Reed Smith Client Alerts

On April 19, 2018, the Federal Energy Commission (FERC) issued a Notice of Inquiry (NOI) into whether and how it should revise the approach it has used for almost 20 years to evaluate proposals to construct and operate interstate pipeline facilities.1  Specifically, the NOI seeks industry input regarding whether modifications to its Certificate Policy Statement are needed in order for FERC to evaluate whether a proposed pipeline project is a public convenience and necessity, as required by Section 7 of the Natural Gas Act (NGA).

FERC currently evaluates applications for certificates of public convenience and necessity to construct and operate new pipeline facilities pursuant to its Certificate Policy Statement, which was issued in 1999. The Certificate Policy Statement expresses a preference for incremental pricing of new facilities, which means that the costs of those facilities must be recovered solely from the shippers that use them, and the pipelines are at risk of cost underrecoveries. Existing pipeline customers that will not use the new facilities do not bear any responsibility for the costs of the construction or operation of those facilities. In addition, under the Certificate Policy Statement, an applicant can demonstrate need for new facilities through the execution of precedent agreements, including precedent agreements with affiliated shippers. The Certificate Policy Statement also sets forth the manner in which FERC will evaluate the environmental issues related to new pipeline projects. As FERC’s environmental review often takes more time than its review of economic implications of proposed pipeline facilities, FERC will evaluate the economic interests before fully turning to environmental analysis. More recently, FERC’s environmental analysis has considered the greenhouse gas implications of proposed pipeline projects.