Overview
Overview
On October 19, 2021, the Senate Committee on Energy and Natural Resources will meet to conduct a hearing on the nomination of Willie Phillips to be a Commissioner of the Federal Energy Regulatory Commission (FERC or Commission). The hearing will be webcast live on the committee's website. If confirmed, Mr. Phillips will bring the Commission to its full complement of five members (three Democrats and two Republicans).
Mr. Phillips serves as the Chair of the District of Columbia Public Service Commission (DCPSC). The DCPSC has made clean energy and climate commitments consistent with the District of Columbia’s Clean Energy DC Omnibus Amendment Act of 2018 (Clean Energy Act). The Clean Energy Act gave the DCPSC authority to consider an application to promote transportation electrification through utility infrastructure ownership and other incentives and established minimum Building Energy Performance Standards for owners of private buildings in the District. The DCPSC also has been acting on grid modernization "to achieve a reliable, sustainable and resilient distribution energy delivery system in the District." The DCPSC's "top priority is modernizing the District’s distribution energy delivery system." This background will give Mr. Phillips a foundation to address many issues facing the Commission.
Congressional Hearing
Mr. Phillips's congressional hearing will raise issues addressed in the Committee's September 2021 hearing, The Changing Energy Landscape: Oversight at FERC. There, each Commissioner was asked about concerns related to cybersecurity standards and rules for natural gas and oil pipelines, vacatur of a pipeline certificate by the United States Court of Appeals for the District of Columbia Circuit, FERC's 1999 Certificate Policy Statement, grid modernization, and incentive rates, that raised questions related to FERC's role in the continuing transformation of the nation's energy markets. Chairman Glick and Commissioners Christie, Clements, and Danly each shared prepared remarks and answered questions relating to concern about the potential for, and actual impact of, rising energy prices and inflation, requirements to adopt clean energy standards, methane tax, and fees.
The Public Has a Seat at the Table – Office of Public Participation
Pursuant to Section 319 of the Federal Power Act (FPA), the Commission has established the Office of Public Participation (OPP) to assist the public with Commission proceedings. On June 24, 2021, FERC issued a report discussing the process it took to establish the OPP, including six listening sessions that solicited stakeholder feedback and a written comment period. The public can now contact OPP for assistance navigating Commission proceedings of all types, including how to intervene in a proceeding or how to submit a filing. Last week, on October 12, 2021, Chairman Glick announced Elin Katz will lead OPP starting in late November. The scope and breadth of OPP will be primarily directed by FERC's Chairman, but individual Commissioners can influence aspects of that direction. The development of that office will be important to watch, as it has the potential to alter the course of proceedings at FERC, depending on the mandate given.
Pipeline Issues
Natural Gas Certification – The End of Regulatory Certainty?
Regulatory certainty is critical to achieving the goals of the Natural Gas Act; yet, significant questions remain regarding the Commission’s outlook on certification of natural gas infrastructure. FERC Commissioner Danly has stated "without the sanctity of certificates granted under Sections 3 and 7 of the Natural Gas Act, there would be no private financing, and without private financing, there would be no projects."
The Commission's actions in this regard have led to regulatory uncertainty. For example, on February 18, 2021, the Commission (3-2) established briefing procedures on matters related to the operation of the Weymouth Compressor Station owned and operated by Algonquin Gas Transmission, L.L.C.despite the fact that the Certificate Order and the Authorization Order were final. The Briefing Order generated significant interest. On May 19, 2021, the Commission issued the order on the merits dismissing the requests for rehearing as premature and Chairman Glick attempted to calm the disquiet brought on by the Briefing Order by stating "the Briefing Order does not revisit or otherwise reopen the certificate for the Atlantic Bridge Project." Rather, "the Commission is fulfilling its ongoing responsibility to the public interest, which continues throughout the construction and operation of certificated facilities, and even after the certificate becomes final." The courts and Congress may be the ultimate arbiters of whether FERC’s actions promoted or eliminated regulatory certainty as to its certificate policies because several petitions for review have been filed with the DC Circuit to review the Briefing Order and the order denying rehearing.
The Social Cost of Carbon is Impacting FERC's Certificate Decisions
FERC's approach to evaluating natural gas pipeline project greenhouse gas (GHG) emissions has been the subject of disagreement among the Commissioners for several years. In March 2021, the Commissioners reached an agreement and FERC assessed the qualitative and quantitative significance of a proposed natural gas pipeline project's greenhouse gas emissions and their contribution to climate change. In approving Northern Natural Gas Company's request to build and operate replacement natural gas pipeline facilities, the Commission found, based on the record, that the project’s greenhouse gas emissions would not be significant. Although a compromise was reached, that has not resulted in unanimous certificate orders. The question remains of when a supplemental environmental impact statement (EIS) is necessary and when are environmental effects from natural gas production activities "reasonably foreseeable" such that a supplemental environmental impact statement should be prepared.
In fact, Chairman Glick and Commissioner Clements recently dissented from the certificate order where the majority determined that the environmental assessment for the project had to assess the impacts of GHG emissions associated upstream production activities, because "in this case the environmental effects resulting from natural gas production are neither caused by the proposed project nor are they reasonably foreseeable consequences of our approval of the project, as contemplated by CEQ regulations." Chairman Glick and Commissioner Clements dissented arguing that the Commission should have prepared a supplemental environmental impact statement to examine the effect that the GHG emissions caused by the project will have on climate change. They argued the record did not provide enough information to answer the question and thus a supplemental EIS was required. Notably, on November 19, 2021, FERC will be holding a technical conference to discuss methods natural gas companies may use to mitigate the effects of direct and indirect GHG emissions resulting from Natural Gas Act sections 3 and 7 authorizations. Mr. Phillips, as the third Democrat, may be asked whether he shares the same mindset - thus pipelines should be prepared to supplement their environmental review and argue why even "significant GHG emissions" should not be a death knell for their projects because the benefits outweigh even significant environmental impacts.
DC Circuit Vacates Spire’s NGA § 7(c) Certificate
On June 22, 2021, the DC Circuit vacated Spire STL LLC’s 2018 certificate of public convenience and necessity issued pursuant to NGA § 7(c). The DC Circuit reversed, not on environmental grounds, but because the Commission did not properly apply its Certificate Policy statement and respond to arguments of whether the pipeline was needed.
The argument before the court was whether the Commission properly determined that Spire’s pipeline was needed consistent with its 1999 Certificate Policy Statement that establishes the criteria FERC uses to determine whether a natural gas project is needed and whether the proposed project will serve the public interest. Only when the benefits outweigh the adverse effects on economic interests will the Commission proceed to consider the environmental analysis where other interests are addressed. The court determined that FERC did not adequately respond to the objections arguing that Spire had not demonstrated a need for the project where (1) there was a single precedent agreement for the pipeline; (2) that precedent agreement was with an affiliated shipper; (3) all parties agreed that projected demand for natural gas in the area to be served by the new pipeline was flat for the foreseeable future; and (4) the Commission neglected to make a finding as to whether the construction of the proposed pipeline would result in cost savings or otherwise represented a more economical alternative to existing pipelines. Against this background, the court vacated the certificate. The court's mandate was stayed because Spire sought rehearing with the court.
On July 26, Spire filed an application for a temporary emergency certificate, or in the alternative, a limited certificate. The Commission granted the temporary emergency certificate until December 13, 2021, which allows Spire to continue to operate the pipeline. Spire filed an application for a stay with the Supreme Court of the United States asking the Court to prevent the D.C Circuit’s mandate from going into effect, which the Court denied on October 15. That denial makes it likely that Mr. Phillips will be questioned about the reasonableness of FERC granting the temporary certificate that ends in the middle of winter.
Mandatory Cybersecurity Standards for Pipelines?
Cyberattacks against energy infrastructure have become an increasing risk and understanding the legal and regulatory landscape is critical for energy companies. These risks create challenges in defending the digitally interconnected components of the grid from cyber exploitation. According to Commissioner James Danly of FERC "those threats is an issue of national importance and one that must remain a priority of this Commission." Electric utilities have mandatory cybersecurity standards, but natural gas and oil pipelines do not. To this end, FERC Chairman Richard Glick and FERC Commissioner Clements have advocated for mandatory cybersecurity standards for pipelines. Mr. Phillips may be asked about his stance as to mandatory cybersecurity standards for natural gas and petroleum pipelines.
Crude Oil and Refined Products Pipelines are in the Cross-Hairs Too
Like most new FERC Commissioners, Mr. Phillips will need to get up to speed on FERC’s jurisdiction over oil pipelines and determine how active he believes the Commission should be in this regard. Over the last few years, FERC has addressed matters involving oil pipeline affiliates as shippers, participating in open seasons and entering into transportation service agreements. One of the most recent of these actions was the Commission's withdrawal of proposed guidance to oil pipeline affiliate participation in open seasons and TSAs. Chairman Glick dissented from the withdrawal because the proposal would have provided industry with additional information and clarity on the factors the Commission considers when reviewing the initial rates and terms of service that an oil pipeline seeks to enter with an affiliated shipper. Likewise, the Commission still has to rule on various rehearing requests related to the oil pipeline index that has been set at Producer Price Index for Finished Goods (PPI-FG) plus 0.78%.
Electric Power Issues
The Commission is also grappling with a plethora of issues related to electric transmission and wholesale energy markets.
ANOPR – Fundamental Changes Are on the Horizon
On July 15, 2021, FERC issued an Advance Notice of Proposed Rulemaking (ANOPR) seeking industry input into several potential changes to the transmission planning and generator interconnection processes used across the country to pave the way for the energy transformation. As part of the ANOPR process, the Commission seeks comments on a number of topics targeted to changing the transmission planning process to allow the development of new regional transmission facilities to integrate the renewable energy resources necessary to achieve the nation's clean energy goals. Specifically, the Commission seeks comment on:
- whether the Commission should consider changes to the transmission planning process to accommodate the growing number of renewable generation resources seeking to interconnect to the nation’s transmission grid;
- whether the Commission should consider changes to better coordinate the regional transmission planning and cost allocation and generator interconnection processes;
- whether the Commission should consider changes to the transmission cost allocation rules to ensure that costs of transmission facilities are properly allocated to those who benefit from the facilities; and
- whether further oversight of transmission development is needed through the appointment of a monitor to oversee the transmission development process.
In response to the comments received on these questions this year, FERC anticipates putting out several new rules in the next year. Mr. Phillips will play a key role in deciding the outcome of these rules and the direction of the grid of the future.
Queue Confusion
RTO/ISOs are seeing an unprecedented number of renewable generation resources trying to connect to the transmission system. At the September hearing, several Senators commented that the RTO/ISO interconnection approval process is inefficient and needs to be overhauled. Entities, such as PJM Interconnection L.L.C. (PJM) have ongoing stakeholder processes that are reviewing potential changes to their interconnection processes. These changes, along with changes required by the ANOPR process, are considered by many as necessary to unlock the backlog of interconnections and allow new renewable generation resources to interconnect to the system to further the clean energy goals of federal and state governments.
RTO Membership/Wholesale Energy Markets
FERC's policies regarding RTO/ISO membership and organized wholesale markets rules are at the forefront of many recent actions by the Commission. In April 2021, FERC abruptly changed its proposed policies incentivizing utilities to join RTOs. While it has previously proposed to increase the return on equity (ROE) incentive for utilities to join RTOs and ISOs by 50 basis points, in April 2021 it revised its proposal to essentially remove the incentive for all utilities that had previously joined RTOs or ISOs and limit the proposal going forward to threeyears for any utility newly joining an RTO. FERC received significant comments on the proposals from all aspects of the stakeholders participating in the RTO markets. If the incentive is removed, it could have a significant impact on RTO membership going forward. Notwithstanding the efforts to remove the RTO incentive, there are also strong efforts to expand RTO membership in various regions of the country. Many groups are also advocating for mandatory RTO membership across the country. Mr. Phillips has experience working in PJM and is likely to be asked questions on his opinion of the value of RTOs and RTO membership.
Energy Market Decisions – No Decisions Equal Sweeping Market Changes
If confirmed, Mr. Phillips will be the deciding vote on key matters thereby avoiding filings taking effect by operation of law. For example, on February 12, 2021, as amended on June 7, 2021, and August 11, 2021, Southern Company Services, Inc., as agent for Alabama Power Company, filed the Southeast Energy Exchange Market (Southeast EEM) Agreement on behalf of itself and the other prospective members. Pursuant to section 205 of the FPA, in the absence of Commission action on or before October 11, 2021, the proposed Southeast EEM Agreement and concurrences thereto would become effective by operation of law. The Commission did not act on the proposed Southeast EEM Agreement or concurrences, therefore, on October 13, 2021, the Commission issued a notice that the filing would take effect by operation of law "because the Commissioners were divided two against two as to the lawfulness of the change."
Likewise, on July 30, 2021, pursuant to section 205 of the FPA, PJM filed revisions to its Open Access Transmission Tariff, regarding application of the Minimum Offer Price Rule in its capacity market. Pursuant to section 205 of the FPA, FERC was required to take action on or before September 28, 2021, or PJM's proposal would become effective by operation of law. The Commission did not act on PJM's filing because the Commissioners "were divided two against two as to the lawfulness of the change."
Looking Forward
Tomorrow’s hearing should provide a clear indication of support for Mr. Phillips's nomination. We expect he will, ultimately, receive the necessary support for his Senate confirmation and installation as a FERC Commissioner. Mr. Phillips’s reputation and lead of NARUC and the DCPSC should allow his nomination to move quickly. We encourage anyone with an interest in matters before FERC to contact Steptoe for any changes in direction with Mr. Phillips's confirmation.
Steptoe's multi-disciplinary team includes lawyers and professionals specializing in cybersecurity, tax, government affairs, energy, and others to provide sound legal and strategic solutions to our clients. Please contact us or your Steptoe lawyers if we can provide further insight or analysis or otherwise be of assistance concerning the issues discussed in this alert or other issues arising from the Biden administration.
