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Challenges to US natural gas infrastructure development

Recent Challenges to Gas Pipeline Construction

Construction and operation of long line interstate pipelines has been regulated in the US since 1938 under the Natural Gas Act (NGA) originally by the Federal Power Commission (FPC) and since the 1977 enactment of the Department of Energy Organization Act, by the Federal Energy Regulatory Commission (FERC). Projects are approved if the agency finds that the proposed construction and operation is required by the public convenience and necessity (or in the case of LNG terminals, if the project is not inconsistent with public needs).

Passage of the National Environmental Policy Act ("NEPA") in 1969 required federal agencies to consider environmental values distinct from their primary area of authority when deciding on a major federal action. But shortages in the interstate natural gas market that caused curtailment, factory closures, growth restrictions, placed great pressure on pipelines and the FPC to facilitate infrastructure development. NEPA interfered with efficient processing of NGA applications.

In 1978, the Council on Environmental Quality ("CEQ"), an executive agency, formulated a NEPA implementation template to apply to all federal agencies. CEQ's Guidance included standardized procedures, eliminating ad hoc approaches. But as an independent agency, FERC was not obliged to use the CEQ template.

In 1987, to avoid the controversy over whether an executive agency could impose requirements on an independent agency, FERC "voluntarily" adopted regulations conforming to CEQ standards.

In 1999 FERC issued a Policy Statement to provide guidance about how it will evaluate proposals for approving new construction which it has applied to the distinctive facts of individual projects ever since.

An applicant must demonstrate that the benefits to be achieved by the project will outweigh potential adverse effects, after efforts are made by the applicant to mitigate the adverse effects. The project must be able to proceed without subsidies from existing customers of the pipeline, but since most new facilities are constructed by new special purpose entities, there usually are no existing customers whose rates are affected by a new project. FERC also considers to some degree the effect of a new pipeline project on existing pipelines in the market and their captive customers.

FERC will approve an application only if the public benefits outweigh the adverse effects. The focus of the analysis under the Policy Statement is the impact of a proposed project on the relevant interests balanced against the benefits to be gained from the project. The more interests adversely affected, or the more adverse impact a project would have on a particular interest, the greater the showing of need and public benefits required. When the benefits outweigh the adverse effects on economic interests,FERC will complete the environmental analysis where other interests are considered.

Recent years have seen increasingly aggressive and more numerous legal challenges to natural gas infrastructure authorizations. Pipeline adversaries appear to be motivated by opposition to natural gas production in general as much as by opposition to the construction of the particular pipeline. The primary areas of challenge have focused on whether FERC satisfies its NEPA obligations if it does not evaluate on a broad–perhaps national–basis the sources of gas anticipated to be transported by a pipeline and the extent to which a new pipeline will increase greenhouse gas emissions. Recent decisions of the United States Court of Appeals for the District of Columbia Circuit (one step below the Supereme Coourt) involving FERC authorizations to construct LNG terminals have presented similar questions. FERC's orders approving the construction and operation of two LNG terminals involves a different section of the Natural Gas Act but the same NEPA considerations.

FERC defended its authorizations on two grounds: (i) because interstate pipelines only provide transportation service, FERC has no sbility to know the source of gas that may be transported, and NEPA does not require FERC to speculate; and (ii) exports of the commodity are subject to the authority of the DOE under the NGA. The D.C. Circuit denied the petitions in three recent cases. But challenges by the Sierra Club to DOE commodity export authorization are pending in the D.C. Circuit.

There also have been numerous other challenges to pipeline projects challenging FERC's structure and process, as well as more direct challenges to FERC's orders, state permit challenges, and other forms of local opposition. Few challenges have gained traction with the reviewing courts. There also have been challenges presented in numerous requests for stays. Requests for stays have been rebuffed by courts either because the requests did not satisfy the strict standards that apply to stays or because the challenges were seen as attempts to bypass the normal review process over which US Courts of Appeal have exclusive authority.

In late October 2016, in connection with the application to construct the Leach Xpress pipeline, the Environmental Protection Agency (EPA) took the unusual step of claiming that FERC failed to comply with CEQ Guidance on greenhouse emissions and asked for an interagency meeting. We have found no record of the meeting EPA having taken place. When FERC issued the certificate for Leach Xpress, it provided a robust multi-page rejoinder to EPA's concerns. In summary, FERC explained:

the environmental effects resulting from natural gas production are generally neither sufficiently causally related to specific natural gas infrastructure projects nor are the potential impacts from gas production reasonably foreseeable such that the Commission could undertake a meaningful analysis.

Columbia Gas Transmission, LLC 158 FERC ¶ 61,046 at P. 106

(2017) (footnotes omitted).

In a somewhat separate vein, the National Historic Preservation Act of 1966 (the "Preservation Act") imposes procedural obligations on permitting agencies to ensure that State and local Historic Preservation offices are consulted so that cultural and historic resources are identified and preserved. At least in part because of extensive consultations and construction monitoring, instances of violations by natural gas pipelines are infrequent. But the Preservation Act also sets out procedural obligations for a permitting agency with respect to Indian tribes affected by a project. Well-publicized disputes associated with the Dakota Access Pipeline (which is not subject to FERC's construction jurisdiction) led to numerous government-to-government consultations in October and November, 2016 between federal and tribal interest leaders, resulting in a report on Tribal Input in Federal Infrastructure Approvals. The principal action item in the final report is that each agency should undertake a thorough review of its Tribal consultation policies to ensure that they reflect the Report's Key Principles.

FERC issued a Notice Of Availability Of The Revised Guidelines For Reporting On Cultural Resources Investigations For Natural Gas Projects And Request For Comments (January 25, 2017) to secure public views about revisions to its 2002 Guidelines for Reporting on Cultural Resources Investigations for Pipeline Projects.

It is premature to have a well-formed evaluation of how FERC's oversight process may be affected by these potential revisions or Trump Administration regulatory initiatives respecting infrastructure, the environment, rulemakings, the use of domestic steel and others. Pipeline opponents may use enhanced Preservation Act consultations to fuel their opposition or they may change their focus from federal agencies to state and local permitting. A request for a stay of construction was recently filed at FERC on the claim that the pipeline was not using US sourced steel pipe. Pipeline opponents can sometimes prevail by causing expensive delay, even if they do not win. It is a fair observation, however, that pipeline infrastructure opponents are unlikely to abandon their efforts to challenge pipeline development.