FERC Modifies Gas Infrastructure Project Approval Process

At its February 2022 meeting, the Federal Energy Regulatory Commission (FERC) approved two policy statements that will significantly affect its processing of applications for gas infrastructure projects. In its Updated Certificate Policy Statement, FERC revised its approach to the certification of new interstate natural gas projects under Section 7 of the Natural Gas Act (NGA) to give more weight to environmental impacts.

In the Interim Greenhouse Gas (GHG) Emissions Policy Statement, FERC provides a framework for assessing the climate change impacts of gas infrastructure projects under the National Environmental Policy Act (NEPA) and the NGA. Both policy statements were approved by a 3-2 majority with Republican Commissioners Danly and Christie dissenting.

Updated Certificate Policy Statement

After issuing notices of inquiry in 2018 and again in 2021—both times receiving considerable stakeholder feedback—FERC now moves away from its 1999 Policy Statement. The 1999 Policy Statement made economic considerations its primary focus, allowing a project to proceed if it could demonstrate that it did not require subsidies from its existing customers and if there was a need for the project, a showing which was generally met by the submission of precedent agreements with customers willing to enter into long-term agreements for the new transportation capacity.

Under the Updated Certificate Policy Statement, although these economic considerations remain fundamental, the Commission will more directly balance economic and environmental interests in determining whether a new project should be certificated. With respect to economic considerations, it modifies its prior reliance on precedent agreements by clarifying that the existence of such agreements may not be sufficient to demonstrate project need and, more specifically, that affiliate precedent agreements "will generally be insufficient to demonstrate need."

FERC simultaneously broadens the scope of its public interest inquiry by now explicitly considering a range of construction-related impacts on landowners, environmental justice populations, and surrounding communities. It also broadens the scope of what constitutes a project benefit, taking into consideration, for example, whether a proposed project will displace more pollution-heavy generation sources or facilitate the integration of renewable energy.

Interim GHG Emissions Policy Statement

In conjunction with the Updated Certificate Policy Statement, the Commission issued an Interim GHG Emissions Policy Statement providing a framework for how FERC will evaluate GHG emissions and the climate impacts of new gas infrastructure projects under NEPA in its public convenience and necessity determinations under NGA Sections 3 and 7. The interim policy assumes there will be a significant impact if a project will emit more than 100,000 metric tons per year of GHG emissions. FERC will now apply a screen to decide whether to conduct a full Environmental Impact Statement (EIS) that assumes a 100 percent utilization rate or "full burn" for the proposed project's emissions.

However, recognizing that this will significantly overstate the likely project emissions, the policy statement says that in the EIS, FERC staff will calculate project emissions based on the projected utilization of the proposed facility, rather than the assumed full use, as well as other factors, such as proposed mitigation. Commissioner Danly's dissent cited information from the FERC staff that caused him to conclude that under this screen, the EIS will become FERC's default environmental document.

In the past, Commission policy did not consider downstream and upstream GHG impacts of projects but was moving in that direction—these matters were and remain controversial. The Commission now clarifies that it will consider downstream and upstream impacts that are reasonably foreseeable, but stays away from bright line tests, opting for a case-by-case determination of which impacts are reasonably foreseeable effects.

An exception is evaluation of NGA section 3 export facilities, for which FERC will not consider upstream and downstream emissions. It considers the Department of Energy's gas export authorization to be the trigger for those reviews. The Commission will also consider proposals by project applicants to mitigate all or a portion of a project's emissions impacts.

Although FERC's own summaries of its new policy and the presentations from the February 2022 meeting suggest that the Interim GHG Emissions Policy Statement is intended to create greater certainty, the policy statement itself contains numerous ambiguities. That this is styled as an interim policy creates additional uncertainty for project developers.

The Dissents

Both policy statements have stirred controversy, as evidenced by the dissenting opinions of Commissioners Danly and Christie, who question whether FERC has the statutory authority to deny a certificate application or impose conditions on a certificate solely on the basis of the GHG impacts or impacts on other interests, such as those of landowners and environmental justice communities. Commissioner Christie, in particular, viewed the elevation of these interests to be public policy choices that Congress should make because the Commission lacks authority over activities associated with upstream production or downstream consumption of natural gas.

Commissioner Danly's sharpest dissent was for the Interim GHG Policy Statement. He took aim at what he views as procedural and process infirmities in FERC's decision to issue an interim policy statement that is immediately effective while still remaining subject to comment and future revision, and without proposing revisions to the existing FERC regulations implementing NEPA.

What Is the Immediate Impact of These New Policy Statements?

The 3-2 split in favor of the policy statements suggests that implementation may prove challenging, potentially leading to even greater delays in the issuance of certificates. The change in emphasis from primarily an economic analysis of project need to a broader range of impacts may lead to more legally sustainable certificate orders, but is likely to extend the time for Commission action on otherwise meritorious projects. Those projects may include, for example, replacing outdated compressors, thereby reducing adverse emission impacts.

Comments on the Updated Certificate Policy Statement are due on May 2, 2022. The comment deadline for the Interim GHG Emissions Policy Statement has not yet been established. Although the Commission's new policies will not apply retroactively to issued certificates, the new policies will apply to pending projects.

Pending project applicants and others will be given the opportunity to supplement the record in those dockets. However, without clear standards and requirements for satisfying the new policies, this is likely to result in longer processing times for certificate applications.

In the meantime, the policies have also garnered the attention of Capitol Hill, with Senator Joe Manchin (D-WV), the Chairman of the Senate Energy & Natural Resources Committee, immediately denouncing the new guidelines as posing a risk to energy reliability and national security. All five FERC commissioners presented their perspectives on the new policies at a contentious hearing before the Senate Committee on Energy and Natural Resources on March 3, 2022, the outcome of which remains to be seen.

* Taylor Sutton is a law clerk in the Washington, D.C. office of Davis Wright Tremaine.