... Washington Watch: The Gift of New Regulations

Washington Watch: The Gift of New Regulations

Just in time for the holiday season, this month’s column is chock-full of presents. There are tidings of new, bipartisan regulations on Capitol Hill that could unleash new natural gas and oil production. The Federal Energy Regulatory Commission (FERC) not only has a quorum, but also has a full complement of five members. But there’s a lump of coal in one stocking — FERC has rejected a state environmental regulator’s attempt to prevent a gas pipeline from being built.

It Came Upon a Midnight Clear: Bipartisan Congressional Legislation

On Nov. 3, Representatives Steve Scalise (R-LA), Rob Bishop (R-UT), Henry Cuellar (D-TX) and Vicente González (D-TX) introduced legislation to overhaul federal lands energy policy. H.R. 4239, the “Strengthening the Economy with Critical Untapped Resources to Expand American Energy Act” (aka the “SECURE American Energy Act”), would reform existing regulations for energy development in the Outer Continental Shelf (OCS) and onshore acreage under federal ownership.

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The House Committee on Natural Resources states: “The Bureau of Ocean Energy Management (BOEM) estimates that 89.9 billion barrels of oil and 327.5 trillion cubic feet of gas are contained, but undiscovered, on the OCS. However, 94 [percent] of the OCS is excluded from development.” Thus, the offshore portion of the bill would reduce the constraining regulations and provide regulatory certainty to allow for expanded access to oil, gas and wind development in the OCS. Thus, among other things, the bill would:
• Require BOEM to conduct feasibility and compatibility studies for potential lease sales off the coasts of California, Hawaii, Puerto Rico and the U.S. Virgin Islands;
• Amend the Marine Mammals Protection Act to make the environmental approval process more efficient; and
• Prohibit the Department of Interior from enforcing the Obama administration’s Arctic Rule.
As for onshore matters, the committee states: “Unnecessary permitting delays, costly regulatory requirements and uncertainty in the leasing process have discouraged oil and gas development on federal lands. For example, the Bureau of Land Management (BLM) issued Applications for Permits to Drill in an average of 257 days in 2016. By contrast, State agencies issued permits in just 30 days on average. Despite lower royalty rates on federal lands, producers often opt to develop on state and private lands.” Thus, the onshore portion of H.R. 4239 seeks to streamline the permitting process by:
• Allowing states with established regulatory programs to seek approval from the Department of Energy (DOE) to manage specific oil and gas development responsibilities for federal lands within their borders.
• Eliminating a “one-size-fits-all” federal regulatory scheme and recognizing unique challenges in each state;
• Blocking the BLM from intruding on energy development on state and private lands via unnecessary permits and additional federal environmental reviews; and
• Preventing DOE from enforcing federal regulations regarding hydraulic fracturing on federal lands in states with corresponding rules in place.

The bill is moving fast. It was voted out of committee on Nov. 8. As expected, oil and gas producers support the bill, while environmentalists oppose it.

Will FERC Give DOE Some Figgy Pudding?

In early November, the U.S. Senate finally confirmed the nominations of Kevin McIntyre and Richard Glick to join FERC. McIntyre will be Chairman and serve out the remainder of a term that ends June 2018 and a full term that ends June 2023. Glick will serve the remainder of a term ending in June 2022. With McIntyre and Glick sworn in, FERC has five seated Commissioners for the first time since October 2015.

McIntyre will have his work cut out for him. In addition to daunting pile of cases that were put on hold when there was no quorum, FERC needs to address a highly charged Notice of Proposed Rulemaking (NOPR). On Sept. 29, the DOE took the unusual step of directing FERC to quickly enact rules requiring regional transmission organizations and independent system operators (RTOs/ISOs) to better compensate coal and nuclear power generators. Interested parties have filed more than 1,500 comments. Environmental activists decry this attempt to provide coal and nuclear subsidies, while others maintain it’s no big deal as similar subsidies exist to develop renewable resources. Bottom line, the NOPR represents DOE Secretary Rick Perry’s attempt to keep President Donald Trump’s campaign promise to help the coal industry.

DOE is requiring FERC to act by Dec. 11. Acting Chairman Neil Chatterjee is on record as saying FERC has three options: “adopt it, reject it or reject it and commence our own process.” Two of the three are bad for the coal industry. No matter what action FERC takes, expect opposition and legal challenges.

What does this mean for gas pipelines? Extending the economic lives of coal and nuclear generation, at least to some extent, reduces the need for gas-fired generation and, in turn, additional natural gas pipeline capacity. But few believe that the DOE NOPR can turn back the “hands of time.”

Go Tell It On A Mountain: FERC Overrides NY Environmental Veto

The last edition of this column discussed the regulatory status of several natural gas pipeline projects, whose attempts to obtain authorization to construct new facilities has placed them in the middle of a legal tug of war between FERC and the New York State Department of Environmental Conservation (NYSDEC). The controversies are largely the result of environmental activists seeking to block new pipeline projects and politicians who seek to curry their favor. But whatever the cause, the disputes have revealed tension between the Natural Gas Act (NGA) and Clean Water Act (CWA) and whether Congress envisioned creating a regulatory construct in which authorization from a Federal regulator can be effectively “vetoed” by a state environmental entity.

To recap, an interstate natural gas pipeline must obtain NGA 7(c) certificate authorization to construct a new pipeline. Before granting authorization, FERC considers a number of issues, including environmental impact and then conditions its authorization on the pipeline’s obtaining all other applicable permits. Among the various permits required to be obtained by a pipeline is the applicable state regulator’s certification, under CWA Section 401, to show that pipeline construction will not adversely impact the state’s water quality. Anticipating that states might delay issuance of water quality certification orders, Congress included the following proviso in Section 401: the certification requirement is waived if a state fails or refuses to act on a request for certification within a reasonable period of time (which shall not exceed one year) after receipt of such request. But when does the clock begin to run, when the application was first filed or when the regulator considers the application complete? FERC resolved the question — for now.

On Nov. 9, 2016, FERC granted Millennium Pipeline Co. LLC authorization to build its Valley Lateral project, a 7.8-mile pipeline to serve a new $1 billion gas-fired electric generation facility in Orange County, New York. Almost a year earlier, on Nov. 23, 2015, Millennium filed a 1,200-page application asking the NYSDEC to issue certification. But the department delayed action and asked for more information. Millennium went to the DC Circuit and complained, but the court effectively punted. Emboldened, the NYSDEC delayed longer, until finally denying certification on Aug. 30. But in a declaratory order issued on Sept. 15, FERC told the NYSDEC that it had waived its right to issue certification — that is, a final decision was due a year after the application was first filed, not when the department considered it complete. As a result, FERC told Millennium it could proceed with construction.

The NYSDEC, in turn, asked FERC to rehear and rescind the declaratory order and stay the effectiveness of notice authorizing Millennium to proceed with construction pending appellate review. On Nov. 16, FERC denied the request for a stay (thereby allowing construction to proceed) and request for rehearing, which sets the stage for an apparent appellate showdown. Unless and until the court of appeals stays the construction of the project, FERC just gave Millennium an early Christmas present.

Washington Watch is a bimonthly report on the oil and gas pipeline regulatory landscape. Steve Weiler is partner at Stinson Leonard Street LLP in Washington, D.C. Contact him at steve.weiler@stinson.com.

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