The Federal Energy Regulatory Commission, courts and states are poised to set policies in 2022 that could make long-term changes to the natural gas pipeline industry, following a year that saw cancellations of major projects.
FERC is under heightened pressure this year to reform the way it greenlights new pipelines, following recent court rulings and criticism that it has not done enough to analyze the environmental effects of natural gas infrastructure.
But rising natural gas prices, constraints in the pipeline system and growing threats to electric reliability have also led some regulators and state leaders to call for more gas infrastructure to be built.
The potential for changes to FERC’s reviews of projects and opposition in some states could mean a harder road for new pipelines to clear regulatory hurdles, particularly as the Biden administration is aiming to slash the country’s carbon footprint, observers say.
The past two years have seen high-profile pipeline cancellations following state, property owner and environmentalist opposition, starting with the Constitution and Atlantic Coast pipelines in 2020, and the PennEast pipeline and the Jordan Cove liquefied natural gas project in 2021.
Buy-in from states and environmental groups to support the expansion of natural gas has changed significantly in just the past decade, said Carolyn Elefant, a former FERC attorney who represents property owners impacted by pipelines.
Ten years ago, environmental groups didn’t oppose pipelines because they saw them as providing a bridge fuel to renewables, and states saw the projects as sources of jobs and revenue, Elefant said.
"I think that a lot of that has changed," Elefant said. "Because there’s a recognition now that gas pipelines are just as environmentally problematic as coal or other fossil fuels, so I think that makes things more difficult."
Developers continue to propose new projects, sometimes with bipartisan support from state and local leaders. In Louisiana, for example, Gov. John Bel Edwards (D) is backing a proposed new LNG export terminal and 85-mile pipeline, which he has described as a boon for the state’s economy and climate goals (Energywire, Dec. 3, 2021).
The natural gas pipeline industry argues that natural gas has cut emissions in comparison with coal and is helping boost clean energy.
“Switching to natural gas has already provided significant climate benefits,” Amy Andryszak, president and CEO of the Interstate Natural Gas Association of America, said in an email. “Furthermore, as the US continues to move towards greater adoption of renewable forms of electricity, there is an increased need for natural gas and related infrastructure to enable flexible, on demand power generation and energy storage that is necessary to ensure electric reliability.”
Still, at least two of the five FERC commissioners — Chair Richard Glick and Allison Clements — have indicated that they hope to apply more scrutiny to gas projects.
It remains to be seen how new natural gas pipeline applications will move forward at FERC this year as changes to its regulatory approach play out, particularly since Glick has discretion as chair not to take action on pipeline certificate applications, said Neil Chatterjee, a former commissioner who served as chair throughout most of former President Trump’s term.
"Obviously, this is something that everyone will be watching very closely. I’ll be interested to see how quickly the commission takes action," he said.
FERC shifts
Last year, FERC began including estimates of natural gas projects’ greenhouse gas emissions as part of its environmental reviews.
This year, the agency may set a new standard for how those estimates should factor into final decisions. FERC currently lacks a clear policy that guides whether a proposal’s climate-warming emissions are “significant,” Glick has said.
“Essentially there’s no test out there, because the commissioners have had different views so far,” Glick, a Democrat, told reporters after the agency’s open meeting in December. “So we’re going to try to come up with a consensus.”
The issue has proved divisive. At a technical conference last year, the commissioners debated whether the agency has the legal authority to consider more than a project’s direct emissions (Energywire, Nov. 22, 2021).
Advocates and some legal experts have pushed for analyses of projects’ “life cycle” greenhouse gas emissions. For example, FERC could consider the fact that new pipeline infrastructure could increase natural gas production or lead to more natural gas being burned and consumed, they say.
"The way things are moving, FERC is going to need to start asking those deeper questions about the projects to really understand which infrastructure is needed," said Jennifer Danis, a senior fellow at Columbia University’s Sabin Center for Climate Change Law.
"Otherwise, costs are just going to go up for ratepayers just all over the map," she added.
Others, including Republican Commissioner James Danly, have emphasized that FERC is not an environmental regulator and say that the agency’s legal authority is narrowly defined by Congress.
Former Commissioner Joseph Kelliher espoused a similar sentiment in a comment to FERC last week, questioning whether the commission is legally permitted to require developers to reduce their carbon emissions.
Kelliher, an independent consultant who served on the commission from 2003 to 2009 after being nominated by then-President George W. Bush, argued that greenhouse gas emissions are “subject to regulation by the EPA under the Clean Air Act.”
“I urge the Commission to recognize the limits on its authority, notwithstanding the seriousness of the threat posed by climate change. It is better to take action that respects those limits, produces results, and is legally durable than to overreach and fail,” Kelliher wrote in a comment.
But Danis noted that FERC frequently considers factors it does not have direct authority to regulate as part of its assessments. FERC is now vulnerable because it doesn’t have a process for evaluating climate change costs, added Danis, who has advocated for stronger climate change analyses from FERC.
In addition to establishing a method for determining the significance and cost of projects’ climate change impacts, Glick is aiming to reform the commission’s so-called certificate policy statement, which guides how the agency reviews and approves new natural gas projects. Instead of largely signing off on projects based on whether they’ve secured contracts with shippers, FERC could begin considering a broader range of factors, such as environmental justice impacts and states’ climate goals, according to a notice issued last year.
That could have ramifications for future projects and those pending before FERC, although Andryszak stressed that projects that have already been proposed should not be subject to “shifting regulatory goalposts.” There are about two dozen natural gas pipelines and LNG projects awaiting approval from the agency.
While EPA has urged the commission not to approve major natural gas projects until it refines its climate policies, critics say the agency seems to be delaying project approvals, creating uncertainty for the gas industry and consumers who rely on natural gas. In one comment to FERC last month, for example, the electric utility National Grid noted that a proposed natural gas expansion project that would serve its customers in New York has been pending before FERC since January of 2020.
If FERC does not take action soon to approve the Enhancement by Compression Project, which aims to bring more natural gas to the New York City region, it could lead to potential electric reliability challenges in the next five years, National Grid warned (Energywire, Dec. 21, 2021).
Legal pressure
While FERC is still working to define the parameters of its reforms, some notable federal court decisions in the past year issued warnings to the commission that its work has been inadequate both on climate and defining demand for a project.
Recent rulings on pipelines and LNG facilities from the U.S. Court of Appeals for the District of Columbia Circuit in 2021 are pushing FERC commissioners to clarify their approach to analyzing project impacts going forward.
"I think what all these cases are showing is that the D.C. Circuit is going to do a robust review," Elefant said.
While FERC has had a good reputation in the court before, she said, the court has found the record from the agency to be "shoddy" under Chatterjee, the former Republican chair.
"This is to everybody’s benefit, because FERC is going to have to do a better job," she said of the impact of the rulings.
Chatterjee defended the approach the independent agency took to analyzing projects under his leadership.
"In my view, we were following the law," he said. "To make a major deviation from the approach that we have been taking, with the absence of explicit guidance from Congress, I think would have been an overreach of the commission’s statutory authority."
One of the cases includes the D.C. Circuit’s decision to remand FERC’s analysis of climate impacts for a pair of LNG facilities and an associated pipeline in Brownsville, Texas.
The panel ruled that FERC had to redo its analysis to address concerns about the adequacy of its analysis of greenhouse gas emissions from the Texas LNG facility, along with the Rio Grande LNG terminal and its associated Rio Bravo pipeline.
The ruling did not require FERC to use the social cost of carbon in its analysis, a metric for measuring the societal costs of emissions that has become its own focus of legal challenges under the Biden administration. Instead, the panel ruled that commissioners had to at least address why they adopted a particular approach to study the effects of emissions.
What the D.C. Circuit upheld is that FERC doesn’t need to review upstream impacts from gas production, said Chatterjee.
"If the commission were to reverse course on that point in particular, that would be a very bad development for gas infrastructure that I think would face considerable pushback in the courts and in the Congress," said Chatterjee.
Another recent federal appeals court ruling is also putting pressure on commissioners to take a hard look at how FERC establishes demand for new pipeline construction.
In June, the D.C. Circuit sent the operating certificate for Spire Inc.’s 65-mile pipeline back to FERC, after finding it had not adequately established that demand. The commission has since granted the pipeline a temporary certificate to remain operational through the winter.
"I think the data requests that went into Spire are really a model in some ways of the kinds of questions that FERC ought to be asking in all of its proceedings," said Danis.
The degree of disruption to pipeline developers from increased analysis will depend both on how clearly the commission articulates what information applicants need to provide to it and how much FERC is prepared to stand behind and defend projects that provide that data, said Adam White, the co-executive director of the C. Boyden Gray Center for the Study of the Administrative State at George Mason University.
"If FERC lays that out, then I don’t think it’s a problem," White said. "But if FERC can’t describe that in advance, they are going to deter a lot of investment."
State action
Even without federal changes, state regulators could still play a role in the fate of projects going forward, as pipeline developers have found over the past two years.
"I think it’s going to be difficult to overcome the [state] challenges just because the states retain power to issue Clean Water Act, Clean Air Act and Coastal Zone Management permits," said Elefant.
New Jersey, for example, was able to block the 116-mile PennEast pipeline after denying key water permits for the project, even after the Supreme Court ruled the project developer had legal authority to condemn 42 parcels of controlled land in the Garden State.
That approach may prove relevant for the planned 75-mile extension for the Mountain Valley pipeline.
The MVP Southgate project, which aims to move natural gas to delivery points in North Carolina, suffered a setback in December after the Virginia Air Pollution Control Board voted 6-1 to reject a permit for the proposed Lambert Compressor Station, which would be part of the Southgate extension.
On the other hand, recent state water permit approvals for the mainline Mountain Valley pipeline from West Virginia and Virginia last month are setting the stage for the project to obtain its last outstanding federal permit from the Army Corps of Engineers (Energywire, Dec. 6, 2021).
Both approvals are being challenged in the 4th U.S. Circuit Court of Appeals, but ClearView Energy Partners LLC suggested in a recent note to clients they could survive judicial review.
State officials in conservative and energy-producing states also have balked at FERC’s recent moves related to pipelines. In a letter sent to FERC this month, 18 states’ attorneys general declared that FERC has no authority to mitigate or regulate projects’ greenhouse gas emissions.
“FERC, a creature of statute, cannot bypass the question of whether it can expand the scope of its own regulatory reach without Congressional or statutory authorization,” the attorneys general wrote.
States may also try to argue that their codified climate goals bar major new natural gas infrastructure, as occurred in litigation over the now-canceled Jordan Cove LNG project in Oregon.
State ratepayer advocates could play a role in collecting information about whether shippers truly lack capacity and require new pipelines to be built to transport natural gas, some experts said.
"FERC certainly has the power right now to request those data from the applicant," said Danis. "FERC doesn’t regulate the shippers, but that doesn’t mean they can’t ask for information from the applicants."
Part of FERC’s objective should be to counteract persistent narratives that new gas supply is necessary for the energy transition in the absence of long-duration battery storage, and instead focus on using existing capacity in a better way, said Danis.
"FERC needs to act really quickly, to prevent both additional new capacity from coming online that isn’t needed, and also to preclude the companies who see the writing on the wall about which way the system is moving from trying to really game the system," she said.
Pipeline developers, meanwhile, plan to stay engaged with FERC and Congress to ensure that demand for natural gas is met this year, said Andryszak of INGAA.
“Families and businesses rely on timely approval of needed natural gas infrastructure projects to meet their energy needs,” she said.
