The Federal Energy Regulatory Commission is reviewing its nearly 20-year-old policy for approving pipeline projects as the agency evaluates how to best manage the transport of bountiful shale natural gas to market, while balancing environmental and climate change concerns.
FERC, an independent government agency that approves and regulates the interstate transmission of electricity, natural gas, and crude oil, has been characteristically tight-lipped since it announced in December its plan to take an open-ended “fresh look” at its 1999 policy statement governing how it issues permits for pipelines.
With no clear expectation of what could happen, experts and advocates are anticipating what FERC may do, framing their projections based on how they view the proper role of pipelines, and natural gas, in an energy sector transitioning to cleaner fuel sources.
“I would be very surprised if this particular FERC made it even more difficult to get pipelines built, given the emphasis this administration has on energy infrastructure issues,” said Tony Clark, a Republican who served as a FERC commissioner from 2012 to 2016, noting President Trump appointed four of the five current commission members.
“But certainly, from the environmental Left, they are looking at this as an opportunity to maybe even block proposed pipelines,” Clark told the Washington Examiner.
Pipeline backers say the current policy works fine.
If anything, they are angling for fewer hurdles to development, because they say the shale industry is already facing pipeline bottlenecks that could stop it from delivering on forecasts predicting U.S. oil production will top 11 million barrels a day by November.
“A big reason why American consumers have benefited from the abundance of natural gas is because of the ability we have to link domestic producers with consumers,” Don Santa, the president and CEO of the Interstate Natural Gas Association of America, told the Washington Examiner.
Santa said developers built 45,000 miles of new transmission pipelines across the U.S. from 2000 to the end of 2016.
Pipeline opponents, meanwhile, say FERC’s pipeline policy is outdated, created when climate change concerns were less dominant and the shale boom was unanticipated. They say FERC has become a “rubber stamp” for pipeline approvals because the policy statement encourages the committee to lean too heavily on economic considerations when making decisions.
They note that since FERC adopted its 1999 policy, the commission has approved all but two of hundreds of natural gas pipeline proposals, according to a recent investigation by the Center for Public Integrity and StateImpact Pennsylvania.
“We are encouraged by FERC’s intent to review this outdated pipeline policy,” Montina Cole, a senior attorney with the Natural Resources Defense Council, told the Washington Examiner. “There is so much at stake for people and the environment we depend on, and all these costs associated with what may be, in some cases, unneeded pipelines. There should be nothing political about that. FERC has traditionally operated as independent agency, and there is no reason it should abandon its independence now.”
While Cole is optimistic about the review, other environmentalists doubt FERC’s commitment to change. The disagreement reflects a divide among environmentalists between those who see natural gas as a cleaner, cheaper alternative to coal, and are seeking ways to safely manage the growth of shale, and others who want to keep gas in the ground.
“We view this review as way to grease the wheels for pipeline companies and further entrench the biased decision-making of FERC,” Maya van Rossum, head of the Delaware Riverkeeper Network, a key opponent of pipelines, told the Washington Examiner. “Anyone who thinks this will be beneficial to communities, such as NRDC, are fooling himself. They have their head in the sand, and they are trying to play nice with bad guys.”
Some FERC commissioners have provided clues on how they want to update pipeline reviews.
Currently, FERC makes decisions about pipelines based mostly on the economic need for the project, seeing whether developers have secured contracts with companies that want to use the pipeline to ship fuel. They are known as precedent agreements.
FERC Commissioner Cheryl LaFleur wrote in an October opinion that the agency has focused “narrowly” on the existence of precedent agreements.
LaFleur, a Democrat and appointee of former President Barack Obama, said the commission should consider the “specific end use of the delivered gas within the context of regional needs,” meaning whether consumers in a given area really need more energy to be served by a new pipeline and if pipelines already exist nearby.
Critics say pipeline developers are unfairly abusing precedent agreements by frequently signing contracts to transport fuel with affiliated companies, such as electric utilities or gas distribution businesses, instead of contracts with the natural gas companies.
“There is something really troubling about that,” Cole said. “FERC needs to do something to remedy this problem.”
Santa argues precedent agreements are the most obvious way to determine the need for a project. He says pipeline developers working with affiliates is not a conflict because utilities are subject to state regulation, meaning utility commissions have the opportunity to flag an improper arrangement before a pipeline application reaches FERC.
“Long-term precedent agreements that shippers enter into the pipeline are the most objective demonstration of need,” Santa said. “A party wouldn’t enter into a 15- to 20-year contract and put themselves on the hook for millions of dollars unless they truly believed it would provide greater value to them over time than the amount they committed to pay for the pipeline. Only the best projects make it to FERC.”
Commissioners also have said they will assess whether FERC is properly weighing the impact of greenhouse gas emissions released by the products shipped through pipelines.
Last year, a group of environmental groups led by the Sierra Club successfully sued FERC to force the agency to examine the effects of pipelines on climate change. Until the ruling by the D.C. Circuit Court of Appeals, FERC had examined the environmental effects of physically building the pipeline, not the effects of using the fuel it transports.
Environmental groups also have pushed FERC to evaluate emissions occurring during the production process of the natural gas to be shipped.
“If FERC came up with a new policy that put more weight on considering the environmentally adverse impacts of pipelines, that may have some bearing, making it more difficult for pipelines to justify the benefits and gain FERC approval,” Tom Russo, a former analyst at FERC specializing in natural gas, told the Washington Examiner.
Energy industry officials and experts say if FERC raises the bar for approving pipelines, it would further challenge infrastructure development, even when other factors are slowing progress.
For example, states such as New York have been using their authority under the federal Clean Air Act to block pipeline projects before they reach FERC. Pipeline companies are lobbying Congress to restrict the criteria states can use to deny a project.
The energy industry also has endured lower oil and gas prices in recent years.
“Above and beyond any potential changes regulators and policymakers consider, there are already questions surrounding financing [pipeline] projects in the wake of the collapse in oil and gas prices during the 2014-2016 period, which negatively impacted the financial health of many participants in the oil and gas sector,” said Richard Redash, managing director of America’s natural gas analysis at S&P Global Platts.
Given challenges on both sides of the debate, Clark, the former FERC commissioner, expects the commission to “tweak” its pipeline policy, rather than “overhaul” it.
“After 20 years, it always makes sense to at least look at these issues, given where the market is today,” Clark said.
• This article has been updated to correct the years that Tony Clark was a member of FERC.
