A Year of Pipeline Approval Reform: 4 Ways to Improve FERC’s Review Process
One year after launching a reevaluation of its pipeline approval process, the Federal Energy Regulatory Commission (FERC) could be ready to adopt critical reforms. The result could be a more sustainable, reliable U.S. energy system.
Last February, FERC reopened a Notice of Inquiry (NOI) seeking recommendations for reforming its approval process for natural gas infrastructure, like new pipelines. Under the Natural Gas Act, the Commission must evaluate whether to approve proposals for new pipelines and other facilities, which require a “certificate of public convenience and necessity” to be built and operated. This week, the Commission is poised to act and publish a new policy statement setting out guidance on how it will review applications.
Given that new infrastructure will continue to exist far beyond 2030 or even 2050, FERC’s decisions today will be key in shaping the transition to a low-carbon future. The Commission’s policy for evaluating new infrastructure is central to ensuring that only the most efficient and cost effective natural gas infrastructure is built, and that the natural gas system is both reliable and sustainable.
Stakeholders, including the Institute for Policy Integrity, submitted comments in May asking the Commission for fundamental reform.
Reshaping the Policy Statement is an opportunity for FERC to overhaul how it assesses whether new natural gas infrastructure is in the public interest and craft a transparent, comprehensive process for making these decisions.
The Commission’s current Policy Statement guiding its analysis has not been updated since 1999. The process has been sharply criticized for relying on private contracts, known as precedent agreements, to demonstrate that a pipeline is in the public interest. Another major issue is FERC’s failure to properly consider and weigh projects’ greenhouse gas emissions and the associated climate impacts as well as environmental justice issues associated with new pipelines.
Policy Integrity’s comments, discussed in our new report, specifically called on the Commission to move beyond its outdated reliance on precedent agreements, as these contracts identify only private benefits of a project, rather than public ones. This approach ignores externalities — the social costs and benefits — particularly those related to climate change. We argue the Commission should broaden its approach and make four recommendations:
1. FERC should incorporate regional considerations into its decisionmaking, and look at whether a projected is needed on a regional basis. Currently, the Commission looks only at whether the project has contracted to transport gas for private companies, but FERC should look at whether and how the project will benefit the region as a whole, considering how supply and demand in the region will decline or shift during the useful life of the assets.
2.The Commission should account for the electric transmission planning process in evaluating new natural gas transportation projects. Electricity and natural gas systems are highly interdependent, and, since FERC has authority over both energy transportation systems, the Commission should think about how it can coordinate (or even co-optimize) infrastructure decisions.
3. FERC ought to account for climate-related transition risks and opportunities, and the potential that assets will become “stranded,” leaving ratepayers stuck with unnecessary costs. Transition risk is a category of potential costs that can be incurred due to action society takes in response to the physical effects of climate change, like decarbonization and electrification policies at the state and local level. These policies, and shifts in market demand toward climate-friendly products, may lead to a reduction or shift in demand for natural gas, rendering new pipelines unneeded (or even unusable). However, there may be opportunities for pipelines to be modified to transport new fuels, like renewable hydrogen, in the future.
4. Finally, the Commission should incorporate climate impacts into its decisionmaking. FERC should consider how new natural gas infrastructure will, directly and indirectly, cause greenhouse gas emissions, contributing to climate change. The Commission should quantify these potential emissions and monetize their impact in assessing whether a new project is in the public interest.
As FERC re-examines its infrastructure approval process, Chairman Glick has been adamant that the Commission must fundamentally change how it assess pipelines, particularly when it comes to climate and environmental justice impacts. Commissioners Clements and Phillips have made similar statements.
This new majority appears ready and able to bring about reform to ensure the Commission evaluates all relevant factors that bear on the public interest. Hopefully, this will move FERC beyond heavy reliance on private contracts, toward a more holistic review of the market and social impacts. A broader review will help the Commission to approve only infrastructure that is truly needed and give due weight to climate and environmental justice concerns.
To learn more about these recommendations, read our full report here.
