Washington Update- Polarization at FERC May Be the Greatest Risk to the Industry
Earlier this week, the White House issued a press release announcing its “intent” to nominate James P. Danly as the newest commissioner on the Federal Energy Regulatory Commission to fill out the remaining term of former Chairman McIntyre, which expires on June 30, 2023. In the past, when there have been two open seats, one from each party, at FERC, as there are now, the nominations were usually paired in a show of bipartisanship. At least to date, there has been no formal announcement by the White House as to who it intends to nominate to replace Commissioner LaFleur, who left the Commission on August 30.
Today, we examine how continued polarization at FERC may be the greatest risk to the industry if a Democrat is elected president in 2020, as it raises the likelihood of an anti-fossil fuel majority with discretion in reviewing projects that could condition, prevent or delay the approval of pipeline projects. We also look at the actions that the Trump administration has taken that favor the energy industry in general, and the pipeline industry in particular -- although many are not rules or are not yet final rules, and so may not have a lasting impact if not finalized soon.
Administration Actions That Help Pipeline Infrastructure
Since taking office in early 2017, the current administration has been actively working to reduce the burdensome nature of certain environmental regulations and processes. These efforts have led to a number of proposed rules and guidance documents, but many have yet to be finalized. The table below sets forth the status of a number of these actions.
Lasting Impact
Some of the actions taken by the Trump administration build on actions taken by the Obama administration, such as implementing FAST-41 and funding the agency charged with overseeing that process which is designed to streamline environmental reviews for major infrastructure projects. However, most of the actions described above were primarily reversals of Obama administration actions and may have a limited duration if there is another change in administrations in 2021. Executive orders can generally be repealed or ignored by new administrations. And guidance documents do not have the force of law and can be quickly revised. Only final rules have the force of law. However, in a polarized environment where there is a flip of control, even final rules can be revoked. This occurred for the first time on a wholesale basis following the 2016 election.
Congressional Review Act
Congress and President Trump acted quickly to review and revoke a number of Obama era regulations. Under the Congressional Review Act, enacted in 1996, if Congress passes a joint resolution disapproving a final rule, and the resolution becomes law, the rule cannot take effect or continue in effect. Also, the agency may not reissue either that rule or any substantially similar one, except under the authority of a subsequently enacted law. The statute requires action by the Senate and House within 60 days following the rule’s effective date, but those time periods are measured differently. For the 60-day period applicable to House action, all calendar days except those on which either house is in an adjournment of more than 3 days count. For the 60-day period applicable to Senate action, only days on which the Senate is in session count.This allowed Congress in 2017 to revoke a number of rules that became effective much longer than 60 days before Congress acted to revoke them. If there were a change similar to that which occurred in 2017, the same could happen for any of these proposed rules that are finalized after about June 2020.
Polarization Grows on Both Sides of the Aisle
A growing concern is that the Democratic presidential candidates are taking some extreme positions with regard to energy that, if enacted, could negatively impact the industry. For example, the positions that Senators Sanders and Warren have staked out on energy are similar and are extreme departures from the current policies and norms. Senator Sanders’ website notes that he would ban fracking and focus the federal government on transitioning to a 100 percent clean energy economy by reorganizing various departments and agencies, including FERC. Similarly, Senator Warren’s website states that on her first day as president she would sign an executive order that institutes a total moratorium on all new fossil fuel leases, both offshore and on public lands. In addition, she vows to work with Congress to replace FERC with a new Federal Renewable Energy Commission. This last idea is apparently torn from the pages of an extremist group, Beyond Extreme Energy, that has been protesting at FERC for years now and is actively promoting its “FERC Into FREC Campaign.”
What Risks are Real
We don’t believe that Senator Sanders could “ban fracking,” presumably on private and federal lands, upon taking office because he would need either Congressional approval or a regulatory basis for doing so. However, we do think that Senator Warren’s threat to institute an immediate moratorium on additional leases on federal lands can be effected. Neither of them can quickly achieve the stated goal of replacing/reorganizing FERC, as at least Senator Warren acknowledges by talking about working with Congress. However, one thing both Senator Sanders and Senator Warren could do within six months of taking office is to appoint a Democrat to replace FERC Chairman Chatterjee, whose term expires on June 30, 2021. This brings us back to the “intent” to nominate Mr. Danly.
The President’s nomination of Mr. Danly without also nominating a replacement for Commissioner LaFleur is seen as an aggressively partisan act. Senate Minority Leader Schumer issued a statement saying that the “administration should not play politics with our national energy policy and instead follow tradition by formally nominating both a Republican and a Democrat as a pair to the Federal Energy Regulatory Commission.” Similarly, Senator Manchin, who is the Ranking Member of the U.S. Senate Energy and Natural Resources Committee, issued a statement noting that he is “disappointed” because he had hoped the President would “honor the tradition of a bipartisan pairing” and that his failure to do so “sets a dangerous precedent moving forward.”
The clear danger for the industry is that if the 2020 election results in a change in administration, the Democratic president would be able to appoint a 3-2 Democratic majority by June 30, 2021 and the discretion granted to FERC in reviewing projects could be wielded in a way that impacts the approvals of pipeline projects, but also imposes conditions that may make them uneconomic. This continued polarization of FERC could be more damaging than other threatened actions by the more progressive Democrats.