Back to the Future – FERC Chairman Chatterjee and the Risks of a Four-Member Commission

Proponents of pipeline and LNG projects pending before FERC are asking themselves whether the current four-member Commission is like not having a quorum (See The Senate Questions Trump's FERC Nominees). If the four commissioners are split 2-2 on a project, the Chairman will simply not bring the project up for a vote until the tie can be broken -- which cannot happen until the appointment of the fifth commissioner.

While the past can help us understand the future, the current situation is more complex, and surprisingly more uncertain, than was the loss of a quorum for the following reasons:

FERC votes can still occur if three of the current four commissioners agree on an action (See Powelson Leaves and LaFleur Blooms - FERC Policy and Projects Stalled?)
We are in an election period, which may delay or accelerate (depending upon the outcome) the appointment of a fifth commissioner
Former Chairman McIntyre’s continuing health issues create an uncertainty not present before

If you have an interest in predicting the date on which currently pending projects will be approved, understanding the impact of a split vote is crucial. To help assess the impact, today we examine the following three issues (and provide an addendum to Permian Pipeline Project Update - Movers, Shakers and Others).

How long the limbo may last by reviewing how long it usually takes for a new commissioner to be appointed and begin voting
Which projects may be impacted by reviewing the status of the pipeline projects currently pending before FERC
Whether the loss of the quorum delayed the approval of projects pending at that time

McNamee Begins Voting

Presuming the current commissioners are split evenly with regard to a project, the question becomes how long will it take for the current nominee to take office. President Trump formally nominated Bernard L. McNamee on October 5, 2018 to be the next FERC commissioner, replacing Commissioner Powelson, who stepped down in August. Mr. McNamee is currently the Executive Director of the Office of Policy at the Department of Energy and was previously its Deputy General Counsel for Energy Policy. Before serving at DOE, Mr. McNamee practiced energy law with McGuireWoods LLP, in Richmond, Virginia, and worked as a policy advisor on energy issues for a United States Senator from Texas.

The data for nominations since 2000 reflected in the above chart shows that it is likely that FERC will only have four commissioners for about another three months, as the average time from nomination to taking office since 2000 has been 131 days. That would mean that Mr. McNamee could be expected to take office around Valentine’s Day in 2019.
However, as also seen above, it is not uncommon for a new commissioner to take some time before casting a vote on a certificate proceeding that has been pending before the commission. On average, since 2000, that time frame has been 19 days, which is somewhat longer than the time it took Commissioners Powelson and Chatterjee to first vote after they joined and restored the quorum. In their cases, they took only 12 and 14 days, respectively, to vote on a pending certificate. Therefore, it could be until the end of February or early March before FERC is again restored to five voting members.

Projects That May Be Caught In Limbo

As of today, there are only six projects pending before FERC that have completed the environmental review process: Risberg Line Project, Transcanada’s Line 8000 Replacement, Enbridge’s Lambertville East Expansion Project, Williams’ Gateway Expansion Project, Dominion Energy’sSweden Valley Project , and National Fuel Gas’s Empire North Project .

As shown below, our current median projection shows five of these six projects could reasonably expect to receive their certificate before the end of February.

In addition to these six projects, FERC has issued a notice of schedule for the environmental review for six other projects with dates before the end of February. The issuance of the certificates for these projects could also be impacted if FERC is not restored to full strength before that date.

Impact of the Lack of a Quorum

The impact on a particular project from either the lack of the quorum or from a tied vote is difficult to pinpoint because it often depends on the perspective of the person asking the question. While we ultimately know the length of time it takes for a project to move from application to decision, to calculate the impact of an event, it is necessary to know the standard against which the actual result is compared, i.e., the expectations of the parties, or the historical norms for projects of similar scope.
Because of the difficulty in measuring such an impact, we set forth below some of the major projects that were potentially caught in the quorum issue. As shown in the visualization below, we compare the actual review timelines for these projects to both the applicant’s requested certificate decision date and our projected decision date for projects of similar scope (based on a static data analysis at the time the application was filed). Even with the data below, there would probably be an argument among the sponsors of PennEast, Atlantic Coast Pipeline, Mountain Valley Pipeline, WB Xpress and NEXUS as to who was most harmed by the loss of a quorum.

As the second chart shows, though, the loss of a quorum added over 100 days to the median approval period following issuance of the environmental document, when compared to the projects approved before the loss of the quorum, and was even 40 days longer than the projects filed and approved after the restoration of the quorum. Nonetheless, just one of the projects exceeded the 24-month time period (i.e., from certificate application to decision) discussed in FERC’s recently released FY 2018-222 Strategic Plan.

Commissioner McIntyre Steps Down as Chairman

A backdrop to all of these issues is the continuing health issues which Commissioner McIntyre is unfortunately experiencing, and which may impact his tenure on the Commission. Last week, those issues led him to resign as the Chairman of the Commission and President Trump to appoint Commissioner Chatterjee as Chairman.
In his letter to President Trump, Chairman McIntyre noted that in the summer of 2017 he was diagnosed with a brain tumor, but that after surgery and subsequent treatment, he was able to take office in December of 2017. He noted additional health issues arose this summer, when he suffered compression fractures in multiple vertebrae. But, more importantly, he stated that, “very recently [he] experienced a more serious health setback, leaving [him] currently unable to perform the duties of Chairman.” While he felt it best to step aside as Chairman, he indicated that he wanted to continue as a commissioner. How these health issues will impact his ability to vote on pending projects, in either a four or five-member Commission, remain to be seen.

Addendum - An Unknown Shin Oak Affiliate

After we issued last Friday’s Insights, Permian Pipeline Project Update - Movers, Shakers and Others, we received calls from a number of customers who thought that Shin Oak had started obtaining the required rights of way to build the project. So, we did a little more digging and here is what we found:
The Shin Oak project is being developed by Enterprise Products Partners L.P. (EPP). So, when conducting our research, we looked for variations of Enterprise Products and the Shin Oak name. What we did not look for was the Latin name for the Shin Oak tree, Breviloba. However, in EPP’s 10-K filed with the SEC on February 28, 2018, EPP included, for the first time, in its list of dozens of subsidiaries, a company named Breviloba, LLC, although there is no connection in the 10-K of that company to the Shin Oak project.
When we included that entity name in our search, a whole new picture emerged. As with the other companies in Friday’s report, Breviloba has been very busy acquiring rights of way that are in the same counties as the Shin Oak pipeline.
Set forth below, is a revised version (revisions are in red) of Friday’s Insights.
A look at the progress of four of the pipeline projects in obtaining the needed rights of way demonstrates how using this criterion as a measure of progress can help in assessing the viability of the project’s announced in-service date.

Grand Prix filed its first easement in September 2017, twenty months before its announced in-service date.

Shin Oak filed its first easement in October of 2017, nineteen months before its announced in-service date. Similarly, Gulf Coast Express began its right of way acquisition in March 2018, 19 months before its in-service date, and Gray Oak started in August 2018, which is 16 months before its announced in-service date.
After adjusting the progress chart for Shin Oak for its easement and condemnation activity, its progress score rises to 80% and puts it ahead of Grand Prix’s reported progress score of 65%.

Insights Coming Soon

Shifting sands of pipeline permitting
FERC MOU impact on LNG projects