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For short-handed FERC, worries begin over caseload, unanswered policy questions

The Trump administration: A Platts news and analysis feature

By Maya Weber

Published online 10 May 2017

When FERC lost its quorum February 3, industry advocates fretted that the lapse could endure until Easter. With that date now passed, new worries are emerging over the fallout on rate cases, the mounting stack of casework that could bog down new commissioners and, if the process drags out longer, pressure on infrastructure project timelines.

While industry groups have rallied to urge the administration and Congress to get commissioners in place, "none of us expected to have to continue these efforts deep into April," said heads of five key trade groups in a recent op-ed.

The Natural Gas Supply Association, American Gas Association, Energy Equipment & Infrastructure Alliance, Independent Petroleum Association of America and the Interstate Natural Gas Association of America, warned that based on past history, it could be another two months before any new commissioners take their seats, even if nominees come shortly. Some expect those could surface from the White House possibly in the next 10 days.

As time wears on, former FERC Commissioner Tony Clark pointed to the backlog of orders accumulating at the commission. If commissioners are not seated as late as June, "you could easily have 150 orders" that will have to be dealt with as soon as a quorum is restored.

That could push off decisions on major policy initiatives while the commission works through the nuts and bolts of voting orders as its first order of business, he said.

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Acting Chairman Cheryl LaFleur, speaking before the Federalist Society last month, said that while the commission normally issues about 100 orders a month, it had gotten through about 58 orders since losing its quorum using authority delegated to staff. About half of those will need to be subject to a further commission order, once the quorum is restored, she said. On policy matters, she said the commission can distill comments, build a record and shape policy options in as transparent a manner as possible.

"We're already building up quite a backlog and it will only continue to grow the longer this goes on," she said.

The commission lost its quorum after the Trump team pulled the chairmanship from the sitting Norman Bay, prompting him to leave the commission February 3.

It has been widely reported that President Trump intends to nominate Kevin McIntyre, Neil Chatterjee and Rob Powelson to join the commission, and there is no indication that those names have changed.

McIntyre is a partner and energy practice leader with the law firm Jones Day and seen as likely to be designated chairman. Powelson is a member of the Pennsylvania Public Utility Commission and Chatterjee is a long-time energy aide to Senate Majority Leader Mitch McConnell. The three expected nominees reflect backgrounds common among FERC commissioners — top Capitol Hill aides, state regulators and FERC energy bar members.

In a new wrinkle, Commissioner Colette Honorable late Friday announced that she will not pursue another five-year term at FERC after her current term expires June 30. She and LaFluer are the only two sitting commissioners currently. While she declined to say when she plans to leave, her departure likely would have little impact on FERC caseload.

William Scherman, a former general counsel at FERC and a partner at Gibson, Dunn & Crutcher, attributed the holdup on nominees to a bottleneck in the Federal Bureau of Investigations background check process. Through no fault of its own, the FBI is finding its resources are being fully taxed in vetting nominees throughout the government, as well as on the investigation regarding Russia and other matters.

"Right now, in general there are obviously projects that are languishing, but I think the ultimate problem here is that there are some major issues that FERC needs to tackle and will want to tackle that are important to the country," he said.

Many are looking for FERC to weigh in on unresolved tensions between state policies to prop up certain generating resources and wholesale capacity markets in the Eastern regional transmission operators.

While the commission plans a May 1-2 conference on these matters, it will need new commissioners in place before acting. Already, FERC declined to weigh into a legal dispute in Illinois pitting competitive power advocates against state officials over a bailout of nuclear power plants, citing the lack of a quorum among its reasons.

Scherman also saw the need for FERC to act on policy on return on equity for electric utilities and take steps to streamline reviews for new pipelines and hydropower facilities.

The major issues that have to be tackled are starting to pile up, but the administration is well aware of that, he said. More resources ultimately are likely to be directed to the Office of Energy Projects at FERC to help expedite review of pipelines and hydropower projects with the best record of environmental review possible to sustain the inevitable court challenges, he predicted.

In addition to the high profile matter of market design, another "ticking time bomb" is FERC's policy on tax allowances for passthrough entities such as partnerships, said Mike McKenna, a lobbyist with MWR strategies, who worked as part of the Trump transition team.

"There's going to be a lot of agitation until it gets done," he said, because uncertainty about the policy has an immediate financial impact on business. Others expect that the commission may want to wait to watch how congressional tax reform efforts fare before tackling the thorny subject.

Overall, McKenna said, addressing the lack of a quorum: "We're not at urgent yet. Right now we're still at annoying, but if there are not names in 30 days, there's going to be a problem," he said. "We would be fortunate to get it done by the July 4 recess."

“The longer the delay, obviously, the more projects would be impacted by the lack of a quorum and the greater the cost impact on developers and the costs to the market of not having capacity available in a timely fashion," said Martin Edwards, vice president of legislative affairs, for INGAA.

“Our understanding is that the delay in getting nominees is largely a function of the very large number of personnel and nominees attempting to go through a very small funnel at this point,” Edwards said.

For natural gas pipeline projects, the urgency may be softened by the fact FERC approved several major projects in the days before Bay left the commission, noted Christi Tezak of ClearView Energy Partners. FERC cleared most of the queue of natural gas projects ripe for action, Tezak said.

The agency also may not be gaining the same attention in the White House as regulators such as the Environmental Protection Agency, whose role is considered more inhibiting to business, she added.

About 5.5 Bcf/d of natural gas production takeaway capacity cleared at FERC over the course of one week before Bay left, according to Platts Analytics' Bentek Energy. Since then, FERC staff has been steadily signing off on notices to proceed with work on some of those.

The effect is to make the start of this year dwarf that of the prior year when certificated projects are tallied. According to FERC's February infrastructure report, the commission approved 9.6 Bcf/d of new natural gas pipeline capacity in January and February, more than double the 4.2 Bcf/d it backed in the same period a year earlier, and more than half the 18.17 Bcf/d of new capacity approved by the agency in all of 2016.

One major project close to ripe for action, the 256-mile, 1.5 Bcf/d NEXUS Gas Transmission project, did not clear the gates at FERC by the magic February 3 date, raising questions about whether a quorum will be restored in time, especially with spring tree clearing restrictions in play.

The project is sticking with its targeted in-service date of November 1, 2017, even as the Michigan attorney general and others have called that into question.

"NEXUS is actively working with its construction contractors on various combinations of FERC certificate timing and construction execution scenarios to achieve the earliest in-service date possible," said NEXUS spokesman Adam Parker.

Other major projects in the next batch at FERC are not yet at the point in the process where they would expect a decision on a certificate order, Tezak noted.

Two projects recently received their final environmental reports at FERC, Columbia Gas Transmission's WB XPress and EQT Midstream Partners' Mountain Valley Pipeline. But there often is a substantial interval between a final environmental report for large projects and when FERC issues a certificate order.

By ClearView's calculations, there has been an average of 109 days after an environmental assessment and 89 days after a final environmental impact statement, before FERC issues a final certificate order.

A big concern with any project delay is that it’s not uncommon for precedent agreements to have conditions requiring FERC certificate approval by a date certain, which if not met could allow a shipper to terminate the contract, said Howard Nelson, an attorney and DC shareholder with Greenberg Traurig. Shippers who have contracted for capacity and are relying on obtaining service by a date certain may also be financially impacted, he added.

By Tezak's account, policy issues pending before the commission are not at the point of extreme urgency, although pressure could increase from an adverse court decision, for instance on PJM's capacity performance construct.

Turning to routine caseload at FERC, Sam Walsh, former DOE deputy general counsel and a partner with Harris, Wiltshire & Grannis, said there is a growing impact on rate filings. Greater refunds may be required the longer it takes to seat commissioners.

The commission's February 3 delegation order allowed FERC staff to accept rates and suspend them subject to refund. Walsh counted 28 times the staff had done so on the electric side and eight times on the natural gas side since then.

Ultimately, the question of whether rates are just and reasonable will have to be decided when there is a quorum, he said.

"The longer we lack a quorum, the more consequential it is," he said, suggesting that while in most cases "it's just a headache," in some cases it could be quite critical to an infrastructure project.

In gas rate cases, pipeline shippers may be forced to wait for a longer period for refunds, said Nelson. On the power side, there could be situations in which the 15-month window for FERC to order refunds expires before FERC gains a quorum and can issue an order on contested issues, potentially depriving a party of refunds beyond that 15-month period, he added.

"FERC’s inability to resolve contested issues due to a lack of a quorum is having the effect of allowing rate or tariff changes to become effective prior to a resolution of those issues," he said. And while such changes may be accepted subject to refund and further orders, it is not clear how FERC could or would order refunds for tariff changes that do not involve rate changes, Nelson said.

"The lack of a quorum may also frustrate efforts to resolve issues prior to a hearing. Examples are contested settlements, motions for summary disposition or requests to terminate proceedings which are not being ruled upon due to the lack of a quorum," Nelson said.

For instance, he pointed to Natural Gas Pipeline Co. of America's request that the commission terminate the Natural Gas Act Section 5 investigation into its rates on the ground that FERC erred in return on equity calculations that prompted the probe into whether the pipeline had over-recovered its costs.

Another downside for natural gas projects, according to Walsh, is that FERC cannot act on rehearing requests, pushing back the timetable for some months on when projects have a non-appealable final order that ends the legal process at the commission.

Some recently approved projects, such as Williams' 196-mile, 1.7 Bcf/d Atlantic Sunrise, are facing early legal challenges linked to FERC's current quorum-less status. Sierra Club and other groups have petitioned the DC Circuit Court of Appeals to review FERC's certificate order now on the grounds that FERC's tolling order, extending a decision on rehearing, was invalid without a quorum in place.

Not everybody is eager to get FERC back to full speed. Ted Glick of Beyond Extreme Energy said, "We're very glad that there's not a quorum at FERC because that means that there are not permits issued for gas infrastructure." His group is part of a coalition trying to slow the confirmation process and make the case that before approving commissioners, Congress should first take a closer look at FERC and the impacts on the people whose land is taken and on the environment.

Whether any of those arguments will gain traction with Democrats in the Senate remains to be seen, but observers said it was impossible to predict whether the Senate process would become contested or delayed.

Typically, it takes five to 10 weeks to get nominees seated, once they are named, Walsh said.

One thing that's fairly predictable, according to Walsh, is that anybody that comes in will likely work to see LNG projects and pipelines approved as quickly as possible. It is "unmistakable" that this administration wants to promote infrastructure development, he said.

Under a Republican-led FERC, Clark said one shift in focus could be toward baseload, after a run of attention to intermittent resources such as renewables. There might be more focus on what it would mean to lose coal and nuclear units as well as natural gas units that are struggling in some markets, he said.

Energy Secretary Rick Perry last month launched a study into how renewables may be affecting coal and nuclear facilities. While DOE has little statutory authority to take action based on that study, it may set the table for FERC, Walsh added.

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