Correcting the Record on FERC and Pipelines

Note: This blog was updated on March 14, 2022, to reflect a court decision issued on March 11, 2022.

Ever since the Federal Energy Regulatory Commission approved its new gas pipeline policy statement last month, the gas industry and its supporters have been stomping around in a huff. It’s not hard to see why: After getting its way for more than two decades, the industry will now be facing a more balanced process.

What has been lost in all of the industry’s complaints (on full display in last week’s Senate Energy and Natural Resources hearing) are a few basic facts.

As background, it’s worth noting at the outset that FERC has authority over the review of gas pipelines and liquefied natural gas (LNG) projects, not—as some have wrongly said—fracking or oil prices or oil pipelines.

Fact #1: FERC has a duty to consider the public interest when considering pipeline projects

It is uncontroversial that a key part of FERC’s duty is to assess pipeline need. That’s because under Section 7(c) of the Natural Gas Act, FERC may only approve gas pipelines that are required by the present or future public convenience and necessity; the rest shall be denied. The phrase "public convenience and necessity" has consistently been interpreted to mean the public interest plus evidence of market demand.

That’s why in 1999, the last time FERC updated its gas policy statement, FERC stated explicitly that it would consider “all factors bearing on the public interest” to determine whether a pipeline should be approved. It even included a long, but non-exhaustive, sample list.

But as FERC recognized last February, in practice, it has not done this. Instead, it has almost universally relied on contracts between a pipeline developer and a potential “shipper” on the pipeline to find that the pipeline is needed, even when the contracts were exclusively between corporate affiliates, and even when the other evidence in the record supported that the project was not required to serve the public interest and market demand.

Clearly, by definition, a public interest determination cannot just mean there’s private interest in shipping the gas. If you are the gas industry, you love the old practice where FERC was a de facto rubberstamp; if you are anyone else, this cannot hold.

FACT #2: The gas industry has had a de facto rubberstamp from FERC for 20+ years

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. FERC’s flimsy review process was even characterized by a federal court as “ostrich-like” and illogical.

The new policy statement attempts to realign FERC reviews with the language of the 1999 policy and with federal law. Specifically, the new policy affirms that FERC is not supposed to rely exclusively on capacity contracts, acknowledges the minimal evidentiary value of affiliate contracts, and affirms that FERC must consider all public interest factors in its reviews.

Fact #3: All five commissioners agree on many of the key changes in the new policy

In their dissents to the new gas policy, Commissioners James Danly and Mark Christie reaffirm that all public interest factors must be considered and that affiliate contracts hold little-to-no evidentiary value. Moreover, both stated in their Senate testimony that they agree that environmental justice and a project’s direct climate impacts are appropriate public interest factors, and that FERC has the authority to require mitigation of these effects when possible.

Fact #4: Federal courts have ordered FERC to change its gas review procedure

In 2017, in the now-famous Sabal Trail case, the D.C. Circuit held that FERC acted arbitrarily and capriciously when it did not consider the indirect climate emissions associated with a gas pipeline project in Florida, such as the emissions caused by burning gas at proposed Florida power plants. FERC then tried to limit the applicability of this case to situations that matched its facts exactly—a move that, in follow-up cases, the court characterized as “dubious,” “decidedly less-than-dogged” and inconsistent with the law.

On March 11, FERC lost yet another case because it failed to evaluate a compressor station project's downstream greenhouse gas emissions. While upholding FERC's evaluation of upstream emissions on procedural grounds, the court stated that it was "troubled" by FERC's lack of effort. In short, FERC has repeatedly faced litigation surrounding its climate reviews, adding millions of dollars—and years—to pipeline reviews.

The new policy states that, just as required by the court, FERC will consider indirect climate emissions “on a case-by-case basis,” and that pipeline applicants are encouraged to include in their proposals methods to mitigate these emissions when possible. FERC expressly rejected calls by some to consider indirect emissions in all cases, noting that that would be an unreasonable overreading of Sabal Trail.

Fact #5: The new policy means that FERC will no longer treat climate and environmental justice as second-class environmental impacts

In its new policy, FERC outlines some sample factors that it will now expressly consider, including a project’s impact on environmental justice and the climate emissions associated with the construction and operation of the pipeline. FERC also states that, much like it does for every other environmental impact, it will exercise its authority to require mitigation of these adverse impacts as appropriate.

Mitigating damages is something FERC has considered and ordered repeatedly in the past as part of its environmental reviews of projects. The main difference is that, now, FERC will no longer treat climate and environmental justice as effects less worthy of review and consideration.

Environmental reviews must include a reckoning with climate change, “the most serious environmental threat that this country and the world has ever faced,” Sen. Angus King of Maine, told the FERC members at the hearing. It would be “preposterous” to try and ignore it, he added.

FERC also issued a separate interim policy statement meant to outline an initial threshold procedure for determining whether a gas project’s emissions are “significant” under the National Environmental Policy Act. Though FERC has not been expressly commanded to set up a threshold, the majority concluded that, to satisfy Sabal Trail and its progeny, it had to establish a standardized and explicit procedure for how it would determine significance. Comments are due on that policy on April 4.

So, that’s what we have here: FERC is updating its gas policy to conform to the black-letter law and court orders. It will review new pipelines given these new criteria while considering further adjustments to its interim greenhouse gas review process.

If that sounds reasonable, that’s because it is. FERC is following the law. In fact, as Chairman Richard Glick has said, pipeline developers should support these changes because any pipelines approved under this policy won’t face the same legal uncertainty that previous ones did. (Just look at the mess of the Spire pipeline in Missouri to see why uncertainty is bad for everyone – except high-priced lawyers.)

It is not FERC’s right to selectively ignore court orders. FERC’s job is to follow the law to the best of its ability and to course-correct when the courts tell them that it got it wrong.

That’s exactly what FERC’s new policy statement does. Commonsense and reasonableness doesn’t often win the day in Washington; in this situation it certainly has, despite what the gas industry would have you believe.