By Conor Bradley*
The Federal Energy Regulatory Commission (“FERC” or “the Commission”) has created, and utilized, a light-handed regulatory framework regarding the expansion of the natural gas pipeline system that has greatly benefitted consumers. Recently, however, environmental groups and some of the FERC’s own commissioners, have called for the FERC to take a more active approach in the evaluation of the environmental effects of the Commission’s pipeline certification decisions. These proponents have not been able to enact much change via the courts and, therefore, this change may have to come from within the FERC itself.
Per Section 7 of the Natural Gas Act (1933), the FERC is given the sole authority to grant certificates of “public convenience and necessity” to new natural gas pipelines.[i] The FERC’s certification procedures are governed by its 1999 Policy Statement, under which it considers the public benefits and adverse effects of the proposed project.[ii] The FERC is also bound by the National Environmental Policy Act of 1969 (NEPA), which requires that a federal agency analyze the potential environmental effects of any proposed, major action and disclose this analysis to the public, usually via an environmental impact statement (EIS).[iii]
In recent years, environmental groups have argued that the FERC’s analysis under NEPA is too narrow because it does not consider all of the relevant upstream and downstream greenhouse gas (GHG) emissions of a proposed pipeline. Under NEPA, federal agencies need only evaluate those effects that would be the legal result of its own action.[iv] The FERC has argued that its certification of a pipeline is not the legally relevant cause of the GHGs emitted by the power plant to which the natural gas is delivered and, therefore, does not consider these effects as part of its NEPA analysis.[v]
In Sierra Club v. FERC, the DC Circuit found the FERC’s analysis to be insufficient. In that case, environmental groups and landowners challenged the Commission’s decision to approve the Southeast Market Pipelines (SMP) Project.[vi] The main beneficiaries of the project were two Florida utilities that wanted to use the gas to generate electricity and meet the state’s growing demand.[vii] In vacating and remanding the Commission’s authorization of the project, the court held that the FERC is “a “legally relevant cause” of both the direct and indirect environmental effects of the pipelines it approves.”[viii] As such, the FERC should have either included a quantitative estimate of the downstream GHG emissions that would occur as a result of the proposed project or explained why it could not do so.[ix]
The decision in Sierra Club is fairly limited because of the deferential standard used by the court in analyzing NEPA-based challenges.[x] The court explained that, in formulating the EIS, an agency’s “choice among reasonable analytical methodologies is entitled to deference.”[xi] Thus, the FERC still has wide latitude regarding how to quantify and account for the downstream GHG emissions of a pipeline in its certification process.
For example, after Sierra Club, the FERC re-approved the SMP Project and issued a supplement environmental impact statement (SEIS) stating that it could not draw any conclusions regarding the effect of the downstream GHG emissions of the project.[xii] However, on April 19th, 2018 the Commission issued a generic Notice of Inquiry (NOI) into the certification process for new natural gas facilities in order to address some of these issues.[xiii] Among other considerations, the NOI concerns revisions to current policy regarding the methodologies for determining both the economic necessity and environmental effects of a proposed project.[xiv]
A number of reforms laid the groundwork for the FERC’s current approach to pipeline certification. In the past, applications to build new, or expand existing, pipelines were expensive, highly litigated proceedings in which the FERC took an active role.[xv] However, now, the FERC oversees a competitive market in the expansion of the system (while still actively regulating the prices charged by transmission companies).[xvi] One reform that helped create this system was the removal of transmission companies from the business of buying and selling gas, forcing them to focus only on transport.[xvii] The Commission also enacted “open access,” under which transmission companies must serve all customers transporting gas on their systems equally.[xviii] Finally, the FERC adopted a no subsidy policy, which mandates that current customers cannot bear the additional costs of pipeline expansion from which they do not benefit.[xix] These reforms rid the natural gas market of the distortions in price that previously plagued the industry, provide the foundation for a competitive market in pipeline capacity and allow the FERC to play a less active role in the process.
The capacity on most pipelines is underwritten by local distribution companies who act on behalf of their ratepayers.[xx] Before entering into long-term contracts to ship natural gas along the proposed pipelines, these companies must first get approval from their state regulators.[xxi] As such, state policies regarding conservation and the use of gas affect decisions to expand the pipeline system.[xxii] Once a project reaches the FERC, it does not look much behind the agreements underlying the project because, for one, these agreements have already been approved by state regulators.[xxiii] To do so would be to reprise the prior role the FERC had in acting as an adjudicator in highly litigated and expensive proceedings.[xxiv]
Given this interdependency between state and federal regulators, asking the FERC to take a more active role in the regulation of downstream GHG emissions would change a regime that has greatly benefitted from a light-handed federal approach.[xxv] Proponents of a more active approach by the FERC argue that the problems of climate change necessitate this drastic change in the regulatory regime.[xxvi] For them, leaving the in-depth evaluation of the environmental effects of increased natural gas consumption up to individual state regulators defeats the national (and international) solution that is necessary to combat climate change.[xxvii]
The proponents of a more dramatic change in the FERC’s policy have appealed to the courts and found a somewhat receptive audience. However, as of now, this decision is ultimately up to the Commission itself, which has, so far, been unwilling to undertake this change, as the decision to re-approve the SMP Project after Sierra Club illustrates.[xxviii] Nevertheless, this reluctance is not shared by all of the FERC Commissioners. For example, Commissioner LaFleur has consistently dissented in the FERC’s recent pipeline approvals, arguing that the Commission is not doing enough to consider the environmental effects of its certification decisions.[xxix] Furthermore, the pressure on the FERC to act played a partial role in the issuance of the NOI. For proponents of a larger policy change, time will only tell whether these actions illustrate an increased institutional willingness to play a greater role in evaluating the environmental effects of proposed natural gas pipelines.
The views and opinions expressed in this blog are those of the authors only and do not reflect the official policy or position of the Michigan Journal of Environmental and Administrative Law or the University of Michigan.
[i] 15 U.S.C. § 717f (2018).
[ii] Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶ 61, 227 (1999).
[iii] 42 U.S.C. § 4332 (2018).
[iv] Dep’t of Transp. v. Pub. Citizen, 541 U.S. 752, 770 (2004).
[v] Sierra Club v. FERC, 867 F.3d 1357, 1372 (D.C. Cir. 2017).
[vi] Id. at 1363.
[vii] Id. at 1364.
[viii] Id. at 1373.
[ix] Id. at 1375.
[x] Id. at 1367.
[xii] See Florida Southeast Connection, LLC., 162 FERC ¶ 61, 233 (2018) (SMP Project Remand Order).
[xiii] Certification of New Interstate Natural Gas Facilities, 163 FERC ¶ 61, 042 (2018).
[xiv] Id. at 1-2.
[xv] Comments of Jeff D. Makholm, Ph.D. at 8, In the Matter of the FERC Notice of Inquiry Regarding Certification of New Interstate Gas Facilities (2018).
[xvi] Id. at 20.
[xvii] Id. at 26.
[xviii] Id. at 2.
[xix] Id. at 8-9.
[xx] Id. at 24.
[xxi] Id. at 21.
[xxiii] Id. at 22.
[xxiv] Id. at 8.
[xxv] The underlying competitiveness of the transport market made the shale revolution possible and saved gas consumers in the United States around $529 billion compared to their European counterparts from 2009 to 2018, according to one estimate. Id. at 17.
[xxvi] See generally Florida Southeast Connection, LLC, 164 FERC ¶ 61, 099 (2018) (LaFleur, Comm’r, dissenting) at 8-11 (LaFleur Dissent).
[xxvii] See generally id.
[xxviii] See generally SMP Project Remand Order, supra note 12.
[xxix] See, e.g., LaFleur Dissent, supra note 26.