D.C. Circuit Remands Greenhouse Gas Emissions Issue Back to FERC

The Commission failed to adequately consider the greenhouse gas emissions that could be the downstream indirect effect of a collection of three pipeline projects, the U.S. Court of Appeals for the D.C. Circuit held in an August 22 decision (Sierra Club v. FERC, No. 16-1329).

The appellate court vacated and remanded that issue to FERC for the agency to conform the environmental impact statement (EIS) for the projects to the decision.

In February 2016, FERC issued a certificate order for the construction of three new interstate natural gas pipelines to serve Florida’s demand for electricity generated by natural gas, and to produce enough electricity to retire coal-fired power plants. The three pipelines have different owners, but they have the common purpose of forming the Southeast Market Project, because Florida currently only has two major pipelines to serve the state.[1]

Shortly after the certificate was issued, environmental groups and landowners challenged the certificate, arguing the Commission’s assessment of the environmental impacts of the pipelines was inadequate.

In 2013, the Commission launched an environmental review of the project under the National Environmental Policy Act (NEPA), and issued the final impact statement in December 2015. Construction of the pipelines began in August 2016, and a portion of Florida Southeast Connection began service in June 2017. Several environmental groups and landowners sought rehearing of the certificate order. The Commission denied rehearing in September 2016, and the groups petitioned the court for review.

The court determined it had jurisdiction, because Sierra Club and some landowners showed that they would be injured in fact by Sabal Trail. The other pipelines are part of the case, because the appellate court determined that the issues were not severable.

As an initial matter, the appellate court noted that its review is limited under NEPA, because NEPA doesn’t create a private right of action, so a court is limited to reviewing any challenge under the Administrative Procedures Act (APA). Under the APA, a court must give deference to an agency’s determination, provided the agency has not acted arbitrarily or capriciously.

Environmental Justice. Turning to Sierra Club’s argument that the EIS didn’t adequately address environmental justice, Judge Thomas B. Griffith, writing for the court, determined that the Commission had adequately addressed the environmental justice issue and had not acted arbitrarily or capriciously.

The Commission had to balance the needs of environmental justice communities against any alternate route and the environmental impact and costs of alternate routes, and correctly concluded that the proposed route would not disproportionately impact those communities, said the court. The Commission’s discussion of environmental justice communities was reasonable, said the court, as was the Commission’s analysis of alternate routes and the demographics of the affected population.

While the EIS noted that the pipelines will mostly be in low income and minority communities, there were no better alternatives, and the benefits of the project outweighed any harm.

Downstream Effects. The appellate court then addressed the issue of whether the EIS needed to discuss the downstream effects of the project. The court noted that not only would natural gas travel through the pipelines, but that “it’s not just the journey, though, it’s also the destination.” The natural gas will be delivered by the pipelines to be used by power plants, which will produce carbon dioxide, said the court. The court concluded that the EIS should have included the downstream effects of the project, including the amount of carbon emissions the power plants would produce.

An EIS must look not only at the direct effects, but the indirect effects of a project that are reasonably foreseeable, said the court, and it was reasonably foreseeable that the cause of carbon emissions in a power plant would be the use of the natural gas that was transported on the pipelines.

The pipelines relied on the holding in Department of Transportation v. Public Citizen,[2] to support their claim that FERC didn’t have to consider the downstream effects of greenhouse gases. The court rejected that argument, and held that Public Citizen didn’t excuse FERC from considering those effects. The holding in Public Citizen is that an agency has no obligation to consider environmental information if it has no statutory authority to act on that information. In this case, the indirect effect of the carbon emissions is enough that FERC could potentially deny a certificate and Public Citizen requires FERC to consider those effects.

FERC claimed that, even if it was required to consider the indirect effect of the emissions, it wasn’t possible to know the exact quantity of the greenhouse gases that could be emitted. The court noted that it has held[3] that NEPA environmental analysis involves reasonable forecasts based on an educated guess about what will happen. The estimated amount of gas being transported each day could be the basis for an estimate of greenhouse gas emissions, said the court.

On remand, FERC must discuss the significance of the indirect effects by either providing a quantitative estimate of the downstream emissions for the transported gas or explain specifically why it couldn’t do that, said the court. FERC also needs to discuss the incremental impact of the emissions in light of past, present, and reasonably foreseeable future actions, the court explained.

To meet the “informed decision-making” standard, the Commission must compare the projected emissions from this project to emissions from other projects, said the court, and also compare the emissions from the project to emissions under state, regional, or national emissions control goals.

The court clarified that it is not holding that quantification of greenhouse gas emissions is required every time the emissions are an indirect effect of agency action, because in some cases that might not be feasible. However, in this case, the Commission didn’t even provide an educated guess about the emissions, and FERC should keep in mind that assumptions about emissions also serve the public’s ability to comment on the proposed project.

The fact that there may be an offset to the emissions, which in this case is the retirement of old, coal-burning power plants, doesn’t excuse the Commission from making the emissions estimates. The court summed up the issue by saying, “when an agency thinks the good consequences of a project will outweigh the bad, the agency still needs to discuss both the good and the bad.”

The court also acknowledged that there may be other federal or state permitting requirements, but that those requirements can’t substitute for a proper NEPA analysis.

The court observed that it was not deciding if the Social Cost of Carbon tool was applicable in this case, as argued by the Sierra Club, because FERC had not included the tool in the EIS. The tool tries to link downstream effects to particular climate impacts, such as the rise in the sea level. The Commission needs to explain on remand if the tool is relevant or not, said the court.

The court is not telling FERC what the outcome has to be, but rather that it needs to have a better explanation within its EIS on the greenhouse gas emissions of power plants fed by the pipelines, said William Scherman, partner at Gibson Dunn and a former general counsel at FERC.

Scherman said the dissent of Judge Brown provides a good explanation of why the Florida state agency that approved the power plants, not FERC, should have to consider the emission impact data in an EIS. Under the Federal Power Act, “FERC has no jurisdiction over generation” and “I’m a bit perplexed by the majority decision’s reasoning” on that point, he said.

Scherman added that he expects environmental groups to hail the decision as saying FERC needs to consider the downstream and emission impact data for every pipeline project in the future, but that is not in the legal text and it should not be viewed so broadly.

“The ruling appears to suggest that FERC possesses both the authority and the obligation under NEPA and the NGA to constrain—if not actually second-guess—state decisions related to the adequacy of power generation resources, a duty Congress explicitly reserved to the states under the Federal Power Act,” said Christine Tezak, Managing Director at ClearView Energy Partners LLC.

The Sierra Club issued a statement, saying, “For too long, FERC has abandoned its responsibility to consider the public health and environmental impacts of its actions, including climate change. The decision requires FERC to fulfill its duties to the public, rather than merely serve as a rubber stamp for corporate polluters’ attempts to construct dangerous and unnecessary fracked gas pipelines.”

The head of the Interstate Natural Gas Association of America (INGAA) expressed disappointment with the ruling. “While INGAA disagrees with the majority’s conclusion that downstream power plant greenhouse gas emissions are an indirect effect of authorizing the project, we recognize that FERC has the opportunity to seek additional review of this decision. Judge Brown issued a strong and well-reasoned dissent on the question of whether FERC’s NEPA analysis of indirect impacts must include an analysis of downstream GHG emissions,” said Don Santa, president and CEO of INGAA.

Santa added that although Sierra Club challenged other aspects of FERC’s approval of the pipelines, the court found that the Commission acted properly on the examination of alternatives, safety considerations, initial rates and a market need finding.

Other Challenges to EIS. The appellate court also rejected the argument of landowners that the EIS failed to examine alternatives to the proposed project because the landowners failed to cite any reasonable alternatives that should have been considered. The court also rejected the landowners’ argument that FERC didn’t consider the safety risks of the project, because FERC responded to all the landowners’ safety concerns and thus met the requirement to give safety issues a “hard look.”

Capital Structure. Sierra Club objected to FERC’s determination that the proposed 14% return on equity (ROE) was too high for a 60/40 equity debt ratio, but FERC let the pipelines design rates around a 14% equity return if the capital structure was 50/50.

The Commission gave an adequate explanation of it decision about the capital structure, said the court, and balanced the risks and rewards in retaining the 14% ROE. The decision was also consistent with FERC precedent.

Judge Janice Rogers Brown concurred in part and dissented in part, agreeing with the majority on most issues, but dissenting on the decision to vacate and remand the issue of greenhouse gas emissions. Judge Brown said that the majority failed to consider the role of Florida’s state agencies in considering downstream effects. In this case, said Judge Brown, FERC didn’t have to consider downstream effects because a state agency would be issuing a permit that involved that issue, thus relieving FERC of considering the downstream effects in the EIS.

By Denise Ryan DRyan@fosterreport.com

[1]     The project is comprised of Sabal Trail Transmission LLC, which is owned by Spectra Energy Partners, NextEra Energy, and Duke Energy; the Hillabee Expansion, which is owned by the Williams Companies; and Florida Southeast Connection, which is owned by NextEra. Duke Energy, and NextEra’s subsidiary Florida Power & Light, will also be the project’s primary customers.

[2]   541 U.S. 752 (2004).

[3]   See, Delaware Riverkeeper Network v. FERC, 753 F.3d 1304 (D.C. Cir. 2014).

This article appears as published in The Foster Report No. 3163, issued August 25, 2017

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