WASHINGTON — FERC took criticism from two sides over its permitting of natural gas infrastructure during the Energy Bar Association’s annual meeting last week, with the gas industry accusing the agency of overreach and an environmental advocate calling its past decisions “lazy.”

FERC’s Democratic majority created an uproar in February when it voted to immediately begin applying an update to its 1999 policy statement on natural gas infrastructure certificates (PL18-1) and released guidance on how it will evaluate the impacts of projects’ greenhouse gas emissions in its environmental analyses (PL21-3). Chairman Richard Glick said the changes were needed because of court rulings faulting the commission’s evaluation of the need for natural gas projects and their impacts on GHG emissions.

But after receiving a tongue lashing from the Senate Energy and Natural Resources Committee — and multiple requests for rehearing — the commission changed the statements to drafts. It also said any changes would only apply prospectively, with applications already pending before the commission unaffected by any future final policies. (See FERC Backtracks on Gas Policy Updates.)

In an EBA panel discussion May 10, natural gas proponents said that the proposed changes threaten state jurisdiction and could chill future gas development.

‘Second Guessing’ Precedent Agreements

Matthew Agen, assistant general counsel for the American Gas Association, which represents natural gas local distribution companies, said LDCs are concerned about FERC reducing its reliance on precedent agreements between shippers and pipeline customers in determining project need. In many cases, the agreements are between corporate affiliates.

He said FERC’s efforts to “second guess” LDCs’ needs could interfere with their planning for “peak day” demand.

Matthew Agen, American Gas Association | © RTO Insider LLC

“We feel we are in the best position to judge what is needed behind the citygate, whether that is for industrial facilities, residential customers or even your natural gas generation facilities,” he said. “About 25% of the volume of gas going into electric generators flows through an LDC. So it’s not a small number, [although] it does vary from areas of the country.”

Christopher Smith, regulatory counsel for the Interstate Natural Gas Association of America (INGAA), which represents 26 pipelines that control most interstate gas infrastructure, said pipelines and shippers are “sophisticated commercial entities. They are well aware of things like state laws and state targets for reductions in greenhouse gas emissions [and capable of] forecasting the demand for natural gas operating under those laws. And so these precedent agreements, in our view, are market determinations, and they should be sufficient to establish market need.

“To replace this clear, objective test with what is essentially going to be a battle of the experts — in which the pipeline will have to hire somebody to explain what the market’s going to look like in 20 years — [is] just going to add cost and delay to these projects without really adding much probative value, because the market already spoke to that issue,” he said.

But Gillian Giannetti, senior attorney for the Natural Resources Defense Council, said FERC’s reconsideration of how it treats precedent agreements is long overdue.

Before the 1999 policy statement, Giannetti said, precedent agreements were required “for a certain … volume of capacity, or a project would be rejected.” The 1999 policy statement gave FERC flexibility in how it evaluated the need for a proposed pipeline. “It states explicitly that FERC shall consider all relevant factors in determining need, including but not limited” to precedent agreements, Giannetti said.

Environmental advocates have never taken the position that precedent agreements are not relevant, Giannetti said. “I think they certainly are. The question is, are they the relevant factor? And we would say that they are not; that there’s a difference between ‘a’ relevant and ‘the’ relevant, especially when you are looking at other serious impacts — both benefits and harms — that are associated with gas infrastructure.”

Agen questioned FERC’s jurisdiction over the issue, noting that LDCs are state-regulated. “The issue we have is, is FERC overstepping the bounds in some of these new policies? And then how does that impact state commissions?”

LDCs “are very active in mitigating [greenhouse gas] emissions, whether that’s replacing cast iron pipe or having energy-efficiency programs and the like,” he continued. “Who is the master of those programs? … We think it should be the state commission.”

No Need for Major Changes

Former FERC Chair Kevin McIntyre initiated a review of the 1999 policy statement with a Notice of Inquiry in 2018. But the commission took no action before McIntyre’s death in 2019.

Smith said there is no need for major changes to the policy.

“The significant changes in the industry that prompted FERC’s inquiry in 2018 are actually the exact sorts of changes that Congress envisioned when it enacted the Natural Gas Act. So, for instance, FERC observed dramatic increases in natural gas production … and the increased use of natural gas as a fuel source for electric generation,” he said. “These are all consistent with the aims of the Natural Gas Act. And so we have maintained that FERC should be hesitant to completely overhaul a system that is working as Congress intended.”

Giannetti, however, said Congress’ intent was clearly to require FERC to weigh precedent agreements on a case-by-case basis. FERC got “lazy” in failing to do so, she said.

“Precedent agreements — regardless of the volume, characterization, duration or alternative evidence — were universally treated as sufficient,” she said citing data showing FERC approved about 500 natural gas projects between 1999 and 2021, while no more than six were denied. “Every single one of those denials lacked a precedent agreement. So turning it around, every single project that has had at least one precedent agreement — for any volume, for any duration, with any shipper — has been approved.

“The Natural Gas Act says that only projects that are required by the public convenience and necessity be approved; the rest shall be denied. And I think we need to remember that when Congress has wanted to provide a more lenient standard, it has done so; for example, in the LNG context, where there is a presumption of approval unless it’s inconsistent with the public interest. I think that part of the problem is that we have forgotten that the [Natural] Gas Act is not a processing statute. It’s a reviewing statute.”

Rubber Stamp?

Smith said the statistics are misleading because of the commission’s “very robust pre-filing process.”

“In a lot of cases, projects will drop out in the pre-filing process,” he said. “So looking at what’s filed versus what’s approved isn’t really necessarily a good gauge as to whether FERC is acting as a rubber stamp.”

Agen also rejected that characterization of FERC.

“When we’re talking about [seeking] certainty, we’re not talking about FERC being in any way a rubber stamp. I mean, there are plenty of issues at the state level that our LDCs deal with that aren’t approved because the commission or [administrative law judge] decides it’s not appropriate,” he said. “But at the same time, we’re looking for certainty in a process. What is the evidence that’s needed? Right now, we’re not sure what evidence will be needed [to demonstrate] need. To me, the simple answer is a precedent [agreement] would be the best kind of evidence to that need. And if you need something else, tell us what that is, and we will get that to you.”

GHG Emissions

Smith said Glick and the Democrats overreacted to the court rulings remanding orders back to FERC for its failure to consider the significance of projects’ greenhouse gas emissions.

“While we believe that there are a discrete set of limited changes that may be appropriate to how FERC approaches its certificate review, what is in the draft policy statements go beyond what those court cases require; they go beyond what the law permits; and they go beyond … sound policy,” he said.

He predicted legal fights if FERC adopts the draft policy statement’s conclusion that the agency has the authority to deny certificate applications based on the volume of unmitigated indirect greenhouse gas emissions — those from upstream producers and downstream end users.

“Any order through which FERC would exercise this authority is going to be hotly contested. And it’s actually going to call into question the durability [of the policy statement] as opposed to promote durability,” he said.

“A lot of what the draft policy statements do is replace what have become clear, objective tests over the last 20 years … with a more amorphous test,” he continued. “As an applicant applying for certificate, we’re not really sure what evidence we need to propose, how FERC will weigh that evidence, how long it will take, and — at the end — whether FERC’s determination will significantly affect the cost, structure, or expectations or timing of the applicant and the shippers who executed the agreements to build this particular project.

“While there may be some changes that are appropriate in certain areas, what’s before us is a pretty significant overhaul that will introduce a level of uncertainty that will eventually chill natural gas infrastructure from being built at a time when we really need it the most.”

Landowners, Enviros Frustrated

Giannetti said FERC needs to make amends to those impacted by gas development.

“One of the things that has been very frustrating for the environmental community and for landowners and environmental justice communities is that they have felt as though their concerns are not treated as real or legitimate,” Giannetti said. “There are good actors in the gas industry. No doubt about it. There are folks who truly work to try and do reroute alignments or work with landowners to be able to get something where everybody can walk away from the table feeling happy. But it is important to remember that only one person is at that table voluntarily. … The private property owner is being brought to that conversation against their will.

“Unfortunately, there are some bad actors [and] many horror stories of … landowners who have been essentially told, ‘Well, you can negotiate with us now, or we’ll take you to court later.’ And these are folks who do not have the ability to hire Van Ness Feldman,” she said, in a wink to the panel’s moderator, Van Ness’ Michael R. Pincus. “These are people who had never heard of the Natural Gas Act before, regular people, often in rural communities who do not have a lot of means.”

‘Trial by Order’

One thing both sides agreed on was a need to end the “trial by order” that has marked FERC’s recent pipeline rulings.

“I think that all three of us would agree that this ‘trial by order’ system that the commission is doing right now is extremely problematic, especially the tendency to make changes in orders [when] the commission is well aware that not many people have standing to actually challenge them,” Giannetti said. “That happened in Newmarket [CP14-497-001]. And it also happened in Northern Natural [CP20-487], so it’s happened [to] both sides. And this is not a way to provide a durable system that pipeline applicants and environmental communities and landowners can rely on to know that their rights are being protected.”

Smith agreed. “It’s not fair to anybody to have the rules of the game change years — or millions or billions of dollars — into developing a project. The public, the pipeline developers, state and local agencies, they just haven’t had a chance to participate because they didn’t realize that these changes will be announced that way.”

Predictions on Future Policy

The panelists also made some predictions on what FERC’s final policy will look like.

Smith said he will be looking to how the commission decides two issues identified in Commissioner Mark Christie’s dissent from the initial order issuing the draft: safeguards for landowners and how the commission will weigh precedent agreements with affiliated parties.

“To the extent that the commission makes any changes, I would expect those two things to be there, because it looks like we already have at least four, possibly five votes on those areas,” Smith said.

“I agree with Chris,” Giannetti responded. “I think that we are going to see, for sure, changes when it comes to need and prospective precedent agreements, particularly with affiliates; landowner concerns, eminent domain concerns. And environmental justice, I think, is also going to be affirmed as being part of the need assessment.”

She said she sees “continued discord and … tension” regarding how FERC evaluates the “significance” of projects’ GHG emissions. She cited FERC’s March 2022 Iroquois decision, when the commission said it wasn’t “going to do a significance determination because the project would actually cause GHG benefits.”

“Saying that we’re not going to do an assessment because we think it’s going to lead to a reduction [in emissions] is basically saying it’s insignificant without actually saying it,” she said. “I think that we need to get rid of some of the wordplay and just actually do the assessments and call them what they are.”

Eminent Domain

Smith said FERC should remember that the NGA “does confer eminent domain authority, and it doesn’t allow the commission to condition that authority.”

“So while you can look at the process, I think we’re wary of [a ruling that] you can only use eminent domain for a certain percentage of the tract; otherwise, it’s not about the public interest. Things like that are contrary to the letter of the law,” he said. “I do think there will be a greater focus on the process … having our members show the work that they’re already doing” to minimize use of eminent domain.

As the 75-minute session came to a close, a member of the audience asked if NRDC could support any natural gas project.

“NRDC is not in every docket,” Giannetti responded. “I encourage you to take a look and see we do not challenge every pipeline project. We have always consistently taken the position that we want the Natural Gas Act to matter. And the Natural Gas Act does not say all pipeline projects should be approved, regardless of the environmental consequences, or the need for them or anything of that matter. That is how many feel that FERC has been exercising its authority. But that is not what it says. It says that FERC shall only approve projects that are required by the public convenience and necessity.”