Last week, the Federal Energy Regulatory Commission (FERC) announced major changes to its Pipeline Certificate Policy that will affect every pending and future pipeline project.1
A pipeline certificate of public convenience and necessity (“Certificate” or “CPCN”) issued by FERC under the Natural Gas Act (NGA), as amended, provides a natural gas company with a combination of operational authority and access to rights-of-way through the conferral of federal eminent domain rights and may lead to the adoption of initial rates for pipeline service.2 FERC policies regarding the issuance of Certificates were last reviewed comprehensively in 1999,3 and FERC has had a notice of inquiry concerning its policies for Certificate issuance pending for nearly four years.4
In addition to the changes to the Pipeline Certificate Policy, FERC simultaneously released an interim greenhouse gas (GHG) policy (Interim GHG Policy) that will affect FERC’s consideration of pending and proposed Certificate and related matters, further modifying FERC’s long-standing Certificate policies. Both the Pipeline Certificate and GHG Policies were adopted on party-line 3-2 votes, supported by Democratic commissioners and opposed by Republican commissioners.
Both of FERC’s releases are policy statements.5 They are not formal rulemakings. They propose no changes to FERC’s implementing regulations under the NGA. FERC claims that both are merely explanatory, establishing no binding rules. But notwithstanding the procedural nomenclature, they are expected to be highly significant in that they declare how FERC will implement its existing rules.
FERC has solicited only procedure-related comments, under the Paperwork Reduction Act, on both policy statements. While FERC would have no authority to prohibit the submission of comments by members of the public, the regulatory notice forms that FERC has adopted neither invite substantive comments nor establish any deadline for their submission.
Pipeline Certificate Policy Statement
Since 1999, FERC has recognized that it “can only exercise a veto power over proposed transportation . . . when a balance of all the circumstances weighs against certification.”6 In practice, this has involved a balancing test, taking into account the need for gas service established by an applicant for a Certificate and the potential harms to competition, customer interests and landowners that could result from the issuance of a Certificate.
Throughout the past two decades, and even before, the primary criterion used by FERC to establish the need for a pipeline was the execution by intended shippers of precedent agreements, memorializing the shippers’ intention to use a significant portion of the proposed pipeline’s capacity upon completion, often following an open season period soliciting bids for the proposed new pipeline capacity. Under the 2022 Policy Statement, FERC will no longer defer to the execution of precedent agreements in order to conclude that a particular pipeline project is necessary and therefore merits a Certificate. Instead, FERC will look both to precedent agreements and also to demand projections underlying the pipeline capacity that is subscribed, the estimated pipeline capacity utilization rates, potential cost savings to customers, regional assessments and statements from state regulatory commissions or local distribution companies.7 FERC will also consider environmental justice impacts as part of the Certificate process. Notably, the 2022 Policy Statement will apply to applications that are already underway—a decision that could itself prompt challenges from project sponsors who can be expected to question FERC’s authority to, in effect, retroactively apply new rules to already-filed applications. The 2022 Policy Statement also proposes to more closely scrutinize precedent agreements executed by a pipeline’s affiliate, declaring that affiliate precedent agreements will generally be insufficient to demonstrate need for a project and requiring the satisfaction of the further requirements that FERC has announced.
While FERC’s 1999 Policy Statement does not compel FERC to look only to precedent agreements, the 2022 Policy Statement’s expansion of Certificate criteria represents a significant expansion of the probative burdens that a Certificate applicant faces. FERC’s two dissenting commissioners asserted that FERC has an insufficient legal basis to adopt the 2022 Policy Statement and that the enlarged laundry list will also require more time for an applicant to develop the required showings and, in particular cases, will invite intervening parties to challenge the specifics, leading to a longer, costlier and less certain pre-Certificate process leading to less predictable, less uniform, results.
The Interim GHG Policy
The Interim GHG Policy looks at human-caused or -influenced increases in the intensity and frequency of hot weather extremes—including heatwaves, heavy precipitation and droughts in some regions—as being significantly influenced by fossil fuel use, finding that even relatively minor GHG emissions pose a significant threat on the environment. The Interim GHG Policy announces FERC’s intention, in light of those observations, to conduct a full environmental impact statement (rather than a streamlined environmental assessment, as currently required) as part of the Certificate process whenever a proposed gas pipeline project may result in the emission of 100,000 metric tons per year of carbon dioxide or more. FERC indicated that it would consider the volume of CO2 emissions as part of the Certificate process and would consider the mitigation of CO2 releases by a pipeline but did not prescribe particular mandatory mitigation methods or quantities.
FERC’s two dissenting commissioners declared that the Interim GHG Policy is not within the scope of FERC’s NGA jurisdiction, arrogates to FERC authority that is placed by statute in other agencies, reflects a sweeping and disruptive departure from current law without an adequate legal showing and is, therefore, unlawful on its face.
5 Both the 2022 Policy Statement and the Interim GHG Policy, and FERC’s Staff releases, can be viewed at: https://www.ferc.gov/news-events/news/ferc-updates-policies-guide-natural-gas-project-certifications.
7 In explanatory text, FERC indicated that the 2022 Policy Statement is not expected to materially affect features of its NGA regulatory programs other than new pipeline Certificates. Pipeline projects that have already been completed and are in service will not be bound by the 2022 Policy Statement, and the 2022 Policy Statement is not expected by FERC to have a material impact on regulatory exemptions for pipeline purging and testing activities, “blanket certificate” matters involving relatively confined and non-major pipeline extension and expansion projects that do not trigger new or amended Certificates, the “capacity release” of pipeline capacity by existing shippers to other shippers, or state-regulated gas pipelines that are subject to limited FERC NGA regulation.