Commissioner James Danly Statement
April 12, 2022
Docket Nos. PL18-1-002, PL21-3-002
I concur with today’s order[1] dismissing the fourteen requests for rehearing of the Updated Certificate Policy Statement[2] and Interim Greenhouse Gas (GHG) Emissions Policy Statement.[3] Given that the Commission has since made these policy statements drafts and no longer applicable to “applications filed before the Commission issues any final guidance” in the policy statement dockets,[4] the policy statements are no longer final and rehearing does not lie. I write separately to express two points.
First, while obviously a step in the right direction, turning the policy statements into drafts does not solve the problem created by the policy statements in the first place. The “fog of indecision”[5] still lingers over the development of natural gas infrastructure. Although the Commission has indicated it will apply its 1999 Certificate Policy Statement over the next two months’ comment period,[6] what will happen thereafter is anyone’s guess. I fear that the philosophy animating the issuance of the policy statements in the first place will ultimately result in similar issuances in the future.[7]
This uncertainty continues to have an immediate impact on projects still in planning, which begins long before a certificate application is filed.[8] How can a pipeline begin to design a project when it has no idea what the project costs will be? Pipelines must have some sense of anticipated costs in order to estimate rates, which “are an early viability benchmark, allowing the pipeline to determine if its expected return justifies investment, and allowing the shipper to weigh its investment decisions,” as such decisions are made “long before significant costs are expended developing the project to prepare it for Commission review.”[9]
Moreover, how can a pipeline go about ensuring that it can demonstrate that its proposal is needed? Under the 1999 Certificate Policy Statements, pipelines could demonstrate need by entering into precedent agreements with shippers before and after conducting an open season.[10] Can a pipeline now reasonably enter into an agreement with a shipper that plans to transport gas for an unknown use—a circumstance the Updated Certificate Policy statement indicates could result in a denial? [11] Do the Commission’s open access rules, which prohibit discrimination among customers, even allow a pipeline to refuse to enter into agreements with particular shippers based on end use following an open season?[12]
These are no small matters. Developing projects and preparing certificate applications are not inexpensive endeavors. Some have estimated that “about ten percent of overall project costs are incurred in [the] development phase.”[13] To put that estimate in context, for the last three certificates issued by the Commission, that ten percent figure would have represented amounts ranging from $26 million to $36 million.[14] One simply does not risk such capital under an uncertain regulatory regime.[15] If pipeline companies determine that the risk is too great to develop otherwise needed infrastructure, that infrastructure will not be built and the inevitable consequence will be that customer demand for natural gas service will go unmet.[16]
Second, while I am glad the Commission has explicitly stated that it will consider rehearing requests as comments in the policy statement dockets,[17] I am concerned that the Commission will ultimately fail to respond to the arguments that have been raised in those requests for rehearing. And I have a good basis for that concern. The Interim GHG Policy Statement sidestepped many of the exact same arguments parties have made on rehearing, including the argument that the Commission cannot do indirectly what it is prohibited from doing directly[18] and that courts have found that Congress has vested the U.S. Environmental Protection Agency (EPA), not FERC, with the authority to regulate GHG emissions.[19] Perhaps if the Commission had thoughtfully (or even cursorily) considered these arguments in the first instance, it would not be in the position that it is now.
The Commission cannot ignore arguments it does not want to hear. Directly addressing criticism is a part of, indeed is fundamental to, the reasoned decision making that should be the hallmark of agency action under the Administrative Procedure Act. The Commission cannot impose obligations upon pipelines without regard to how much they might cost, how they will be paid for, or how they will affect consumer prices. To do so is to obstruct the development of the very infrastructure Congress has tasked us with encouraging.[20] We should do our job and “promote the orderly production of plentiful supplies of . . . natural gas at just and reasonable rates.”[21]
For these reasons, I respectfully concur.
[1] See Certification of New Interstate Nat. Gas Facilities, 179 FERC ¶ 61,012 (2022) (Rehearing Dismissal Order).
[2] See Certification of New Interstate Nat. Gas Facilities, 178 FERC ¶ 61,107 (2022) (Danly & Christie, Comm’rs, dissenting) (Updated Certificate Policy Statement).
[3] See Consideration of Greenhouse Gas Emissions in Nat. Gas Infrastructure Project Reviews, 178 FERC ¶ 61,108 (2022) (Danly & Christie, Comm’rs, dissenting) (Interim GHG Policy Statement).
[4] Certification of New Interstate Nat. Gas Facilities, 178 FERC ¶ 61,197, at P 2 (2022) (Order on Draft Policy Statements).
[5] See Hearing to Review FERC’s Recent Guidance on Nat. Gas Pipelines Before the S. Comm. on Energy and Nat. Res. (March 3, 2022 Senate Hearing), 117th Cong. (2022) (Senator Barrasso quoted Alan Armstrong, the CEO of The Williams Companies, Inc., as stating the Interim GHG Policy Statement “has shrouded FERC certificate decisions in a fog of indecision.”).
[6] See Order on Draft Policy Statements, 178 FERC ¶ 61,197 at P 2 (suspending the application of the policy statements and establishing an initial and reply comment period that ends May 25, 2022).
[7] See id. (Danly, Comm’r, concurring in part and dissenting in part at P 3).
[8] See, e.g., Boardwalk Pipelines, LP March 18, 2022 Request for Rehearing, at 44 (“The lead time for the development of a pipeline project is extensive. Pipelines and their customers make contractual commitments and deploy substantial capital and resources long before a certificate application is ever filed with the Commission.”).
[9] Transcontinental Pipe Line Company, LLC March 21, 2022 Request for Rehearing and Alternative Motion for Reconsideration, at 24 (Transco Rehearing); see also Energy Infrastructure Council March 21, 2022 Comments in Support of Motion to Intervene and Request for Rehearing of the Interstate Natural Gas Association of America, Docket Nos. PL18-1-000 and PL21-3-000, at 4 (“It is difficult to see how a project sponsor, and in turn ratepayers and consumers signing up for capacity on new projects, can accurately analyze the economics of a natural gas infrastructure project and make an investment decision without knowing how much and what types of mitigation will be required and what that mitigation will cost.”).
[10] Certification of New Interstate Nat. Gas Pipeline Facilities, 88 FERC ¶ 61,227, at 61,748 (1999) (“Of course, if an applicant has entered into contracts or precedent agreements for the capacity, it will be expected to file the agreements in support of the project, and they would constitute significant evidence of demand for the project.”).
[11] Updated Certificate Policy Statement, 178 FERC ¶ 61,107 at P 55 (“For all categories of proposed projects, we encourage applicants to provide specific information detailing how the gas to be transported by the proposed project will ultimately be used . . . . The absence of this information may prevent an applicant from meeting its burden to demonstrate that a project is needed.”).
[12] See TC Energy Corporation March 18, 2022 Motion for Leave to Intervene and Request for Rehearing, Docket Nos. PL18-1-000 and PL21-3-000, at 42-45 (discussing how the Updated Certificate Policy Statement’s project need requirements are inconsistent with the Commission’s open access rules).
[13] Transco Rehearing Request at 29 (emphasis added).
[14] See Iroquois Gas Transmission Sys., L.P., 178 FERC ¶ 61,200, at P 6 (2022) (applicant estimated project would cost $272 million); Tenn. Gas Pipeline Co., L.L.C., 178 FERC ¶ 61,199, at P 11 (2022) (applicant estimated project would cost $261,658,650); Columbia Gulf Transmission, LLC, 178 FERC ¶ 61,198, at P 6 (2022) (applicant estimated project would cost $363,898,567).
[15] See, e.g., Kinder Morgan, Inc. March 18, 2021 Request for Rehearing, Docket Nos. PL18-1-000 and PL21-3-000, at 62 (“Kinder Morgan cannot have confidence that as it proceeds through the phases of development and ultimately files a certificate application, it understands the regulatory rubric that will apply in reviewing its project and whether that regulatory rubric aligns with the assumptions and commercial decisions underlying its project.”).
[16] See Kinder Morgan Rehearing Request at 62 (“Kinder Morgan has been inundated with outreaches from existing and potential customers who have expressed worries about the ability of the company in the current regulatory environment to build the natural gas infrastructure that is needed to meet their needs.”); see also Boardwalk Rehearing Request at 45.
[17] Rehearing Dismissal Order, 179 FERC ¶ 61,012 at P 4 n.8.
[18] For example, the Commission stated that “Commenters further assert that the Commission has no authority to establish environmental policy and that the Commission cannot use its conditioning authority to indirectly mitigate an effect that it has no authority to directly mitigate.” Interim GHG Policy Statement, 178 FERC ¶ 61,108 at P 101. The Commission provided no response to the argument. On rehearing, parties raise the same argument. See, e.g., Natural Gas Supply Association, et al., March 18, 2022 Request for Rehearing and Clarification, at 14, 23 (arguing Commission cannot do indirectly what it cannot do directly).
[19] For example, the Commission stated that “commenters argue that Congress has delegated authority to the EPA and state agencies to regulate GHGs under the [Clean Air Act].”). Interim GHG Policy Statement, 178 FERC ¶ 61,108 at P 102. The Commission provided no response to the argument. On rehearing, parties raise the same argument. See, e.g., American Gas Association March 18, 2022 Request for Rehearing and Clarification, at 9 (“Instead, the courts have found that Congress tasked another agency, the [EPA], with determining whether and how to regulate greenhouse gases.”).
[20] See March 3, 2022 Senate Hearing (Commissioner Danly responding to Senator Hoeven) (“I think probably the most startling part of these policy statements is that, as far as I can tell, none of the costs to consumers . . . actually factored into the consideration of the issuance of these [policy statements]. There is no discussion in the policy statements about calculations or research as to what it was going to cost consumers.”).
[21] NAACP v. FPC, 425 U.S. 662, 670 (1976).