FERC's New Gas Policies Bring Balance to Pipeline Reviews

After nearly five years of deliberation, the Federal Energy Regulatory Commission finally updated its “Natural Gas Policy Statement” last month, putting in place a process that better reflects its legal duties and restores balance to its reviews of new gas pipelines and affiliated infrastructure.

This reform was sorely needed. FERC last updated its policies in 1999—the same year The Matrix debuted in theaters. Since then, we’ve lived in a blue-pill fantasy world where FERC has robotically approved almost all pipelines without any thoughtful consideration of their actual need or real-world effects. That’s not what the law requires. Instead, the federal Natural Gas Act states that FERC may only approve pipelines that are required to serve the public interest and an unmet market need.

To follow the law, FERC is supposed to consider all public interest factors that bear on its core duty: to encourage the orderly development of plentiful gas supplies at reasonable prices and to protect consumers. In reality, FERC has been facilitating disorderly gas development, untethered from the law, that harms consumers.

Since 1999, FERC has approved more than 99% of applications it has received, often ignoring evidence undermining the project need. (A count we did in 2018 showed FERC had approved 474 projects, while rejecting just two.) Many of these projects were later canceled due to a lack of market interest, but not before their developers stripped private citizens of their land and caused permanent environmental and economic damage. In extreme cases, such as the Spire STL Pipeline in Missouri and the Weymouth Compressor Station in Massachusetts, the projects were built, only for a federal court or FERC itself to later find that the project was either unneeded or posed a serious risk to public health. In the case of Weymouth, FERC further found it could do nothing to actually fix its error.

FERC historically has allowed the showing of private market demand to serve as a proxy for determining that a project is in the public interest. But that’s not what the law demands, and it’s one reason FERC has run into trouble in court. Over and over again, FERC has rubberstamped pipelines with “precedent agreements”—or contracts between a pipeline developer and a prospective shipper— in place.

In fact, since 1999, FERC has approved 100% of projects with at least one precedent agreement, regardless of whether the contract was the product of an arms-length transaction or with a corporate affiliate. This process encouraged pipeline companies to invent “need” by contracting with themselves for the capacity, even if there was no actual market demand for the pipeline. Pipeline companies would do this because owning a pipeline is a profitable enterprise.

The new Policy Statement brings FERC’s reviews back in line with the law.

FERC states that it will no longer look solely at precedent agreements as the conclusive proof that a project is needed, while “ignoring other, potentially contrary, evidence.” Instead, FERC will now “consider all relevant factors bearing on the need for a project.” FERC also states that “affiliate precedent agreements will generally be insufficient to demonstrate need,” because they are so easy to manipulate. FERC further affirms that environmental impacts, including a project’s climate effects and its environmental justice impacts, must be considered to conduct a proper public interest analysis.

For environmental justice, FERC recognizes that courts have faulted it for failing to properly incorporate a project’s impacts on vulnerable communities, and that it is moving towards a more holistic, adequate, and community-informed approach to its reviews. For climate, FERC expressly follows court directives that require it to consider the direct emissions for all gas projects and to consider a pipeline’s upstream or downstream emissions on a case-by-case basis.

It also issued a separate Interim Greenhouse Gas Policy Statement, which outlines an initial procedure for determining whether a project’s climate emissions constitute a “significant” impact on the environment under the National Environmental Policy Act. FERC is taking comments on that Policy Statement until April 4.

Given the hysteria on the part of the gas industry about these commonsense changes, it’s worth noting that none of the steps that FERC took are radical departures from what it has been expressly told it must do in order to follow the law. Given the law and court rulings, FERC has simply recognized that it must take the red pill and live in the real world. But the gas industry got to call the shots for the past 23 years, and it wants to keep it that way. 

Building new pipelines and gas export facilities can harm the climate and marginalized communities. Given these concerns, we’re going to keep advocating at FERC for it to only approve projects that, in our view, are needed and serve the public interest.

But we don’t expect to win all the time, nor should we. (In fact, when FERC first assessed the significance of a project's emissions, it approved that pipeline.) Neither should the gas industry. That’s because FERC is tasked with using its judgment to make reasonable, legally, and factually based decisions. Judgment inherently requires a project-specific evaluation. Any system where everyone can predict with nearly 100% certainty the result years ahead of time is a broken system. The new policy statements are meant to fix it—not to sway the pendulum in the completely opposite direction.

Balancing competing priorities is FERC’s job when it comes to pipeline reviews; this policy change is a significant step in the right direction.