At two different gas industry conferences recently, pipeline proponents discussed successes and challenges in building new infrastructure in an era when nearly every project is contested, with court decisions both favorable and unfavorable for pipeline developers.
Decisions at the federal appeals court level have placed some “bumps in the road” for pipeline owners to address, but pipelines are being built following FERC and state approvals, with 31 projects on track to begin service before the end of 2017, said Don Santa, president and CEO of the Interstate Natural Gas Association of America (INGAA).
Santa and former FERC Commissioner Tony Clark, senior advisor at Wilkinson Barker Knauer LLP, spoke on a panel at the North American Gas Forum in Washington, D.C., where FERC Commissioner Cheryl LaFleur gave a keynote address October 3.
While opposition to pipelines garners a lot of headlines in the media, “there are a lot of allies for infrastructure development” at the state and local level, said Clark. Consumers, businesses, and chambers of commerce recognize the economic benefits of new pipelines for job creation and access to low-cost gas supplies, he said.
The organization and sophistication of pipeline opponents have ramped up in the past few years, and Clark encouraged pipeline owners and supporters to anticipate challenges and get ahead of any legal and local issues for their projects. Often, the goal of legal challenges is not to have FERC or the courts deny a project, but to drag out the review process, he said.
“They will pull out all the stops, whether it is protests, litigation or whatever it takes” to halt pipeline, production and infrastructure development, Santa said. It is a different environment and the pipeline sector is being challenged, but “I think the industry is measuring up to the challenge,” said Santa.
He made remarks similar to attorneys and others who spoke at the Shale Insight 2017 conference in Pittsburgh in late September about negotiating easements, touting benefits of projects and gaining support from landowners affected by pipelines. For any new pipeline, the communication element needs to be almost the equivalent of a political campaign, Santa said.
As someone who has been involved in political campaigns, Allen Fore, vice president of public affairs at Kinder Morgan Inc., told the Shale Insight gathering that the industry needs to listen to project opponents and address their concerns with facts.
Of the 31 pipelines slated to be in service before the end of 2017, 12 of them originate in Pennsylvania or Ohio to move Marcellus or Utica Shale supplies to different markets, Santa said, referring to statistics from PointLogic Energy. Others are driven by demand for gas-fired generation, local distribution companies to serve customers or to send supplies to LNG export projects, he said.
New pipelines are becoming more expensive and taking longer to gain regulatory approvals, Santa and others said at the two different conferences. LaFleur commented that FERC dockets for gas pipeline applications are increasingly being challenged and the Commission’s orders and environmental reviews of such projects are getting longer.
FERC imposes a lot of conditions in orders approving projects, and “we expect those to be taken seriously” because they deal with safety and environmental issues, she said. She did not single out Rover Pipeline specifically, but both she and Fore referred to a pipeline dealing with construction issues and environmental compliance challenges.
Not complying with conditions imposed in a FERC certificate has repercussions, and companies building pipelines are “hostages of each other” in that how they conduct their business reflects on the industry as a whole, LaFleur said.
At the Shale Insight conference, Fore said if pipelines expect to be understood and respected by the public and those questioning the need for new facilities, they need to hold themselves accountable on environmental conditions and not take actions that give the industry a black eye. “We’re only as good as our least successful company,” he said.
Besides environmental reviews at FERC, state reviews and water quality certificates under the Clean Water Act (CWA) are taking longer to obtain, and gaining landowner permission for simply surveying properties is becoming more difficult, speakers at the conferences said.
In Pennsylvania, state authorities are starting to require 100% landowner permission for surveying properties, taking a more stringent view than in the past for pipelines seeking wetland and water quality permits, according to Aaron Blair, manager for rights of way at Williams Companies Inc., owner of Transcontinental Gas Pipe Line Corp. For Transco’s Atlantic Sunrise project, the company waited until it gained FERC approval of the project, which granted eminent domain authority, before it applied for state water permits because there were a few parcels of land where it had not gained survey permission, Blair said September 28 at the Shale Insight conference.
The state is taking a more stringent approach for surveying permission and other issues because it wants to be successful in court when legal challenges arise on the state review and approval process, Blair said. Waiting for FERC approval before seeking a state permit “can add a significant amount of time” to getting projects built, but it is becoming more common, he said.
Most pipelines use eminent domain authority only as a last resort in the easement process, and Williams tries to use federal courts rather than state courts for such proceedings. State courts are more prone to question property rights and pipeline authority under the Natural Gas Act, while federal court judges are familiar with the case law and act relatively quickly on pipeline requests, Blair said.
Federal court decisions that have gone against pipelines in recent months include the U.S. Court of Appeals for the Second Circuit rejecting Constitution Pipeline Co. LLC’s appeal of New York denying a water quality certificate, and the U.S. Court of Appeals for the D.C. Circuit vacating and remanding FERC’s approval of Sabal Trail Transmission and the Southeast Market Pipelines Project. The Second Circuit ruled that the New York State Department of Environmental Conservation’s (NYSDEC) decision to deny Constitution’s water quality certificate was reasonable, while the D.C. Circuit directed FERC to adjust its environmental impact statement in the Sabal Trail case to account for downstream greenhouse gas emissions associated with power plants being fed by the pipelines.
On the positive side for the industry, the D.C. Circuit has said that FERC has the authority to rule on the timeliness of state action under the CWA, and the Commission recently overturned the NYSDEC rejection of a lateral proposed by Millennium Pipeline because the state agency failed to act in a timely manner under the CWA. A few other cases are pending involving state reviews of FERC-jurisdictional projects, so industry should be following those developments, LaFleur said.
Environmental groups will latch onto the Constitution and Sabal Trail court rulings and bring them up in protests and challenges for other projects, said Anthony Holtzman, partner at K&L Gates LLP. The NYSDEC is likely to appeal the September 15 FERC decision overturning its action on the Millennium Pipeline lateral, Holtzman said at the Shale Insight conference.
Due to the extended regulatory reviews of pipeline projects and the period when FERC was without a quorum, Wall Street and hedge funds are taking a very cautious approach to pipeline investments, said Katie Bays, energy investment analyst at Height Securities LLC. Investors tend to be impatient with federal agencies, and were under the impression that when FERC regained its quorum it would approve a lot of pending pipeline projects, Bays said at the Shale Insight conference.
The $2 billion NEXUS Gas Transmission LLC pipeline to move gas out of the Appalachian Basin was approved by FERC in late August, but there are others pending that are of more interest to investors, she said. As FERC’s review of the need for those projects and their environmental impact drags out, “caution is the primary feeling I hear among my clients,” said Bays.
Although the Trump administration has emphasized energy infrastructure and supports energy development, it takes time for a new administration to carry out policy pronouncements, Bays noted.
Clark made a similar point, asserting that the energy regulatory and policy landscape in Washington is “a tale of two cities” at the moment. One reflects the Trump administration’s support of energy infrastructure, while the other is adamantly opposed to energy development activities.
He and Santa praised regulators at the state and federal level, and those in Canada and Mexico, for adhering to the rule of law in their jurisdictions and collaborating to learn from each other as the energy sector has evolved.
By Tom Tiernan TTiernan@fosterreport.com
This article appears as published in The Foster Report No. 3168, issued October 6, 2017
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