... FERC Revisits Decisions on Pipeline Certificates - North American Energy Pipelines

FERC Revisits Decisions on Pipeline Certificates

“I have often tried to imagine how I might have acted differently.
Always I end up in the same place.”

— Lynn I. Wilson

In February, the Federal Energy Regulatory Commission (FERC) sought comments in two old decisions involving the construction and operation of interstate natural gas pipeline facilities: one involves possible revisions to a 20-year-old “Policy Statement,” the other the continued effectiveness of a certificate issued four years ago to a pipeline that experienced operational problems during testing. FERC’s ultimate decisions in these two proceedings will significantly affect pipeline projects for years to come.

Certificate Authorization

Before new interstate natural gas pipeline facilities can be constructed and operated, the sponsor must first obtain authorization from FERC, specifically a “certificate of public convenience and necessity” issued under Section 7(c) of the Natural Gas Act (NGA) of 1938. [Although pipelines were initially awarded actual certificates (suitable for framing), that practice ended decades ago. “Certificate authorization” is still granted, but without an actual certificate.]

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To grant certificate authorization, FERC must find that the pipeline project is required by the “public convenience and necessity,” a term not defined in the NGA. As a result, FERC developed a body of case law to guide its certificate decisions. When pipelines were merchants, certificate authorization hinged on whether the applicant could demonstrate adequate gas reserves, sufficient markets, appropriate design of facilities, and sound financing. By the 1990s, certificate orders also considered other issues, such as setting the appropriate rate for the new facilities (“rolled-in” vs. “incremental”).

Existing Policy Statement

To crystalize policies that would guide certificate decisions involving the current and anticipated marketplace, FERC issued the Policy Statement in 1999. Under the Policy Statement, an existing pipeline must be able to support financially a proposed expansion project, without relying on subsidization from its existing customers. If this threshold is satisfied, FERC determines whether the project is “needed,” by considering a variety of factors, such as long-term precedent agreements with prospective customers, potential cost savings to consumers, or that projected demand exceeds existing pipeline capacity currently serving a particular market. Next, FERC considers the effects of the project on the affected interests of three groups — the applicant’s existing customers, competing existing pipelines and their captive customers, and the landowners and surrounding communities. If the proposed pipeline project’s public benefits outweigh any adverse impacts, then FERC conducts the required environmental analysis.

Significant Changes

Much has happened since FERC issued the Policy Statement. The shale revolution significantly increased natural gas production, which in turn led to new areas of gas production and flows on pipeline systems becoming bidirectional or reversing. Significantly, abundant supplies of natural gas have also led to an increased use of natural gas as a fuel source for electric generation, resulting in a closer relationship between natural gas and electric markets. Meanwhile, landowners and affected communities became increasingly involved in certificate proceedings, while environmental groups urged FERC to expand its certificate evaluation under to National Environmental Policy Act of 1969 to consider more fully greenhouse gas emissions associated with a proposed project and the emissions’ possible impact on global climate change.

“Fresh Look”

During his Senate confirmation hearings in 2017, former Chairman Kevin McIntyre pledged to take a “fresh look” at the Policy Statement. Thus, in 2018, FERC issued a Notice of Inquiry (NOI) seeking comments on four main areas of interest in the Policy Statement. Unfortunately, after issuing the NOI, McIntyre battled health issues and died; the NOI languished, while FERC addressed other issues. In February 2021, FERC issued a new NOI, which generally re-asks the same questions posited in 2018, but with some significant revisions and additions. Among the many new/revised questions are whether FERC should

  • Consider adjusting its assessment of need to examine whether existing infrastructure can accommodate a proposed project.
  • Condition a certificate holder’s exercise of eminent domain.
  • Use the Social Cost of Carbon (SCC) analysis in certificate proceedings to determine whether a proposed project is required by the public convenience and necessity.
  • Ensure more effective participation by interested stakeholders during the pre-filing process.
  • Establish a method for evaluating mitigation for impacts on environmental justice communities and attach such mitigation as a condition to the certificate.

Written comments are due April 26.

Some fear that a revised Policy Statement would make it more difficult for pipelines to obtain certificate authorization and, therefore, impede the development of new infrastructure projects. Whatever happens will take time. The NOI represents the first step of a multi-step process. A revised Policy Statement will not issue (if at all) for more than a year.

Atlantic Bridge

FERC also seeks briefing on the continued viability of the certificate authorization for Enbridge’s Atlantic Bridge project. The $450 million project provides more than 130,000 dekatherms of capacity on the Algonquin Gas Transmission and Maritimes & Northeast pipelines systems, essentially by enlarging the size of a 6.3-mile section of pipeline in New York and Connecticut and adding new compression facilities, including a new compressor station in Weymouth, just outside of Boston.

FERC granted certificate authorization in 2017. In 2018, DC Circuit upheld FERC’s certificate order. In 2019, with project facilities in place from New Jersey to Massachusetts, FERC Staff authorized Algonquin to begin construction of the Weymouth Compressor Station, but only after confirming that Algonquin had obtained all required federal authorizations (including an air quality plan approved by the Massachusetts’ environmental regulator). The project was still opposed by the town of Weymouth, Massachusetts, environmental and community groups, and Senators Elizabeth Warren (D) and Edward Markey (D).

Last fall, when Algonquin was testing the Weymouth Compressor Station facilities, as required by the Pipeline and Hazardous Material Safety Administration (PHMSA), a gasket failed, requiring Algonquin to perform an emergency shutdown, releasing approximately 169,000 cubic feet of gas and 35 lbs of volatile organic compounds (VOCs). Afterwards, FERC Staff authorized Algonquin to place the compressor into service. The next week, the compressor experienced another unplanned emergency shutdown, which released again released natural gas and VOCs. Algonquin voluntarily shut in its system, worked with PHMSA to determine the root cause of the problem.

In the meantime, several parties requested rehearing of the FERC Staff’s authorization to place the Weymouth Compressor Station into service. Those requests were denied by operation of law. Subsequently, PHMSA approved Algonquin’s restart plan and the temporary authorization of the Weymouth Compressor Station. On Jan. 25, Algonquin placed the compressor station into service, meaning the entire Atlantic Bridge project was in service.

In February, FERC issued an Order asking interested parties to brief (by April 5) five questions ranging from whether the Weymouth Compressor should be allowed to remain in service to what would the consequences be for reversing the certificate issued more four years ago. FERC provided no procedural or legal justification for its briefing order — there is arguably no pending proceeding in which to issue the order, because the rehearing requests were denied last fall, and PHMSA has jurisdiction over pipeline safety. In full-throated dissents, Commissioners Danly and Christie question whether, in light of the majority’s decision, an interstate pipeline (and its investors and customers) may ever again be able to rely on a final certificate order.

Washington Watch is a regular report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Dorsey & Whitney LLC in Washington, D.C. Contact him at weiler.steve@dorsey.com.

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