highlight regulatory problems and offer possible solutions for public input. For example, in a 2016 NOI, FERC advised it was rethinking its approach to assessing market power when evaluating proposed public utility sales of facilities under Section 203 of the Federal Power Act (FPA) and applications under Section 205 of the FPA for market-based rate authority. An integral element of that NOI was a request for public comment on several “potential improvements” FERC staff had developed.

In contrast, FERC is silent on the underlying problems that have led to the issuance of this new NOI and it offers no potential improvements. But anyone reading the trade press is well aware that new gas pipeline construction projects are engendering extensive landowner/environmental opposition. Further, increasing court challenges of orders approving such projects is causing FERC to devote additional efforts to building a bullet-proof administrative record in advance, thereby slowing down processing substantially. Yet at the same time, FERC’s Chairman recently has signed onto an inter-agency Memorandum of Understanding to implement a Trump Administration Executive Order designed to expedite infrastructure project review.

Put between a rock and a hard place, FERC here sits on the sidelines. It asks whether its existing policies – namely its method of determining project need, its consideration of eminent domain use/landowner rights and its analysis of environmental impacts should be “adjusted.” Additionally, it asks whether procedural process changes are needed to improve “efficiency and effectiveness” or ways “to improve the transparency, timing and predictability of the Commission’s certification process.” Treading even more delicately it asks “commenters to identify, with specificity, any perceived issues with the Commission’s current analytical and procedural approaches and to provide detailed recommendations to address those issues."

But just asking questions does not give the public the benefit of lessons learned by the agency in 19 years of processing applications under the existing certificate policy statement. It is a remarkably passive stance for this agency as compared to its usual approach in an NOI. That FERC punts on taking any position or making concrete proposals for public comment signals that it is unlikely to make wholesale changes to its existing policies. This is not surprising in the current acrimonious political climate.

That doesn’t mean this NOI will be ignored. Stakeholders dissatisfied with the current approach can be expected to offer extensive commentary on why each of the identified policies should be “adjusted.” The 4th Circuit’s recent order effectively halting construction of the Atlantic Coast Pipeline is likely to invigorate environmental and landowner groups seeking to convince FERC that construction should not be allowed until  after all litigation is complete. Pipelines can be expected to argue that now is not the time for the agency to make the certificate process more attenuated, pointing to FERC’s March 15, 2018 finding that no Master Limited Partnership (MLP) pipeline (and potentially non-MLP pass through pipelines) can recover an income tax allowance in its cost of service. From the point of view of the pipeline sector, this recent policy change, and its resulting adverse impacts on cash flows and credit metrics, is already likely to discourage needed energy infrastructure projects previously developed by MLP pipelines.

But in addition to addressing these broad and important policy questions, parties should not neglect FERC’s call for procedural process improvements. To that end, below are three relatively lower hurdle procedural changes that could be proposed to FERC. They would each help make the process more transparent and thereby enhance public confidence in the pipeline siting process.

1. Only issue public notice of new pipeline certificate applications after first verifying that the public version of the application complies with the privileged material rule.Under FERC rules, pipelines may excise from the public version of an application only Critical Energy Infrastructure Information (CEII) and materials it claims are exempt from mandatory disclosure under the Freedom of Information Act (FOIA). The pipeline must justify all such privileged materials redacted from the public version on the basis of an exemption from FOIA.
   
   However, this rule is rarely enforced and as a consequence, routinely violated by a number of pipelines. For example, precedent agreements, which are central to an analysis of a pipeline’s ability to demonstrate project need, are usually designated as non-public even though the rule provides for redaction of only specific privileged material and then only if  justified. Pipelines are also required to include in certificate applications a form of protective agreement under which an interested party, upon execution, can get copies of this privileged material. Not surprisingly, the pipelines that excise significant portions of an application on the basis of privilege without justification also fail to include a form of protective agreement in the application. If FERC were to delay the start of the public notice process until after it verifies that the public version of each certificate application it receives is in compliance with this rule, offending pipelines would have incentive to comply in the first instance.


2. Extend the public comment/intervention period to 60 days to match the 60 day period for hydroelectric license applications. This would be exceedingly valuable and help allay due process concerns in light of FERC’s recent decision to make it exceedingly difficult for anyone to intervene out-of-time in a pipeline certificate proceeding. It would also make sense because FERC justified this new hardline policy on how it already handles late interventions in hydroelectric proceedings. See our previous blog communication here.


3. Revise the text for each “Notice of Availability of the Draft Environmental Statement” for new gas pipeline projects to highlight the fact that the issuance of this document provides a second opportunity for public intervention. Currently, one has to read to the very end of a multi-page notice to learn of this valuable right; and the brief text alluding to the ability to intervene is unnecessarily obtuse.