Letter to Federal Energy Regulatory Commission: Review of 1999 Natural Gas Policy

Letter to FERC: review of 1999 Natural Gas Policy

Dear Chairman McIntyre and Commissioners LaFleur, Chatterjee, Powelson, and Glick,

We applaud the Commission’s decision to revisit the 1999 Natural Gas Policy Statement. While the Policy Statement is meant to “strike the proper balance between the enhancement of competitive alternatives and the possibility of over building,” FERC’s approach to reviewing pipeline applications is stale. Given the vast changes between today’s energy landscape and that of 1999, FERC’s approach incentivizes—rather than limits—overbuilding and poses significant economic and environmental risks. As such, we urge the Commission to reform its pipeline review process to ensure that—above all else—the public interest is protected, which is consistent with FERC’s mandate under the Natural Gas Act.

Times Have Changed

Gas production and pipeline construction have increased dramatically since 1999. Between 1999 and 2016, FERC approved over 400 pipeline projects totaling 180 billion cubic feet per day (Bcf/d) in natural gas
capacity (rejecting only two). For the first time since 1957, the United States is a net exporter of natural gas. These changes raise concerns about the impacts of gas production, development, and transportation on climate and on the health, safety, and property rights of communities where pipelines are built.Further, gains in clean, renewable energy, and energy efficiency have raised questions about the need for new pipelines, particularly given current pipeline underutilization.

Despite these dramatic changes, FERC still evaluates interstate natural gas pipeline certificate applications the same way as it did in 1999.
As noted by former U.S. Department of Energy Assistant Secretary for
Policy and former Massachusetts Department of Public Utilities Commissioner Susan Tierney, Ph.D., the “changes that have occurred in the nearly two decades since FERC’s 1999 Policy Statement warrant a fresh
look at whether the guidance adopted at that time and applied in certification dockets since then still remains appropriate[.]”

We agree. It’s time for a 21st century approach. Accordingly, we write to voice our support for the following modernizations to the Commission’s pipeline review process.

21st Century Approach to Pipeline Review

Evaluate project need as the threshold question. The Natural Gas Act requires FERC to determine whether a pipeline project is in the public interest. To answer this inquiry, the Policy Statement directs FERC to
first determine whether the proposed pipeline can be paid for without subsidization by existing customers, followed by an evaluation of the project’s economic interests. But the key determinant in deciding whether
a project is in the public interest is whether the project is needed to support energy demands. A project that is not needed to satisfy energy requirements that also will cause permanent environmental and economic
impacts is antithetical to the public interest. Thus, project need should be the threshold determination for whether a project is in the public interest.

Determine project need through an “all relevant factors” approach. The Policy Statement wisely outlines sample—but not exclusive—factors to be considered when determining whether a project is needed.
However, in practice, FERC typically relies exclusively on precedent agreements—contracts between pipeline developers and prospective shippers—to determine project need. In addition to contradicting the
language and intent of the Policy Statement, FERC’s reliance on precedent agreements fails to consider that (1) precedent agreements are not necessarily a good proxy for market need, (2) environmental and/or other
factors may override private contractual interests in determining public need, and (3) there may be alternatives to the proposed capacity to meet the purported demand, such as using underutilized existing
pipeline capacity or alternative, cleaner energy resources. Further, a true “all relevant factors” approach enables FERC to balance other factors against precedent agreements to determine whether the pipeline is,
in the aggregate, in the public interest.

Perform deeper review when proposed projects depend on pipeline affiliate agreements. As noted above, the Commission’s near exclusive reliance on precedent agreements to demonstrate pipeline need is
problematic, but when these agreements are between pipeline affiliates—which is increasingly the case— an even more troubling situation arises. Because the pipeline developer essentially is contracting with itself,
the actual market need for the pipeline is questionable at best. Further, when the affiliate shipper is a monopoly utility, customers end up paying for the pipeline via higher utility bills, despite the Commission
never truly determining whether the project is needed. Simultaneously, the utility will reap lucrative profits through FERC-approved rates of return. The mismatch between the 40-50-year lifespan of pipeline assets
with the declining prospect of their long-term usefulness cannot be ignored. Thus, as part of an “all relevant factors” approach, FERC must conduct a deeper review of market need when affiliate precedent agreements are the pipeline developer’s purported evidence of project need.

Conduct a regionally-focused assessment. The rapid expansion of natural gas production has led pipeline developers to propose competing projects to satisfy identical market demands. While the Policy Statement
was intended to protect against overbuilding, too often, FERC reviews natural gas pipeline applications in a bubble, creating the risk of wasteful duplication and infrastructure that is out-of-step with the region’s
needs. Considering each pipeline proposal in isolation also prevents the Commission from understanding how similar proposals cumulatively affect climate change, natural resources, and consumer prices. An
integrated, more comprehensive review would assess the need for new pipelines based on the energy needs of the region(s) directly affected by the project. Such an assessment would examine factors such as existing
and proposed pipeline capacity, long-term energy needs, and state policies. FERC also could address the need for a more regionally-focused review by incorporating some degree of regional planning into FERC’s
analysis. FERC already has a model to draw from, as the electric sector has incorporated regional planning through the regional transmission organizations (RTOs) and other planning constructs in areas without
RTOs. We recommend FERC’s adoption of a regionally-focused review.

Fully evaluate climate pollution and other environmental impacts. FERC’s current approach discounts the quantitative and qualitative relevance of downstream environmental impacts. Last year, the D.C. Circuit vacated a FERC certificate due to FERC failing to quantify and consider downstream indirect greenhouse gas effects. Fortunately, scientifically tested tools (such as the Social Cost of Carbon and the Social Cost of Methane) exist today that allow the Commission to monetize environmental impacts and neatly incorporate them into a public interest analysis. Further, as climate change “is the single most significant
threat to humanity, fundamentally threatening our environment, economy, national security and human health,” it is “difficult to understand how” FERC can satisfy its “hard look” requirements under the National
Environmental Policy Act (NEPA)  without using every available tool to consider all direct, indirect, and cumulative environmental impacts, including downstream effects. FERC must consider these
environmental impacts in its “all relevant factors” and NEPA reviews.

Ensure meaningful opportunities for public participation. Given that FERC is responsible for determining whether a project is in the public interest, it is critical to ensure that every stakeholder—regardless of
resources—has the tools to fully participate in FERC proceedings. The Commission has recognized the importance of maintaining public confidence in FERC. Public confidence could be strengthened by
holding hearings when there are disputed issues of material fact and through the creation and funding of a FERC Office of Public Participation. Ensuring meaningful public participation also includes developing deliberate, concrete methods to (1) incorporate the voices of environmental justice communities as required by Executive Order 12,898,21 and (2) consult and collaborate with all tribal communities. FERC should adopt these and other ways to ensure public participation in pipeline certificate application reviews.

Conclusion

We again applaud the Commission for deciding to initiate this important review. We look forward to a robust process that gives careful, thorough consideration to the critical issues presented by the Commission’s review of proposed pipelines and provides sufficient time and meaningful opportunity for all stakeholders to present their views. We also welcome any opportunity to meet with you and Commission staff to discuss these proposals. Thank you for your attention to this matter.

Sincerely,

Montina M. Cole Kelly Martin
Senior Attorney Director, Beyond Dirty Fuels Campaign
Natural Resources Defense Council Sierra Club

Moneen Nasmith Rev. Fletcher Harper
Staff Attorney Executive Director
Earthjustice GreenFaith

Gregory Buppert David Ismay
Senior Attorney Senior Attorney
Southern Environmental Law Center Conservation Law Foundation

Tyson Slocum Wes Gillingham
Director, Energy Program Associate Director
Public Citizen Catskill Mountainkeeper

Alison Mitchell Michael Dulong
Director of Policy Senior Staff Attorney
New Jersey Conservation Foundation Riverkeeper, Inc.

Amy Boyd
Senior Attorney
Acadia Center