The First Casualty of FERC’s Fight Over GHG

Last Friday, Dominion sent a letter to FERC formally withdrawing its application for a certificate of public convenience and necessity (certificate) for its Sweden Valley Project. In its letter, Dominion made clear its frustration with being unable to obtain a certificate for a project with “limited facilities, including modification of an existing compressor station and the construction of two measuring stations, approximately five miles of pipeline and related ancillary facilities.” Dominion had expected to receive the certificate by November 10, 2018, which is a reasonable expectation given the project scope and that the Staff completed the environmental review on August 31, 2018. According to Dominion, FERC’s failure to act caused the project customer, a Pennsylvania-based exploration and production company, to terminate its transportation agreement, causing Dominion to withdraw its application.

June was an active month for commentary on how FERC addresses climate change, including a law review article by Commissioner Glick, Congressional testimony by all four commissioners, release of guidance from the Council on Environmental Quality (CEQ) regarding greenhouse gas (GHG) analysis and a slap by the DC Circuit about FERC’s “less-than-dogged efforts” to assess the GHG emissions from the projects it reviews.

Today, we note each commissioner’s apparent position on GHG emissions based on their public statements, and lay out how these disparate positions will likely be resolved (by the courts). We also discuss whether project applicants should act proactively to provide information not specifically requested by the regulator. In the meantime, as we discussed in LaFleur is Leaving FERC -- What Does That Mean for the Pipeline Project Queue? , we believe that there are a number of other projects that may also be caught in this fight.

How Unusual Is Dominion’s Withdrawal?

Of the over 300 projects in our database dating from October 1, 2007, only five other pipeline project applications have been withdrawn before receipt of a certificate, and only Sweden Valley withdrew its application after having received a positive environmental report. Chairman Chatterjee was not opposed to the project, which he described as having “very limited environmental impacts” and the project would have brought much-needed gas to an underserved part of the country. But, he apparently could not muster the three votes to get it approved.

Where Do The Commissioners Stand on GHGs?

In May 2018, FERC began a new GHG disclosure policy that greatly reduced the GHG quantification and consideration in its environmental reviews and orders from that point forward. Since then, each commissioner seems to have developed his or her own view on FERC’s duties to assess and control GHG emissions.

Commissioner Glick has written and spoken the most about his views on FERC’s role in assessing the impact of projects on climate change. He appears to believe that under Section 3 and Section 7 of the Natural Gas Act (NGA), FERC is required to approve projects in the public interest and under that standard, FERC must balance a project’s climate change impacts (construction, operational, upstream and downstream GHG emissions) against the public benefits of the project. Commissioner Glick believes that FERC should use the Social Cost of Carbon to perform this balance. When FERC finds that GHG emissions are significant, Commissioner Glick believes that FERC must require applicants to mitigate such emissions.

Commissioner Glick’s affirmative positions remain a mystery. Interestingly, it appears that his standard is based on the gross amount of GHG emissions and not on the intensity of the emissions, as compared to some standard regarding the size of the project. In essence, it appears that he would approve four small projects that would emit twice the GHG as a single project that would provide the same level of transportation or LNG liquefaction capacity. The charts below show that the intensity might be a better measure and that perhaps a standard could be found that projects must meet to avoid the mitigation measures suggested by Commissioner Glick’s position.

CO2 Emissions by Capacity

CO2 Emissions by Horsepower

Commissioner LaFleur has written a number of concurrences and provided her views in her written testimony to Congress. This information suggests that Commissioner LaFleur believes that under the NGA, FERC must seriously consider the construction, operational, downstream and, in limited circumstances, the upstream impacts of GHG emissions for projects under Section 7 of the NGA, but is permitted to only consider construction and operational emissions for Section 3 projects, because the Department of Energy is the party responsible for assessing upstream and downstream impacts for those projects.

Commissioner LaFleur appears to believe that FERC should calculate the total expected GHG emissions of a project and compare that to regional and national emissions. However, Commissioner LaFleur seems to believe that since there is no legal standard limiting the amount of GHG emissions that a project may emit, it would be difficult for FERC to reject a project solely on the basis of its GHG emissions.

Chairman Chatterjee instituted the new policy in May 2018 that led to the split among the commissioners, but has not generally explained his own position. His position is best determined by the orders being issued and positions taken in appeals to the DC Circuit. Based on this information, Chairman Chatterjee appears to believe that FERC must seriously consider the construction, operational, and, in limited circumstances, the downstream GHG emissions from a Section 7 project, but only the construction and operational emissions from a Section 3 facility. As to Section 7 projects, FERC need not ask the applicant about the intended end-use of the gas being transported, and FERC only needs to calculate the downstream GHG if the end-use is known, is for domestic use and the emissions can be determined with certainty. Chairman Chatterjee has suggested that FERC has no authority to reject a project for its GHG emissions and thus may not require a project to mitigate or reduce those emissions.

Commissioner McNamee has been almost sphynx-like on this topic, but we can discern some of his beliefs by examining the statements of others about his views. Commissioner McNamee appears to believe that FERC is prohibited under Section 3 and Section 7 of the NGA from taking GHG emissions into consideration when making its public interest determinations under the NGA. Commissioner McNamee also appears to believe that FERC must , under NEPA, seriously consider the construction, operational, and, in limited circumstances, the downstream GHG emissions from a Section 7 project, but only the construction and operational emissions from a Section 3 facility. In addition, Commissioner McNamee’s apparent position is that FERC has no authority to reject a project for its GHG emissions and thus may not require a project to mitigate or reduce those emissions.

FERC Doesn’t Have the Final Say on What its Legal Duties are Under the NGA or NEPA

As an independent agency, FERC is required to comply with NEPA, but, unlike executive branch agencies, FERC is not required to follow guidance issued by the Council on Environmental Quality (CEQ) to the extent such guidance conflicts with FERC’s statutory obligations. Earlier this month, however, CEQ issued new guidance for executive branch agencies that appears to provide greater flexibility to such agencies and could be used by FERC to support the chairman’s current stance on how to deal with GHG impacts. In particular, the CEQ has proposed the following standards that appear to support the chairman’s position:

Agencies should attempt to quantify a proposed action’s projected direct and reasonably foreseeable indirect GHG emissions when the amount of those emissions is substantial enough to warrant quantification.
Agencies are not required to quantify effects where information necessary for quantification is unavailable, not of high quality, or the complexity of identifying emissions would make quantification overly speculative.
NEPA does not require agencies to adopt mitigation measures.
NEPA and CEQ’s implementing regulations do not require agencies to monetize costs and benefits of a proposed action.
However, at least one provision in the guidance also supports Commissioner LaFleur’s position:
Where GHG inventory information is available, an agency may also reference local, regional, national, or sector-wide emission estimates to provide context.

While the CEQ guidance may be supportive of the chairman’s GHG approach, neither FERC nor the CEQ has the final say on what is required under NEPA. That final say will be the Courts of Appeal that review FERC decisions including, principally, the DC Circuit. Commissioners LaFleur and Glick regularly cite to two decisions by the DC Circuit which they say support their views, the Sabal Trail decision from 2017 and, more importantly, the Broad Run decision issued on June 4, 2019. Our view is that Commissioner LaFleur’s reading of those cases is more accurate than Commissioner Glick’s, which seems to be reading more into those decisions than warranted. However, we do believe both decisions make it highly likely that the current FERC position, if properly challenged in a case, will not get the approval of the DC Circuit.

In Broad Run, the DC Circuit had a chance to revisit how Sabal Trail was being interpreted by both FERC and environmental opposition groups. As bluntly stated by the court: “Neither side has it exactly right.” As explained by the court, all of the following extreme positions are blatantly incorrect:

Downstream emissions are categorically indirect effects of a pipeline project that “must be considered and quantified by the Commission under NEPA.”
Downstream emissions are an indirect effect of a project only when the project’s “entire purpose” is to transport gas to be burned at “specifically-identified” destinations.
Downstream emissions are not an indirect effect if the gas transported by the Project may displace existing natural gas supplies or higher-emitting fuels.
Downstream emissions do not have to be considered if the emissions arise from an entity over which FERC lacks jurisdiction.
FERC need not ask for information about the end-use of the gas.

With regard to upstream GHG emissions, the court conceded that there may be instances in which upstream emissions from gas production is both reasonably foreseeable and sufficiently causally connected to a pipeline project to qualify as an indirect effect. However, the court seemed to agree that this would be rare and endorsed FERC’s formulation that the only way this standard would be satisfied is if the proposed project represents the only way to get additional gas “from a specified production area” into the interstate pipeline system. This finding appears to rebut the most extreme position of Commissioner Glick that FERC needs to consider upstream emissions in most every case. It seems it would take a very unusual case to satisfy this standard.

The court also seemed to rebut the extreme position held by Commissioner McNamee that FERC has no right to gather information on upstream and downstream GHG emissions because it has no statutory authority to act on that information. According to the court, the Sabal Trail decision made it clear that under the NGA, FERC must consider “the public convenience and necessity” when evaluating applications to construct and operate interstate pipelines. This directive means FERC may deny a pipeline certificate on the ground that the pipeline would be too harmful to the environment, including based on its GHG emissions.

Where Do Project Applicants Go From Here?

Given the position of the DC Circuit and its skepticism over the extreme positions apparently held by Chairman Chatterjee and Commissioners Glick and McNamee, project applicants may want to consider including the following information in future applications:

End-use of the gas
Reasonable calculations of the GHG emissions from such use and any reductions in GHG emissions from fuel conversions if known
Qualitative comparison of these GHG emissions to regional and national emissions
Calculation of the intensity of the GHG emissions compared to either the throughput provided by the project or the horsepower of the compression

If a Democrat is elected President in 2020, applicants may want to go further and include descriptions of the best practices they will undertake as part of the project to minimize emissions and perhaps provide mitigation measures such as the purchase of renewable energy credits as suggested by Commissioner Glick in his testimony before Congress.

In the meantime, the industry can only hope that, as Chairman Chatterjee described it, “unique circumstances” caused Sweden Valley’s demise and that the graphic below that we included in LaFleur is Leaving FERC -- What Does That Mean for the Pipeline Project Queue? doesn’t become a predictor of the list of projects which may also be withdrawn because of this dispute.

Pipeline Project Queue

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