FERC’s Pipeline Approval Process: What To Expect

Kevin McIntyre, now chairman of the Federal Energy Regulatory Commission (FERC), made it clear during his confirmation hearings in September that he believed the agency’s pipeline approval policy needed to be re-examined.

With FERC’s April 19 Notice of Inquiry asking for public comments on the approval process, it’s clear that he meant it. Less clear is the direction that a new policy will take and its ultimate impact on the industry.

Emily Mallen, Washington-based partner with Sidley Austin, told Hart Energy that pipeline companies can expect more conditions when they seek approval for their construction projects, especially in the area of a precedent agreement signed by an affiliate of a pipeline company.

“They may add some new types of market tests,” she said. “I think the pipelines should be prepared to have to show more than they currently show in their applications in terms of market needs for projects.”

Crystal clear, at least in the short-term, is that numerous stakeholders in projects and the industry in general will offer input on the shape of the new policy or whether the policy that has been in place since 1999, well before the shale revolution, should change at all.

“I think a lot of [pipeline operators] would be very happy with the status quo,” Mallen said. “They’ve been very successful permitting projects under the existing policy.”

The policy in place may be imperfect but it provides certainty.

“These are very capital-intensive projects that take a long time to build,” she said. “They’d like to see the policies stay as close to its current form as possible, I would think, because they have built their whole models—in terms of how they plan for projects—around how FERC decides certain policies, so there is some uncertainty there.”

Regulatory certainty might be a must-have, but if pipeline operators were to reveal their wish list, it might include having FERC a bit more in their corner when state actors cite the Clean Water Act or the Clean Air Act in their objections to projects.

“The Natural Gas Act doesn’t give [the commission] powers over the states for the Clean Water Act and Clean Air Act, but I think to the extent FERC has any professional courtesy clout over other agencies, to the extent their staff can assist ... I know they’d like to see more help from the commission in that regard,” Mallen said.

That kind of intervention would be useful in situations where landowners refuse to allow pipeline companies to access their land to conduct surveys necessary to complete environmental reviews. Help from FERC could speed the process of accessing property to determine whether a right-of-way is feasible.

However, that type of policy change would be certain to trigger a court challenge when it was put into practice.

The Natural Gas Act of 1938 obligates FERC to certificate interstate natural gas pipeline projects when those projects are deemed to be in the public convenience and necessity. The act does not define “public convenience and necessity,” so the commission devised its certificate policy statement in 1999 to guide its decision-making process.

Exactly how McIntyre, who served as energy practice co-leader of Jones Day before his confirmation to FERC in November, wants to adjust the policy is not known.

“Agencies periodically should review their policies to ensure they are effective, and if confirmed I will give these important issues concerning pipeline need the careful attention they deserve and will work to ensure that the commission’s review process considers all relevant issues,” he said in response to a question from Sen. Maria Cantwell (D-Wash.) during his confirmation hearing.

Ostensibly an apolitical agency, FERC must operate in the current manic political climate. Four of the agency’s five commissioners have recently been appointed by the president and confirmed by Congress. Three of them, including McIntyre, are Republicans, reflecting the custom that the majority of commissioners are of the party that controls the White House.

Concerns over the possible politicization of the agency were brought up during McIntyre’s confirmation by Sen. Ron Wyden, (D-Ore.). McIntyre responded that as an independent agency, FERC must operate free from undue political influence.

“Consistent with FERC’s bipartisan tradition,” he said, “I expect this approach to result in FERC decisions that are supported by commissioners from both political parties.”

That hasn’t always happened.

“You’ve seen a few orders issued by FERC on pipeline certificates recently that have been split between Democratic members of the commission and Republican members of the commission, with the Democratic members dissenting and some of the grounds being related to climate change or greenhouse gas emissions and what FERC can or can’t do under the [Natural Gas Act] or [the National Environmental Policy Act of 1970],” said Mallen.

“My concern as a practitioner is, they don’t want the agency to become politicized or to be seen as a political agency, where the Republicans will always vote one way and the Democrats will always vote another way,” she said. “I think FERC is mindful of that and doesn’t want to be seen that way, either.”

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.