FERC Issues New Draft Policy for Natural Gas Project Certifications, for the First Time Formalizes Consideration of Environmental Justice Issues

Updated March 28, 2022

As we previously reported below, the Federal Energy Regulatory Commission (FERC) in February issued two new policy statements likely to have far-reaching implications for the agency’s approval of certificates of public convenience and necessity for natural gas facilities under the Natural Gas Act. The first, as described below, adds to and revises the list of factors FERC will consider when determining the need for a new natural gas facility. The second substantially revises FERC’s approach to analyzing greenhouse gases when performing environmental analyses of proposed new natural gas facilities. Both policies have proved controversial, generating substantial opposition both from Congress and from the natural gas industry.           

In response to this controversy, on March 24, 2022, FERC issued an order designating the new policies as draft and clarifying that the new policies will not be applied to applications received before the new policies go into effect.           

Comments on the draft policies are due on April 25, 2022, with reply comments due on May 25, 2022.

Originally Published March 8, 2022

At its February meeting, the Federal Energy Regulatory Commission (FERC or Commission) released a long-awaited Updated Policy Statement on Certification of New Interstate Natural Gas Facilities (Updated Policy Statement), which provides guidance as to how FERC will consider applications for projects seeking certificates of public convenience and necessity (CPCN) under section 7 of the Natural Gas Act. The new Updated Policy Statement is the first revision of FERC’s CPCN policy since 1999, and it comprehensively revises the FERC’s approach. The new Updated Policy Statement adds consideration of a number of new factors to the CPCN process, and it substantially revises FERC’s approach to considering the need for a new pipeline. Most notably, this marks the first time FERC has formally incorporated environmental justice considerations into one of its policies making environmental justice a matter to be considered systematically in FERC CPCN proceedings. Together with FERC’s new Interim Greenhouse Gas (GHG) Emissions Policy Statement, discussed here, also adopted at its February meeting, FERC has fundamentally reshaped the legal landscape for approval of natural gas pipelines.

Key Takeaways

• Impacts on Environmental Justice Communities: For the first time, FERC will, as a matter of policy, undertake robust consideration of impacts to environmental justice communities. FERC will encourage project developers to “evaluate and incorporate, as appropriate, any subsequently issued guidance by other authoritative sources when considering how to identify environmental justice communities affected by a proposed project.”  In addition, FERC will require close consultation and collaboration between the project developer, the communities in question, and FERC to tailor mitigation options in line with the needs of environmental justice communities.
• Project Need: The Policy Statement broadens the Commission’s consideration of factors bearing on the need for a project. The Commission’s consideration of need will include precedent agreements between the project sponsor and unaffiliated entities, including circumstances surrounding the precedent agreements, as well as other evidence of need, such as demand projections underlying the capacity subscribed, estimated capacity utilization rates, potential cost savings to customers, regional assessments, and statements from state regulatory commissions or local distribution companies. The Commission will also consider information about the intended end use of gas.
• Impacts on Existing Pipelines and their Customers: The Commission will consider a proposed project’s impacts on existing pipelines, including whether the captive customers of existing pipelines will end up paying for unsubscribed capacity on existing pipelines that result from overbuilding of new lines. 
• Environmental Impacts: The Commission will consider environmental impacts and the extent to which those impacts can be mitigated. In particular, the Commission will consider pipeline GHG emissions in accordance with the interim policy also adopted on February 17.
• Impacts on Landowners: The Commission will consider a wider range of impacts to landowners, and will require “robust early engagement” with all interested landowners, and continued evaluation of input from landowners through any given proceeding. The Commission will consider whether a pipeline applicant has engaged in good-faith negotiation to acquire lands that might otherwise be condemned using the authority conferred with an NGA Section 7 certification, as well as an applicant’s plans to minimize the use of eminent domain upon receiving certification.
• Assessing Public Benefits and Adverse Effects: The Commission will consider all benefits, including, but not limited to, whether a need is satisfied by the project, whether the project will displace more pollution-heavy generation sources, whether the project will facilitate the integration of renewable energy sources, or whether the project will result in a significant source of jobs or tax revenues. FERC will deny applications that have total adverse impacts outweighing the benefits of the project, especially those adverse impacts that cannot be mitigated or minimized.
• Immediate Controversy: The new Updated Policy Statement has already proven controversial. It drew heavy criticism from members of the Senate Energy and Natural Resources Committee at a hearing last week, and from business groups who argued that the new Update Policy Statement will lead to regulatory delay and higher consumer prices.

Background

The Updated Policy Statement has been under consideration since FERC issued a Notice of Inquiry seeking comments on its prior policy in 2018, followed by a second Notice of Inquiry in 2021. Although much depends on how the new Updated Policy Statement is applied in practice, it appears that it represents a sea change in the way FERC considers applications for pipeline CPCNs.  As FERC Chairman Richard Glick stated, the Updated Policy Statement, along with the companion GHG Policy Statement, is intended to ensure that “the Commission’s natural gas siting decisions are reflective of all stakeholder concerns and interests.”

In particular, the Updated Policy Statement is a major step toward formalizing consideration of environmental justice issues in FERC’s decision-making process, and represents FERC’s strongest response to date to President Biden’s Executive Orders and related actions making environmental justice a top priority for the federal government.  Last year, FERC created a new senior position at FERC intended to coordinate the incorporation of environmental justice and equity concerns across the range of FERC’s decision-making processes. In creating the position, Chairman Glick articulated that he intended to “do what it takes to empower this new position to ensure that environmental justice and equity concerns finally get the attention they deserve” because he believed the Commission needed to be more aggressive in fulfilling its responsibility to ensure that its decisions “don’t unfairly impact historically marginalized communities.” There is, accordingly, little doubt that the new Updated Policy Statement is just the first policy-level foray into environmental justice issues for FERC.

The new Updated Policy Statement also responds to several legal controversies that have engulfed FERC’s CPCN processes in recent years. The new emphasis on landowner rights, for example, responds to the D.C. Circuit’s pointed criticism of FERC’s treatment of property owners whose land could be impacted by gas pipeline construction. Similarly, FERC’s changing treatment of precedent agreements between a pipeline and its affiliates responds to another D.C. Circuit decision that vacated the CPCN for the Spire pipeline on the ground that precedent agreements with pipeline affiliates did not establish a genuine market need for the pipeline. That decision forced FERC to issue a series of temporary certificates to ensure natural gas supplies during the winter heating season while the Commission conducts proceedings in response to the D.C. Circuit’s remand.

The first indication of how FERC may implement the new Updated Policy Statement occurred on March 2, 2022, when FERC issued a draft environmental impact statement (EIS) for the Regional Energy Access Expansion Project (REAE Project) proposed by Transcontinental Gas Pipe Line Company. The REAE Project involves the construction of roughly 35 miles of new natural gas pipelines and related facilities in Pennsylvania, New Jersey, and Maryland that may impact several poor and minority communities, giving rise to environmental justice concerns.

In the draft EIS, FERC concluded that, while “individual impacts associated with construction of certain project components may be predominately borne by environmental justice communities, impacts on environmental justice communities from the project as a whole would not be disproportionately high and adverse;” and that “[w]ith [the] implementation of Transco’s impact avoidance, minimization, and mitigation measures, as well as their adherence to FERC staff’s recommendations. . .the REAE Project effects would be reduced to less-than-significant levels.” FERC’s analysis suggests that applicants can succeed in obtaining CPCNs if they carefully consider environmental justice impacts and propose meaningful measures to mitigate or avoid those impacts.

With respect to GHG impacts, the draft EIS concluded that the Project’s annual operation and downstream emissions (16.62 million metric tons of carbon dioxide equivalent) would exceed the Commission’s presumptive significance threshold based on 100 percent utilization.”  Hence, FERC concluded that a full EIS is required to consider the impacts of these emissions.

Next Steps

The Commission has initiated a 60-day comment period on the Updated Policy Statement, with comments due no later than April 26, 2022. While FERC may modify the policy in response to comments, it is clear that FERC has initiated a new era in consideration of CPCN requests and it behooves anyone involved in the pipeline certification process to pay careful attention to the new Updated Policy Statement.

Beveridge & Diamond’s Environmental Justice and Infrastructure and Project Development and Permitting practice groups guide clients through the rapidly-changing landscape of climate-related law and regulation. We represent infrastructure project developers, owners, and operators, including private developers, corporations, states, municipalities, and governmental authorities. For more information, please contact the authors.