They’re Ba-ack! Report on Policy and Project Issues Pending at FERC

Natural Gas Projects
August 21, 2017

As has been widely reported, the Senate, before leaving town for its August recess, confirmed by voice vote Robert Powelson and Neil Chatterjee as Commissioners of the Federal Energy Regulatory Commission (FERC). Both Commissioners have now been sworn in, and yesterday Chatterjee was named Chairman, presumably until Kevin McIntyre is confirmed. A review of the voting records of recent appointees to the Commission shows that, on average, it takes 34 days after confirmation before the Commission begins voting on pending projects. This means that, if they follow the norm for the last 20 years, we should not expect much production from the Commission until early September, likely after the Labor Day holiday.

Nonetheless, there is no precedent for the situation facing the new Commissioners. The lack of a quorum for the last six months could mean the Commission will feel compelled to act more quickly than the norm, which could be before the next scheduled Commission meeting on September 20. The size of the gas pipeline project backlog, however, could also mean that it will take the Commission longer to begin acting on many of the matters that are pending, which also includes several complex open policy issues impacting pipelines and power generation assets.

Pending Gas & Power Policy Issues

Given basis differentials and pipeline company growth projections, natural gas projects have undoubtedly garnered the most near-term focus, but the resolution of the following two policy issues (there are others) could alter aspects of the pipeline and power generation business models. The following issues, which have been largely placed on pause the past six months due to the lack of a quorum, will be on the Commission’s plate to resolve sooner rather than later.

Master Limited Partnership (MLP) Tax Allowance  

As we have previously noted, the FERC is required by the U.S. Court of Appeals – D.C. Circuit to address the MLP Tax Allowance issue, although the timing and outcome is less clear. FERC has abandoned its argument that the current tax policy adequately prevents a double tax recovery, and industry observers now contemplate a change to FERC’s Policy Statement on Income Tax Allowances.

Activity since quorum lost : Surreply comments from Interstate Natural Gas Association of America (INGAA) contesting previous assertions regarding financial impacts of current MLP tax treatment.

Next steps following quorum restoration : The comments of various parties, both for and against eliminating the double recovery, included complex information that the FERC staff must carefully review and which may prompt a hearing in deciding its action in response to the court, which would take additional time.

Policymaking Event US Court of Appeals Decision Notice of Inquiry Comments/ Replies Due Next FERC Action
Date July 1, 2016 December 15, 2016 April 7, 2017 TBD

Electric Storage Resources

Power generation constituents – regulated and unregulated utilities, renewables, and gas-fired generation assets owners/operators/fuel suppliers – have much at stake when considering the future of electric storage resources. If fully able to compete as market participants, energy storage resources may be business case game changers for renewables and merchant power producers.

For its part, FERC has recognized efforts to facilitate integration of electric storage projects into wholesale electricity markets. Currently at issue is FERC’s policy proposal that each RTO/ISO revise its tariff to include market rules accommodating electric storage resources organized as wholesale electric markets, recognizing the physical and operational characteristics of electric storage resources.

Activity since quorum lost : Ongoing case between Indianapolis Power and Light (IPL) and MISO regarding treatment of IPL’s energy storage resources for tariffs within MISO’s jurisdiction.

Next steps following quorum restoration : Following its review of comments filed in response to its Notice of Proposed Rulemaking (NOPR), FERC will be able to act on a subsequent rehearing request by MISO and decide whether to issue a Final Order implementing some or all of the proposals.

Policymaking Event Data Request NOPR FERC Policy Statement Next FERC Action
Date April 2016 November 26, 2016 January 19, 2017 TBD

Who’s Up? Pending Projects

In reviewing the list of pipeline projects that are pending before FERC and which have completed environmental review, and comparing the time they have been waiting for a certificate order to the typical time period for a certificate, shows which projects are the longest overdue when compared to expectations:
 

As evidenced by this chart, there are a number of projects in “up” for a Certificate decision from FERC. Although FERC’s process for determining the order of review is not disclosed, below is our quick analysis of two projects that are on our customer’s minds.

NEXUS

Based on our above data visualization analysis, Enbridge’s NEXUS project has been the project most impacted by the loss of a quorum. NEXUS wasted no time in filing a letter last Friday with FERC requesting immediate action on its application, based on the fact that its FEIS was issued on November 30, 2016 and that there are no known issues that need resolution before issuance of a certificate. However, even if NEXUS were to promptly receive a certificate, that is not the last hurdle it faces.

In its filing made last Friday, NEXUS asserts that it has consensual easement agreements for 93% of its right of way, which is an admirably high number, but also means it may have to condemn 7% of the right-of-way. In addition, NEXUS is still awaiting its Ohio Water Quality Certificate (WQC). Given the number of issues Rover has had with water quality in Ohio, the Ohio EPA may not be quick to approve another project in the state.

On a positive note for the NEXUS project, the statement about having 93% of the easements led FERC to issue a data request asking how that had been calculated and giving NEXUS only two days to respond. NEXUS undoubtedly viewed the short response time as an indication that FERC will be ready to issue the Certificate in short order.

PennEast

The PennEast Project is also waiting on its FERC certificate, but that project may face more hurdles post-certificate than others. Like NEXUS, PennEast also filed a letter on Thursday asking for prompt issuance of its Certificate and stated its belief that if the Commission issues the order promptly, PennEast may still have the ability to initiate the activities necessary to place the Project in service within the timeframe needed by the Project shippers.

However, the New Jersey Department of Environmental Protection administratively dismissed the project’s Section 401 Water Quality Certificate (WQC) application because PennEast lacked access rights to over 60% of the right of way in New Jersey, which according to the DEP, makes it impossible for them to process the application. This would mean that, following issuance of the FERC certificate, PennEast may need to commence court actions to gain access to a substantial portion of the proposed right of way, complete its on-the-ground environmental studies, and then resubmit its WQC application.

Presuming New Jersey takes a full year to review that application, PennEast may be looking at 15 months or so following the receipt of its FERC certificate before it could begin construction on the New Jersey portion of the pipeline. In addition, the Delaware River Basin Commission is undertaking its own review of the project and has not yet indicated when it intends to make a determination about the project.

Section 401 Water Quality Rulings

The D.C. Circuit also created a new issue for the Commission, while it lacked a quorum, by ruling that it was up to FERC to determine whether a state had waived its right to issue a Section 401 WQC by not acting on an application within a reasonable time, not to exceed one year. There are three cases from New York state, which would allow the new commissioners to quickly put their imprint on a key issue that has been plaguing the industry — namely, the length of time it takes for states to act on their delegated federal authority under section 401 of the Clean Water Act. Two of those cases are currently before the Commission, and another tied up in the Second Circuit Court of Appeals.

In the first case, Millennium’s Valley Lateral Project, Millennium has asserted that because the New York State Department of Environmental Conservation (NYSDEC) did not act within one-year following the receipt of Millennium’s application, the FERC should issue Millennium a full notice to proceed with construction. The NYSDEC countered that position by asserting that it has until at least August 30 of this year to issue a WQC because Millennium’s application was not “complete” until at least one-year before that date.

In National Fuel’s Northern Access Project, the second case before the Commission, National Fuel asserted in its request for a rehearing that NYSDEC’s failure to issue a decision on its WQC application by October 25, 2016, the end of the federal authorization period set forth in the Commission’s Notice of Schedule for Environmental Review for the Project resulted in a waiver of any requirement that National Fuel obtain a WQC with respect to Project facilities in New York state.

The new commissioners could advance the industry’s interest by promptly ruling on Millennium’s request for a notice to proceed before the NYSDEC acts on Millennium’s WQC application.  If the new commissioners choose to wait until after the NYSDEC acts, they may miss a prime opportunity to set precedent, because after the NYSDEC acts, a FERC decision that the NYSDEC had waived its right to act may be deemed moot. In National Fuel, there is not any real need to act quickly, as the NYSDEC ultimately denied the WQC permit, so the facts in that case are not going to change before FERC rules on National Fuel’s rehearing request.

The third case concerning failure to issue a WQC that may come to FERC involves Williams’ Constitution Pipeline Project, but that case is currently pending before the Second Circuit and is not formally before FERC. Cases that are currently awaiting a FERC certificate decision could also become test cases for FERC’s new authority to determine whether a waiver has occurred, because in many of those cases the applicant’s request for a WQC was filed over one-year ago.