FERC Chairman Neil Chatterjee said he wants to see the Commission significantly reduce its review process for natural gas pipelines, and described the Department of Energy (DOE) proposal to provide reliability and resiliency compensation to coal and nuclear baseload generators as "a conversation we need to have."
In his first public appearance since being sworn in last August, the Federal Energy Regulatory Commission chairman said he "strongly disagrees" with Commissioner Cheryl LaFleur's lone vote to reject the Atlantic Coast (ACP) and Mountain Valley (MVP) pipelines last week.
"It's been a fast-paced and energetic first two months for me and my team at the Commission," Chatterjee told attendees Tuesday at the Energy Bar Association's 2017 Mid-Year Energy Forum in Washington, DC. "We have already cleared more than 200 orders ahead of our open meeting this week, and we are well on our way to getting through the backlog that accrued as a result of the loss of quorum.
"To be clear, I don't view the efforts I'll discuss today as a drastic change in direction from FERC's previous years of work...That said, the restoration of the quorum and the change in leadership does in my view present an opportunity to bring a fresh perspective to that work."
FERC Not Resting On Its Laurels
Chatterjee said one of the biggest complaints he has heard from stakeholders is the length of time it takes the Commission to review applications to permit infrastructure projects, especially for natural gas pipelines and hydropower. He said the gas pipeline reviews took up to 18 months on average before FERC lost its quorum.
"That's not to say that the Commission doesn't have success stories," Chatterjee said. "Since the quorum was restored, my colleagues and I have voted around 5 Bcf/d of new natural gas pipeline capacity. Still, we won't be resting on our laurels here."
According to Chatterjee, the review process continues to get longer in large part because of increased participation in the process by stakeholders, including numerous legal challenges. "I anticipate that a flashpoint for many of those legal challenges will be the question of economic need for a new natural gas pipeline project," he said.
Case in point, after a multi-year review process that began in the fall of 2015, the Commission ordered certificates allowing the ACP and MVP projects to move forward. Chatterjee said LaFleur, who was in the audience for his keynote speech, had in effect "suggested that FERC should depart from its longstanding policy of relying on precedent agreements with shippers to demonstrate economic need in favor of weighing a broad range of economic, social and aesthetic values.
"Although I very much respect [LaFleur's] position on this question, I strongly disagree. The Commission has historically prioritized precedent agreements in its analysis because those are clear, unequivocal statements of economic need by the market itself. The companies who are willing to enter into contracts to pay for transportation service on a pipeline have a much clearer understanding of the market need for the gas than we could develop through studies in Washington, DC."
The FERC chairman said regulatory uncertainty, created by burdensome delays in the project review process, is problematic for numerous reasons.
"Delays discourage investment in projects. If I were a financial investor or project sponsor, I want predictable cash flows and return, and would be reluctant to put my money toward a project for which there's no predictable length of time for the regulatory review process.” However, “if FERC believes my project is a non-starter, I would prefer to learn that sooner rather than later so I can invest elsewhere."
Delays also harm communities in areas surrounding a project, he said.
"When I look through the dockets for natural gas pipeline proceedings, I see both adverse and supporting comments from concerned citizens in communities near a project," Chatterjee said. "I see comments from union laborers, who recognize these projects as a source of stable jobs for hard-working, middle class Americans. I see comments from residents of struggling small towns who see a pipeline project as a long-term source of tax revenues that they desperately need to fund essential social services. And I see comments from landowners who are concerned that project infringes upon their property rights, as well as comments from activists concerned about environmental impacts.
"FERC owes both sides an opportunity to articulate their position, to have it reviewed thoughtfully by the Commission and ultimately to receive a timely up or down decision. Transparent, predictable decision making helps each of the concerned Americans I described on both sides of the issue. I think we owe it to them provide such a process."
Chatterjee emphasized that FERC is not the principal source of permitting delays.
"No matter how diligent FERC staff is, there are many areas of the project review process that we simply have little control over," he said. "Some delays are created by various other federal or state agencies. Statutory requirements give other agencies significant roles in the licensing processes for natural gas projects.
"Those agencies have different missions and may not be as focused on the permitting process as FERC is. Coordination and consultation with state entities takes time, and as we all know some states can take aggressive positions regarding the scope of their rights on projects."
Incomplete permit applications, coupled with the sheer number of public comments from stakeholders, also contribute to delays in the process.
"While these contributors to delays do not stem from FERC itself, that is not to say that we shouldn't examine our internal project review processes to identify greater efficiencies as well. Given the importance of the pipeline projects that we review, one of the highest values within FERC is continually evaluating areas where there is room for improvement. I'm proud of the efforts we have undertaken already."
Chatterjee said the goals outlined in an executive order (EO) issued by President Trump in late March is consistent with FERC's voluntary review of its actions, and its efforts to identify actions that potentially burden domestic energy use and production. He noted that FERC didn't have to follow the EO.
"FERC is an independent agency, so we didn't have to respond to this EO," Chatterjee said. "We chose to do so because the goals of the EO are consistent with the high premium we place on improvement of the Commission's work. That analysis is still under review, but the Commission will make public its actions related to the EO, as appropriate, based on the EO and the Commission's internal processes."
The chairman cited, among other things, FERC's update of its Guidance Manual for Environmental Report Preparation, and issuing a second manual focused on liquefied natural gas (LNG) projects, both of which were conducted last February.
"While these are all significant improvements, more work remains," he said. "Ultimately, I would like to see FERC significantly reduce its review timelines for major natural gas pipeline certificates and other projects.
"I'm under illusions as to the magnitude of that challenge. It will require us to take an even harder look at our regulations, policies and practices than we have done in the past, and of course it will require an enormous effort from FERC staff already engaged on a number of other critical issues currently facing the Commission.
"Although it would be premature to predict the concrete measures that will emerge from that effort, I envision that one the areas we will be looking at will be our relationships and interactions with other federal and state agencies. Even if legislation is not enacted to make those interactions more efficient, I believe we should pursue understandings that can be reached on an agency-to-agency basis to help improve the review process."
DOE NOPR 'Consistent' With FERC Efforts
Chatterjee said grid reliability is, and will continue to be, FERC's foremost priority. The Commission "facilitates the creation of market structures incenting reliability related investment, monitors and enforces grid reliability within those markets, and provides oversight of reliability standard setting activities.
The DOE notice of proposed rulemaking (NOPR), he said, “fits comfortably within those efforts. I believe there's real value in Secretary [Rick] Perry initiating conversation regarding whether FERC jurisdictional organized markets adequately compensates certain generators for their contribution to the reliability and resilience of the nation's grid. This is entirely consistent with FERC's historical efforts to ensure that organized markets provide necessary compensation for reliability-related services.
"It's a conversation that I believe we need to have. We must ensure that we don't find ourselves coming to regret not having asked hard questions like these amongst all the changes in the energy industry."
Last week, FERC rejected calls from the oil and gas industry and others to extend the public comment period for the NOPR, but it offered no explanation. On the sidelines of Tuesday's conference, LaFleur said the Commission didn't believe it had the authority to change the 60-day deadline set by the DOE.
"I know that the DOE NOPR has caused some to raise concerns regarding the independence of the Commission,” Chatterjee said. “Let me be clear: I remain committed to upholding the Commission's independence on this and in many other issues that may come before us. That's a sentiment that I'm sure my colleagues would firmly agree with."
Cybersecurity, De Novo Review
On the issue of cybersecurity, Chatterjee said "it's no secret that the cyber threats our nation faces are constantly changing day-to-day, even hour-to-hour. It's clear that defending our nation from international cyber threats is one of the most serious challenges of our time. To really protect our nation's critical infrastructure, the federal government must work collaboratively with states and utilities."
The chairman acknowledged that enforcement authority granted to FERC under the Energy Policy Act of 2005 had not come without controversy. One of the main points of contention, he said, has been over the scope of de novo review under the Federal Power Act (FPA). Courts have rejected FERC's interpretation of de novo review five times under the FPA.
"The courts have spoken, and I, for one, am listening," Chatterjee said. "I believe that the proper scope of de novo review is a matter my colleagues and I need to examine so we can chart a new course that is fair and legally defensible."