Amid FERC Commissioner Shakeup

Oil and Gas Companies Seek to Give Regulatory Body More Control Over Timeline Enforcement

On March 14, 2017, Dominion Energy President Diane Leopold went before the U.S. Senate Committee on Energy and Resources to deliver a message on several energy projects, including the highly-politicized Atlantic Coast Pipeline, or ACP. Leopold’s statements highlighted the noticeably lengthy process that oil and gas companies must go through to get a project from conception to completion. Although the permitting process is just one part of the puzzle oil and gas companies must piece together to construct a new pipeline, Leopold’s comments made clear that it is consistently a complex one.

As noted by Leopold in her statements, part of that complexity is meted out under a mountain of paperwork – “more than 130,000 pages on numerous routing analyses, plans and protocols”, explained Leopold. Given that, one might also come to believe that Leopold, and many other oil and gas companies with pending projects, would view the Federal Energy Regulatory Commission (FERC), as an enemy to progress. Reality, however, dispenses different truths in this situation.

“We are not seeking to limit any of the public review or detailed examination by resource specialists in federal agencies,” Leopold said. “We do believe, however, that there needs to be improved coordination among federal agencies, timely review and decision-making and a

clearer path to present evidence so that there is a predictable, defined process to meet requirements by multiple federal agencies within a coordinated schedule.”

Leopold’s comments are echoed by others, including Dominion Manager of Transmission Communication Frank Mack, who explained that Section 41 of the Fixing America’s Surface Transportation Act (FAST) could be used for regulatory modernization. “FAST-41 could be a vehicle for achieving more project schedule coordination and timely reviews,” Mack said, adding that Dominion is “working with the current Administration to identify areas for improvement.”

FAST-41 allows some projects to get pushed forward with more interagency coordination and faster environmental review, streamlining the permitting process. Primarily larger oil and gas companies with projects that present a more pressing need initially qualified for FAST-41. On September 22, 2016, the Federal Infrastructure Permitting Improvement Steering Council (FPISC) released a list of 34 projects considered “covered” by FAST-41, a list that included the ACP.

Still, the FAST-41 process is widely viewed as a valuable process to end the deadlock that can occur with interagency permitting, and FAST is viewed as a positive reform initiative.  Although the FAST Act, which was signed by President Obama in 2015, was designed to streamline the permitting process as a whole, some oil and gas industry leaders see FAST-41 as a good model for the type of efficiency that can be applied more universally to the regulatory process.

FERC Maintains Only Limited Control

As a regulatory body, FERC is presently in the midst of a shakeup. First established in 1920 as the Federal Power Commission, FERC’s primary function – regulation – has at times appeared in opposition to the American oil and gas industry. When necessary pipelines and interstate energy transmission lines need construction, oil and gas companies must begin to navigate through an extensive list of required permitting, much of which begins and ends with FERC.

It is not uncommon to find negative media coverage on FERC’s inefficiencies, yet news reports may not be presenting an entirely accurate picture. There remain numerous misconceptions on just how much influence FERC has over the sometimes slow pipeline permitting process, with many charges of inefficiency often wrongly attributed to the regulatory body.

While the bi-partisan chairmen and women heading FERC have for some time been free to accept or deny project applications without outside political influence, they often become the scapegoats for long delays in oil and gas pipeline projects. Perhaps the most hidden story behind FERC is not just that it has far less control over long delays, but that it also has far more support within the oil and gas industry than it does among environmentalist groups. Many groups opposed to oil pipelines on a matter of principle are quick to label FERC as a “rubber stamp” for the oil and gas industry.

Still, the election of President Donald Trump (whose strong anti-regulatory stance was made known on the campaign trail and has since been reiterated from the Oval Office) may make some observers wonder if the FERC we see today will be the same organization four years from now. Given the recent loss of three members of the five-member regulatory body and President Trump’s early March nomination of more chairpersons, the timing itself may seem to work in favor for the President’s desire to enact more regulatory reforms.

Other regulatory bodies, such as the Environmental Protection Agency (EPA) have already found themselves in the crosshairs for new reforms that seek to peel away regulatory layers built up over the past several decades. The question remains as to whether FERC both needs such regulations, and whether oil and gas companies truly desire to see the FERC permitting process undergo any of the major reforms that other regulatory agencies now face.

The FERC Permitting Process, Top to Bottom

The interstate energy transmission projects that FERC regulates, including oil, natural gas and electricity, must follow a somewhat rigorous process from start to finish. According to the Interstate Natural Gas Association of America (INGAA), one of the largest oil and gas industry trade organizations, there are five key steps in the permitting and approval process:

•     Needs Assessment
•     Scoping
•     Pre-Filing
•     Formal Application
•     Approval of the FERC Certificate
•     Approval of Any Remaining Certificates

Needs Assessment

The first step toward a new pipeline project involves identifying the market need. During this phase, prospective companies must be able to show a legitimate need in the market for the pipeline. Open houses are held during this period to acquire firm contracts and commitments to the project. During this process, companies will also identify and contact landowners about the potential project. Without such firm commitments, FERC will not allow the project to move forward.

Pre-Filing

If the needs assessment requirements are adequately met, project sponsors may decide to enter the FERC pre-filing process. This process, which can last well over a year, will be highly involved for project sponsors as they hold various public meetings, cosponsor scoping meetings with FERC, draft potential pipeline routes, determine methods to limit the impact on landowners, amid other necessary steps. During this process, FERC is involved in helping ensure compliance with regulatory standards and will make a decision at the end of the process as to whether or not the project can proceed.

Formal Application

During the formal filing process, FERC will deliver an environmental impact statement or an environmental assessment as pursuant to the National Environmental Protection Act (NEPA), depending on their findings. It is at this point that several permitting agencies are also involved, at both the state and federal level. While other federal and state agencies are also tasked with keeping to a strict timeline, it is during the formal application process where many projects face significant delays due to non-FERC permitting requirements. This process can take 10 to 14 months or longer.

Approval of the FERC Certificate

If FERC finds that environmental concerns are adequately addressed, it may issue a “certificate of public convenience and necessity.” This certificate will allow the public to understand the nature of the project and will permit the project to proceed. The final certificate may require other conditions, such as route changes or limits to a specific time of year for construction.

Approval of Remaining Certificates

Once FERC has issued its certificates, other permitting agencies must complete and issue their certificates as well. This is the process that many see as causing the most delays, as other organizations, such as the Army Corps of Engineers or state environmental departments may lag far behind FERC in issues their certificates. At present, projects can average three to four years due to project sponsors waiting for other permitting agencies that fall behind prescribed timelines.

Coordination Remains Regulation’s Biggest Obstacle

During the permitting process, companies hoping to lay down new interstate pipelines or other interstate energy transmission projects must make thousands of filings with various agencies, not just FERC. Although FERC is the primary regulatory body, projects also require permit approvals from a variety of different agencies, some of which may or may not approve those permits, or that may fail to meet timelines dictated in the Energy Policy Act of 2005.

On permitting slowdowns related to interagency coordination, Cathy Landry, Vice President of Communications at INGAA, explained it this way: “We’d like to see FERC have some actual authority to enforce deadlines from other permitting agencies. The Energy Policy Act of 2005 did put deadlines on other agencies to act, but they have not been enforced, and FERC has no authority to enforce those deadlines.”

According to Chip Moldenhauer in an article on FERC regulation for the LexisNexus website Law360, FERC approves a vast majority of its projects – over 95%. In the article, titled “5 Myths About Building Natural Gas Pipelines”, Moldenhauer also states that FERC only dismissed 0.9% of projects since 2008, with the remaining projects primarily withdrawn or suspended by the company that originally filed for a permit.

Removing political commentary from the equation and focusing purely on the FERC regulatory process, there appears to be more of a positive story to tell for and within the oil and gas industry. Where FERC may get the permitting process right is in its wholly transparent approach to regulation, a situation that some may note is a rarity in Washington. Where FERC suffers the most may not be in its regulatory approval process but its lack of authority over other regulatory bodies integral to the permitting process.

Viewed holistically, the FERC permitting process comes across as a more seamless activity than what some may believe, while oil and gas companies appear to have a better interaction with FERC than with other regulatory bodies. Many companies and professional organizations do express the desire to see FERC work more cohesively with other permitting organizations on which its own process relies, while hoping to see an increase in timely decisions made by those organizations.

Commission Members Can Cause Deadlocks

Nevertheless, transparency within the FERC permitting process cannot overcome other challenges that stymie new and pending project approvals. The organization’s methods rely on a quorum rule that dictates it cannot make decisions without at least three commission members. By law, the Commission is headed by five members. However, since the beginning 2017, the regulatory body has operated with just two members.

Shortly after President Trump took office, he selected a new chair, Cheryl LaFleur (D), to head up the commission. Immediately afterward, the newly displaced chairman, Norman Bay, opted to leave FERC. Some reports indicate that Bay’s decision to leave was based on a perception that President Trump would be removing one of the three Democratic members as a way to put in place three new Republican members. By law, the commission can have no more than three members of any one political party.

Bay’s stepping down from FERC left a vacuum in the permitting process. With only two members left, LaFleur and Commissioner Colette D. Honorable (D), a quorum could no longer be reached. In effect, Bay’s action put a halt on new or pending project approvals, forcing Congress to press the newly elected President to nominate new members far sooner.

Many oil and gas companies still hold FERC in high regard, despite slowdowns in the process. Should new reforms occur during the next four years, most may advocate giving FERC more control over enforcing timely approvals. Whether the current administration will favor only a limited approach to FERC reforms or a more heavy-handed approach, as is the case with the EPA, remains to be seen.