Changes in FERC’s Evaluation of Gas Pipelines Urged in New Study

The nearly twenty-year-old policy process of the Federal Energy Regulatory Commission (FERC) in evaluating proposed natural gas pipelines needs an overhaul, according to a new report issued this week by the Analysis Group, a well-regarded international economic consulting firm.  “Natural Gas Pipeline Certification: Policy Considerations for a Changing Industry” was authored by Dr. Susan Tierney, an expert staff member with the firm and a former Assistant Secretary for Policy at the U.S. Department of Energy.  Among the findings and recommendations in Dr. Tierney’s study:

• Since 1999 FERC has approved approximately 400 pipeline applications for an additional 180 billion cubic feet per day (Bcf/d) of pipeline capacity. This amount of additional capacity on the interstate pipeline system is significant, considering that the average consumption of natural gas in the U.S. during January 2017 was 93.1 Bcf/d, and the all-time peak-day consumption was 137 Bcf/d during the 2014 Polar Vortex.

• Although there is interest in some regions to add pipeline capacity to alleviate wintertime gas-transportation constraints (and the pricing impacts that result), some industry observers are increasingly concerned about the potential to overbuild capacity on the interstate system in light of anticipated transitions in the nation’s energy system in the future. And there are growing questions about FERC’s balancing of public benefits versus adverse consequences in the context of case-by-case review of applications.

• The past several years have also witnessed an acceleration of pipeline siting and certification challenges and concerted actions by affected landowners, neighboring homeowners, municipalities, environmental groups, and other interested parties. They are raising concerns about the potential adverse impacts and risks associated with siting new pipeline projects, especially given current and future trajectories of carbon and methane emissions from energy production, delivery and use. The associated increased use of hydraulic fracturing, or fracking, to extract gas to be transported by pipeline has also been a concern, given the health and safety risks of this relatively new gas-extraction technology.

• Questions FERC might consider in a review of its certification process include (partial list):
  • Should FERC require regional planning regarding gas transportation resources similar to the regional planning requirement imposed on electric transmission owners?
  • Should FERC’s balancing of benefits against adverse impacts be expanded to include noneconomic factors (e.g., should environmental impacts be among the adverse impacts FERC considers while applying the balancing test)?
  • Should FERC impose a greater burden to show that a pipeline is needed when it is proposed to gain market share rather than to meet new market demand?

How should FERC weigh the relative distribution of benefits and burdens across those interested and affected constituencies?