FERC Gas Pipeline Review Process Needs 21st Century Approach

Nearly two decades ago, federal energy regulators established guidelines for evaluating proposed natural gas pipelines. Coal was still king, the Google search engine was new, Americans were voracious energy consumers, and climate change was not yet a common term. A lot has changed since then, but federal natural gas pipeline review policy hasn’t kept pace, as a groundbreaking report released today shows.

The Federal Energy Regulatory Commission’s 1999 Statement of Policy for evaluating proposed interstate gas pipelines has remained unchanged even though the energy industry is far different today. The transition to a cleaner energy system is well underway.  More efficient use has reduced the demand for energy. Pitched battles are being fought because of the risks gas pipelines present to public health and safety, as well as the environment and private property rights.

Overbuilding of pipelines is a serious threat given underuse of the existing system and questionable contracts where the pipeline developer acts as both seller and buyer. And to the extent there are excess pipeline costs, utility customers could foot the bill.

FERC has recently gained national attention given its review of many controversial gas pipeline proposals and the fact that it has approved nearly every one of them. Of the approximately 400 pipeline applications filed since the 1999 policy was adopted, FERC rejected only two.

It’s time for FERC to take a new look at its policy to reflect today’s circumstances, and reassess how it evaluates whether a natural gas pipeline project is needed. 

Report Calls for Policy Review Amid Energy Landscape Changes

That conclusion is supported by a new NRDC-commissioned report, Natural Gas Pipeline Certification: Policy Considerations for a Changing Industry. The 1999 Statement of Policy was the outgrowth of FERC proceedings addressing increased competition in the gas industry, including anticipated natural gas demand growth.  

But since then, the energy landscape has changed a great deal, as the Analysis Group report highlights. 

Natural gas discovery and production has increased significantly, the United States now has a gas surplus, and companies are building numerous port facilities to export gas overseas. Pipeline capacity has burgeoned, gas prices have plummeted, and the electricity industry has greatly increased its use of natural gas. 

Yet there is also growing concern about pipeline overbuild at a time when the power system is undergoing a major transformation, which includes increased use of clean alternatives like solar and wind power, and energy efficiency. In fact, an NRDC report on how the United States can meet its climate goals indicates that investments in fossil fuel infrastructure, like pipelines, should be critically assessed to reduce the risk of obsolete assets and the overall costs of transitioning to a decarbonized energy system. Moreover, while natural gas is less polluting than coal, it and the pipelines carrying the gas put people’s health, our natural resources, and the climate at risk.

Do We Need More Pipelines?
 

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We already have enough pipeline capacity to carry 180 billion cubic feet of natural gas every day. By comparison, average daily U.S. consumption was only 75.11 billion cubic feet last year. In 2015, the U.S. Department of Energy found that the average gas pipeline utilization rate from 1998-2013 was only 54 percent. Analysts at Goldman Sachs this year reported capacity is exceeding demand in Appalachia, where new pipelines are only partly filled. Some pipelines appear to be underused due to artificial limits on their use. A recent study raising market power concerns asserts that withholding of gas pipeline capacity has artificially limited gas supply in New England, producing electricity price increases and calls for more pipelines.

How does a developer prove to FERC that a new pipeline is necessary? Primarily through contracts with purchasers of the pipeline’s capacity. That’s a problem because the contracts may not truly reflect actual need, especially when affiliate contracts are used to justify developing new pipelines. (These are contracts where the pipeline developer is both the seller and buyer of pipeline capacity.) Moreover, when the pipeline-affiliated customer is a monopoly utility with customers who cannot choose their energy provider, customers pay the costs of the pipeline—even if the pipeline is unneeded. Antitrust complaints have cited these and other issues. 

FERC’s review is too narrow and should also include thorough consideration of carbon pollution impacts, energy needs in the region where the pipeline would be built, and clean, non-pipeline alternatives. In deciding whether a pipeline is needed, FERC Commissioner Cheryl LaFleur and former FERC Commissioner Norman Bay agree FERC should consider additional factors. When FERC on the same day approved two highly controversial major pipelines proposed for the same geographic area, Commissioner LaFleur in her dissenting opinions noted FERC’s narrow focus on customer contracts for the pipeline capacity as evidence of need, despite FERC’s ability to consider other factors under its 1999 policy. Former Chairman Bay has also referenced FERC’s reliance on such contracts and the need to consider whether most are signed by affiliates.  

New Concerns

The Analysis Group report indicates that public participation in pipeline review cases has greatly increased amid heightened concerns about taking land by eminent domain; carbon and methane emissions from natural gas production, delivery and use; and the health and safety risks associated with hydraulic fracturing (fracking) to extract the gas. We also know much more about the climate danger from fossil fuels like natural gas since FERC wrote its 1999 policy. The report says that FERC needs to consider how to account for the various concerns of those impacted, many of whom may have limited resources to fully participate in FERC proceedings.

Support for a renewed look at the 1999 policy has been expressed by former Chairman Bay, who cited the increased controversy surrounding pipelines as well as considerable public interest in FERC’s decisions. Commissioner LaFleur also believes that FERC should seek “input from the regulated community, and those impacted by pipelines, on how the commission evaluates needs.”

Recommendations

Based on the Analysis Group’s findings, NRDC makes the following recommendations:

  • FERC should analyze the need for new pipeline construction based on the energy needs in the region where the pipeline would be built. A comprehensive assessment would examine existing and proposed pipeline capacity, long-term energy needs, and avoid duplicative pipelines serving similar markets.
  • FERC should give a high level of scrutiny to contracts between pipeline affiliates. 
  • FERC should consider non-pipeline alternatives to new pipeline construction. Cleaner and safer energy options include renewable energy, energy efficiency, and use of existing underutilized pipeline capacity.

Much has changed since the last decades of the 20th century. But what hasn’t changed is FERC’s responsibility to protect the public interest. A proliferation of unneeded gas pipelines paid for by utility customers is not in the public interest.

About the Authors

Montina Cole

Senior Attorney, Energy & Transportation program

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