In a parting shot before he left FERC that could reverberate in the Commission’s review of natural gas pipeline projects for some time, former FERC Commissioner Norman Bay’s statement in a February 3 order (CP15-115) has pipeline advocates, opponents and others parsing his words and questioning his motivation.
Bay’s statement suggested that FERC take a fresh look at how it reviews new pipeline projects, both in the use of contracts to demonstrate a public need and in the environmental review to analyze upstream and downstream impacts of new pipelines.
His views carry no legal weight, so to speak, and they represent arguments put forth by environmental groups, landowners and others who have challenged FERC’s pipeline review process, observers noted. They commented that any change to add steps to the pipeline application review process would likely be frowned upon by a slate of Republican commissioners yet to be nominated by President Donald Trump that would be in the majority at FERC.
“I don’t expect a Republican-led Commission to do a huge overhaul of the pipeline siting process that has been established and has a long string of success being upheld in federal court,” former FERC Commissioner Tony Clark said in an interview.
Clark, a senior advisor at Washington D.C. law firm Wilkinson Barker Knauer LLP, said he didn’t think Bay was criticizing what FERC has reviewed on a legal basis to act on pipeline projects, but the statement will be used by pipeline opponents.
Clark, industry attorneys, environmental groups and others told The Foster Report that they have not seen anything like the statement from Bay, who resigned and left the Commission after his last day there on February 3. Their reactions have included surprise, disappointment, a bit of empathy and several that noted the irony of attaching the statement to an order that approved a pipeline expansion.
A spokeswoman for FERC said the statement is certainly different than other statements from commissioners.
She could not provide contact information for Bay, and The Foster Report was unable to reach the former commissioner and chairman to discuss what prompted him to issue the statement.
Coming at an unusual time at the Commission with the lack of a quorum for the first time in its history, Bay’s statement added to the head-scratching among FERC watchers due to the stance taken that FERC should take a second look at how it reviews new pipeline applications under the Natural Gas Act (NGA).
Written remarks from commissioners attached to orders generally are dissenting or concurring statements related to some element within the decision, but Bay’s remarks are general and address the broad dynamics of pipeline certification, increased production from shale gas formations, relying on precedent agreements as proof of need and going beyond what is required under the National Environmental Policy Act (NEPA).
FERC commissioners have sometimes expressed tinges of regret on certain policies or decisions after leaving their offices in interviews with reporters or in comments at public functions, but not in a statement attached to an order, observers noted. That is what struck many as odd.
“I’ve not seen that format before,” Clark said in a comment that was echoed by others.
As a former FERC chairman who left the Commission when a new presidential administration was coming in early in 2001, James Hoecker commented that the “the temptation to get some things off your chest is mighty great.”
Hoecker, a Democrat chairman under former President Bill Clinton, recalled that in late 2000 and early 2001, FERC was in the midst of dealing with the fallout from the California energy crisis stemming from the state’s power market design when the November 2000 election of George W. Bush, a Republican, as president precipitated a change in leadership at FERC. Hoecker said he was in his office late on a Friday night in the waning hours of the Clinton administration and “tempers were pretty hot” about what type of action FERC should take to address the California situation.
That was different than the “strange situation,” Bay has faced from the Trump administration, Hoecker said. He did not speculate on why Bay issued the statement, other than suggesting that Bay had some accumulated wisdom he wanted to share and used the vehicle at hand in the form of the National Fuel order to attach his statement.
Hoecker and former commissioners Donald Santa, William Massey and Vicky Bailey were the so-called “Dream Team” at FERC that rescued the Commission from what looked like was going to be a lack of a quorum in 1993.
“We were fast tracked” but it was still at least a three-month process from the time the nominations were made by Clinton to gaining Senate approval following background checks and courtesy visits with senators, Hoecker said. That time frame was without any controversies among the nominees and a cordial Senate process, so any FERC nominees from Trump could face a longer time to relieve the lack of a quorum, he noted.
Clark also recalled that his Senate confirmation process was relatively smooth and it took about five months from the time he was nominated to being sworn in during June of 2012.
He noted that in the four years he was at FERC, the protests of pipeline infrastructure increased quite a bit, and he commented on it during a January 2016 open meeting that was held right before a major winter snowstorm hit the East Coast. At that meeting, when he announced he would be leaving the Commission once his term expired, Clark said he found it ironic that “we have people protesting the very infrastructure that will keep them alive over the next 72 hours.”
Clark said he did not have the remarks planned ahead of time, or that he felt he needed to issue a statement giving his views on FERC policy.
Environmental groups and landowners have ratcheted up their opposition to pipelines in the last few years, including disruptions of FERC meetings by Beyond Extreme Energy (BXE), and Bay noted that the development of new pipeline infrastructure has become increasingly controversial.
In numerous pipeline approval orders where The Sierra Club and others challenged the pipeline projects, FERC has concluded that pipelines to move gas to new markets do not cause the production of gas or increased use of hydraulic fracturing. Bay acknowledged that under NEPA and NGA, FERC has no authority to regulate the production of gas.
And despite gas production from the Marcellus and Utica Shale plays reaching 22.5 Bcf/d in 2016 and projections to surpass 44 Bcf/d by 2050, FERC has never conducted a comprehensive study of the environmental consequences of increased production, he wrote.
“Even if not required by NEPA, in light of the heightened public interest and in the interests of good government, I believe the Commission should analyze the environmental effects of increased regional gas production from the Marcellus and Utica,” Bay said.
The Department of Energy reviews various elements of increased gas use when it examines LNG export projects under NGA Section 3, Bay noted.
“Where it is possible to do so, the Commission should also be open to analyzing the downstream impacts of the use of natural gas and to performing a life-cycle greenhouse gas emissions study,” which could be used by FERC, the public and the industry in looking at broader issues raised in certificate proceedings, he said.
Bay’s statement was attached to its order approving the Northern Access 2016 Project to expand service on the National Fuel Gas Supply Corp. system on the same day FERC approved the more controversial $3 billion Atlantic Sunrise Expansion by Transcontinental Gas Pipe Line Co. LLC system (see related story on page 14).
The Commission’s approval of several major pipeline projects in the last few days it had a quorum did not sit well with BXE or the Sierra Club. FERC’s approval of the Atlantic Sunrise project “is nothing short of reckless – particularly given the inadequate reviews of this project, leaving substantial outstanding questions about its full impact,” said Lena Moffitt, director of Sierra Club’s Beyond Dirty Fuels campaign.
The statement from Bay “seems like a parting shot on his way out the door,” said Lee Stewart, an organizer with BXE. “His statement is not aligned with his actions” in approving so many pipeline projects, Stewart said.
“I was surprised by the statement” and angered that it was issued when FERC was approving the Atlantic Sunrise project, Stewart said.
“I know people will be quoting it” but “I don’t see it having much of an impact” since the legal issues have been resolved in court reviews, added Carolyn Elefant, an attorney and former FERC staffer who represents real estate and landowner interests in pipeline proceedings.
“It would have been nice to have some of that commentary while he was on the commission,” Elefant said, questioning Bay’s handling of protests at FERC meetings.
Bay’s statement on the need for new pipelines and the elements it reviews under its Certificate Policy Statement also brings up issues that have been upheld by courts, Elefant and others added.
Bay said FERC’s use of precedent agreements as a proxy for need is useful as pipeline shippers would not sign up for new capacity if it was not needed, but there are other factors that may merit more attention. He brought up the potential for stranded assets if gas markets change such as cheaper production coming from different basins or if price differentials among trading hubs are altered after FERC approves a project.
What would happen to infrastructure developed to move Marcellus and Utica production west if gas becomes cheaper to produce in Texas and Oklahoma, Bay asked. With producers driving the development of pipelines to a large extent, pipeline developers may be exposed to more market risk compared with local distribution companies with a reliable rate base, he said.
Overbuilding of new pipelines may expose gas ratepayers to higher costs to move gas on legacy systems, Bay wrote. “If a new pipeline takes customers from a legacy system, the remaining captive customers on the system may pay higher rates,” he said.
Bay said by focusing so much on precedent agreements as an indicator of need for a pipeline, FERC may not be taking into account other factors such as whether the agreements are signed by pipeline affiliates; whether the additional capacity promotes competitive markets; whether there is a reliability or resiliency benefit if the capacity is being used by gas-fired generators; and whether the anticipated market may not materialize. He mentioned LNG import terminals in the early 2000s as an example of the latter issue, with terminals that were built but became stranded as shale gas increasingly became a substitute for LNG imports.
But the gas market is an effective tool for sorting such issues, commented Mark Lewis, managing partner at Bracewell LLP. Pipeline project sponsors will not commit billions of dollars unless they are confident in a revenue stream, Lewis said when asked about Bay’s statement.
Santa, president and CEO of the Interstate Natural Gas Association of America (INGAA) offered a similar reaction.
“We believe pipeline operators will continue to apply the guidance provided under FERC’s 1999 certificate policy statement. And we continue to believe that precedent agreements best demonstrate market need,” Santa said.
FERC’s certificate policy has been the key in helping the U.S. realize substantial benefits of bringing domestic gas supplies to consumers in a timely and predictable fashion, said Santa.
Bay’s statement may result in FERC’s review of pipeline projects becoming more politicized, Lewis suggested. That is “an unfortunate likelihood because I think the Commission has historically been an effective agency in making decisions based on its statutory obligations and not political dynamics,” he said.
“We’ll see words from this lifted and quoted in every pipeline opposition effort” without the context of Bay’s remarks about the value of new pipelines fueling gas-fired generators and the economic and environmental benefits associated with that, Lewis said.
Wholesale power prices dropped by double-digit amounts in 2015 and 2016 with gas as the marginal generation fuel in many regions, and carbon emissions from the generation sector have declined 24% from 2005 levels, Bay said. Although increased use of renewable resources has helped reduce emissions, fuel switching from coal to gas by generation owners drove most of the reductions, Bay said.
In his comments on reviewing the need for new pipelines, Bay brought up the issue of precedent agreements signed by pipeline affiliates, Clark noted.
“I actually think that is an intriguing question,” he said. FERC traditionally has been fine with such situations as a demonstration of need because it represents a private capital investment, but it presents some interesting questions, said Clark.
Bay’s statement has Stewart with BXE wondering if the former chairman will continue to speak out about FERC’s review of pipeline projects.
The group intends to continue disrupting meeting to promote their agenda of no new use of fossil fuels, and it is planning to address any Senate hearings for FERC nominees from the Trump administration, he said. “We plan to oppose Trump’s nominations to FERC” and are gaining interest from other groups that will bring the issue to senators from different states, Stewart said.
By Tom Tiernan TTiernan@fosterreport.com
This article appears as published in The Foster Report No. 3135, issued February 10, 2017
Copyright © 2017 by Concentric Energy Publications, Inc. All rights reserved.