... Washington Watch: Democrats Enact Tax and Spending Bill

Washington Watch: Democrats Enact Tax and Spending Bill

Sen. Joe Manchin Stars in Congressional Remake of “Let’s Make a Deal”

After a summer of secret negotiations, Sen. Joe Manchin (D-W.Va.) ultimately supported a trimmed down version of “Build Back Better,” President Joe Biden’s multi-trillion-dollar spending package questionably renamed (after the diet) the Inflation Reduction Act of 2022 (IRA). Indeed, a renowned business school declared the IRA’s impact on inflation to be “statistically indistinguishable from zero.” That said, the focus of this column is “Manchin’s Deal” on energy permitting reforms, which was agreed to by the President, Senate Majority Leader Charles Schumer and the Speaker of the House of Representatives Nancy Pelosi to obtain Manchin’s support for the IRA.

IRA’s Climate Change Focus

The IRA is a massive 755-page spending bill that was passed in the Senate using a special legislative process called “reconciliation,” which allows for expedited consideration of certain tax, spending and debt limit legislation. Significantly, reconciliation bills aren’t subject to filibuster, and the scope of amendments is limited, making the process attractive for enacting controversial budget and tax measures. At its core, the IRA spending bill: 1.) increases tax revenues, by requiring large corporations to pay at least 15 percent in taxes and doubling the size of Internal Revenue Service to conduct more audits and squeeze out more tax dollars; 2.) “invests” expected revenues in incentives to combat climate change and reduce healthcare costs; and 3.) funds a payment to reduce the national debt.

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Most IRA spending initiatives involve climate change. In step is a provision authorizing the Environmental Protection Agency to assess a “waste emissions charge” on methane emissions over 25,000 metric tons per year from production, processing, storage, liquefied natural gas (LNG) and transportation facilities. The fee, for each metric ton over the threshold, starts at $900 per ton in 2024 and rises to $1,500 per ton in 2026 and thereafter. However, Manchin’s fingerprints are evident elsewhere in the legislation, including provisions that promote oil and gas leasing on federal lands. For example, the IRA reinstates Lease Sale 257 (including 80 million acres of the Gulf of Mexico), which a federal judge in Washington, D.C., vacated earlier this year, and forbids the Bureau of Land Management (BLM) from issuing rights-of-way on federal land for wind or solar development absent BLM’s meeting certain oil and gas lease benchmarks.

Manchin’s Deal

Because Manchin’s support was essential to passing the IRA in a 50-50 Senate, the Democratic leadership cut a side deal with Manchin to obtain his vote — their commitment to support this fall legislation on energy permitting reforms. Little has been revealed, save a one-page bullet outline of the deal and an old draft bill. The elements of Manchin’s Deal are explained below, along with a little context.

Complete Mountain Valley Pipeline

In 2017, the Federal Energy Regulatory Commission (FERC) granted certificate authorization for Mountain Valley Pipeline (MVP) to construct a new, 300-mile, 42-in. diameter natural gas pipeline to transport up to two million dekatherms per day the Marcellus and Utica fields in West Virginia to an interconnection with an existing pipeline system in Virginia.

After receiving all other federal authorizations, MVP began construction in February 2018. However, environmental groups challenged the authorizations and the Fourth Circuit agreed, repeatedly vacating or staying the effectiveness of permits issued by the BLM, U.S. Army Corps of Engineers and U.S. Forest Service because of concerns that construction could adversely impact waterways along the pipeline route, as well as the U.S. Fish and Wildlife Service’s consideration of the pipeline’s impact on endangered species (i.e., candy darter, logperch and two types of bats). The litigation has delayed completion of the pipeline (prompting FERC to extend the completion deadline to 2026) and increased the estimated construction cost estimate from $3.7 billion to $6.6 billion.

Manchin’s Deal seeks to ensure that his home state’s new pipeline project (MVP) is completed by
requiring the relevant agencies to take all necessary actions to permit the construction and operation of the MVP and giving the DC Circuit (not the Fourth Circuit) jurisdiction over any further litigation.

Improve Clean Water Act Certification Process

FERC regulates market entry for new natural gas pipeline projects through Natural Gas Act certificate authorization. However, a state environmental regulatory agency, acting as federal deputy under Section 401 of the Clean Water Act (CWA) can effectively “veto” FERC’s certificate by refusing to certify that the construction and operation of the permitted project would not violate the state’s water quality standards. Recently, environmental activists have transformed the water quality certification process into a sword to slay any unwanted pipeline projects.

Manchin’s Deal would make the water certification process more transparent by requiring state regulators to publish clear requirements for certification or default to federal requirements; review certification requests using available information on potential water quality impacts (nothing else); and adhere to the currently effective one-year review clock for processing requests and not request applicants to withdraw their requests to pause or restart the one-year review clock. These revisions would provide pipeline developers with more regulatory certainty.

Streamline NEPA Review

Before issuing certificate authorization for pipeline construction, FERC takes a “hard look” at environmental concerns, as required by the National Environmental Policy Act of 1969 (NEPA). This hard look takes a lot of time and is frequently contested by those opposing pipeline development.
Manchin’s Deal would streamline the NEPA review process by 1.) setting maximum timelines for permitting reviews (two years for major projects and one year for lower impact projects); 2.) requiring a single inter-agency environmental review document and concurrent agency review processes; 3.) designating a lead agency to coordinate inter-agency review; 4.) improving the process for developing categorical exemptions under NEPA; and 5.) expanding and improving the Federal Permitting Improvement Steering Council, a Federal agency charged with improving the transparency and predictability of the Federal environmental review and authorization process for large-scale critical infrastructure projects.

Infrastructure Initiatives

Manchin’s Deal includes a number of other measures to improve the energy permitting process. To prevent excessive litigation a statute of limitations would be established for court challenges of an energy infrastructure permit: if remanding or vacating an infrastructure permit, the court must require the agency to act within 180 days of the remand. To prevent litigation forum shopping, permits would be reviewed by a random assignment of judges from all federal circuit courts.

Energy infrastructure projects of strategic national importance would be identified and permitting prioritized, with the president designating and updating a list of at least 25 high-priority energy infrastructure projects. The list would be balanced, including fossil fuels, carbon capture, sequestration, storage, and removal, critical minerals, nuclear, hydrogen, renewables, and electric transmission. Likewise, there would be enhanced federal government authority for interstate electric transmission facilities determined by the Secretary of Energy to be in the national interest, with FERC’s issuing a construction permit and ensuring that costs are assigned to customers that benefit. Finally, to promote the growth of the U.S. hydrogen industry, FERC would be vested with jurisdiction over interstate hydrogen pipelines, storage, and import/export facilities.

Manchin’s Deal is currently being transformed into a bill. But there are many questions, e.g., whether all the provisions outlined above actually make it into the spending bill, the wording of the bill, when it will be introduced, and whether it passes and is signed into law. In the meantime, the IRA is law.

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

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