Week Ending February 12, 2016

Pipeline Industry Airs Concerns about “Significant Changes” Contemplated in the Draft of FERC’s Manual for Preparing Environmental Reports

This Article Appears as Published in Foster Report No 3086
Pipeline Industry Airs Concerns about “Significant Changes” Contemplated in the Draft of FERC’s Manual for Preparing Environmental Reports

While the pipeline industry remains committed to developing environmental reports that fulfill the requirements of the National Environmental Policy Act (NEPA) and FERC’s regulations that inform the public regarding proposed pipeline projects, its members generally contend that the “significant changes” considered in FERC’s Draft Guidance Manual for Environmental Report Preparation (AD16-3) will “significantly” affect pipeline businesses, and in some ways that are unnecessarily burdensome.  FERC issued the draft manual on Dec. 18, requesting stakeholder feedback.  The measure stems from the Office of Energy Projects’ (OEP’s) plan to incorporate regulation changes and provide updated guidance on the preparation of environmental resource reports by pipelines, as well as how interstate and liquefied natural gas (LNG) projects may demonstrate compliance with certain regulatory requirements.  After several stakeholders – including the Interstate Natural Gas Association of America (INGAA), American Petroleum Institute (API), and Spectra Energy Corp. — requested an extension of time for filing comments in the matter, FERC extended the deadline by 10 days to Jan. 29.

Organizations and pipelines such as INGAA; Alaska Gasline Development Corp. (AGDC); the BHE Energy Pipeline Group, which includes Kern River Gas Transmission Co. and Northern Natural Gas Co.; Cheniere Energy, Inc.; Columbia Gas Transmission, LLC and Columbia Gulf Transmission, LLC;  Spectra; and The Williams Companies, Inc.;   indicated they support FERC’s effort to modernize the existing, “outdated” Guidance Manual from 2002 as necessary to provide greater certainty to pipelines and interested parties.  Nonetheless, the pipeline industry wants FERC to be especially clear on the use of the manual.  It’s representatives urged the Commission to explicitly state that the manual “is intended solely as guidance to the industry” and that is not an amendment to, nor does it supersede, the regulations under the Natural Gas Act (NGA), or the Commission’s and the Council on Environmental Quality’s (CEQ’s) regulations under NEPA.

Some of what FERC is proposing in the draft manual “reflects the evolution of the Commission’s expectations over time” and many companies, such as Williams, claim they already are “providing much of what is contained in the draft” in their “extensive experience” working with the Commission’s environmental report requirements.  Williams believes that conducting a thorough environmental review “is a critical element” of the Commission’s decision to approve or reject proposed projects, according to its filing.

However, it is the changes proposed in the draft manual to the Resource Report 9 (RR9), Air and Noise Quality, that have raised the most “significant concerns” for many in the industry.  In INGAA’s view, the proposed revisions to RR9 would impose on pipelines “significant new technical, analytical requirements” pertaining to air quality and noise.  These “substantive new obligations” are more representative of what is typically addressed through notice-and-comment rulemaking, rather than as a revision to an administrative guidance document, Williams observed.  The proposed provisions of RR9 also appear to be duplicative of Clean Air Act (CAA) requirements, and some of the proposed new obligations conflict with FERC’s existing NEPA regulations.  Instead, the Commission’s existing practices would better serve both its own administrative efficiency and the pipeline industry’s ability to timely and cost-effectively provide the energy infrastructure needs of the nation, while protecting natural resources, Williams suggested.

To AGDC and Cheniere, which are both developing LNG export terminals and associated pipeline facilities, the draft manual’s proposal to require applicants to submit detailed front end engineering design (FEED) information in several of the resource reports and in the pre-filing process is troubling.

Cheniere also took issue with the sweeping proposed changes – and the lack of time to respond.  The company said it has worked—and continues to work—closely with FERC staff over the last 12 years in successfully permitting LNG facilities under the NGA.  The draft guidance leaves the company with “serious reservations” about the procedural mechanisms on which the Commission is relying in issuing the revised guidance, given that it effectively changes the substantive requirements for NGA section 3 applications without undergoing notice-and-comment rulemaking under the Administrative Procedure Act (APA).

The Commission may not make substantive changes to regulatory requirements without notice and comment; absent notice-and-comment procedures, or individual adjudications, substantive agency pronouncements are merely “policy statements” that “do not establish a binding norm.”  Yet the effect of the draft manual “is indeed to create new substantive requirements,” Cheniere asserted.  Furthermore, FERC’s abrupt schedule for public review of the draft limited industry stakeholders’ opportunity to provide meaningful input.

“FERC issued two lengthy documents, which appear to have taken significant time to prepare, the Friday before Christmas, and initially only set a thirty-day comment period,” the company complained.  FERC only granted a ten-day extension.”  Cheniere postulated that this approach “could invite concern” on how interested FERC actually was in receiving industry input on the draft, “concern that seems apt given the notable substantive issues raised by the guidance.”  The company felt it could not possibly incorporate all that is problematic about the guidance in its comments, so it focused on several examples and said that it supported the other comments filed concerning Volume II of the draft – which is meant to replace in their entirety FERC’s Draft Guidance on Resource Report 11 and 13 from 2005; the Draft Preferred Format Submittal Guidance (2006); and Draft FERC Seismic Design Guidelines and Data Submittal Requirements for LNG Facilities (2007).

General Concerns.  Many commenters, including INGAA, identified “a number of concerns” with the draft manual – in general and specifically related to individual resource reports, such as RR9.  While the guidance document does provide helpful information, it is not a substitute for regulations, and project sponsors are not required to use the guidance manual.  This brings a dilemma, and INGAA is worried that FERC would delay the issuance of environmental documents if applicants fail to provide all of the information identified in the manual.  The association is also concerned that other agencies or the public may view the final guidance document from FERC as binding.  Kern River/Northern Natural stressed that the guidance manual “should not be used as a mechanism to impose requirements beyond FERC’s current regulations.”

To avoid confusion regarding FERC’s “intended application” of the manual, INGAA and other commenters, including Spectra, urged the Commission staff to “explicitly state” that the manual is “intended solely as guidance to the industry” and does not take the place of or change any of FERC’s regulations, CEQ or NEPA requirements.  Staff also should be instructed to evaluate projects on “a case-by-case basis,” identify material that they believe should be provided, and specify the time frame for providing the material, in its comments on draft resource reports and data requests.  “The guidance is not intended as a checklist of filing requirements for every project,” Spectra insisted.

Additionally, the draft manual overstates and/or misstates the application filing requirements, INGAA said.  This occurs in the draft’s sections on Resource Reports 5, 9 and 12.   The pipeline association requested that FERC provide clarification on the manual’s classification of items, namely, “minimum filing requirements,” “full filing requirements,” and “information recommended or often missing.”

INGAA wants clarity that: (1) the minimum filing requirements are required of every pipeline applicant at the time of filing a certificate application lest the pipeline risks the application being rejected; (2) the “full filing requirements” are not all required when the applicant files its application or prior notice filing, but are required at some point during the certificate application process or as a condition to the certificate order; (3) the “information recommended or often missing” is information that FERC staff has found helpful but that is not necessarily required, i.e., a pipeline’s application will not be rejected if the pipeline application fails to include this information.  Even so, it is against the APA to set “minimum” filing requirements and other required categories of information without promulgating the specific applicable regulations that go along with such requirements.

The final guidance manual should also be consistent with FERC regulations that state an application will not be rejected unless it “patently fails to comply with applicable statutory requirements or applicable Commission rules” and will not be rejected if environmental reports are incomplete “because the company has not been granted access…to perform required surveys” or “where the minimum checklist requirements …. have been met.”

INGAA suggested that FERC’s final guidance be reorganized with all of the filing requirements, both minimum and full, and items considered to be recommended or often missing combined in one location in the draft manual, rather than separated by individual resource report and Attachment 1.  INGAA also requested that the final guidance add the sample data that existed in the 2002 version back into the tables for each resource report, as that example information was “very informative and helpful” for applicants.

Also, Spectra pointed out that FERC staff’s application of the regulations may change more frequently than the manual is updated.  As a result, staff should consider including a disclaimer statement, such as “This guidance represents the Commission Staff’s current position on environmental report preparation.  It does not create nor confer any rights on any person and is not binding on the Commission or member of the public. This guidance is not intended to, and does not, supersede the CEQ NEPA regulations or the Commission’s regulations implementing the NGA or NEPA.”  Such a statement would be consistent with the Office of Management and Budget’s Final Bulletin for Agency Good Guidance Practices.

In addition, INGAA wanted clarification on the applicability of the guidelines to proceedings already underway.  If an applicant has already submitted its application or draft resource reports before the manual is finalized, INGAA suggested that the FERC review process should continue to move forward with these projects, and not delay the project by requiring the applicant to update its resource reports when the manual becomes final.

Resource Report 9.  INGAA, and many pipelines’ “most significant concerns” about the draft manual attach to RR9.  INGAA clarified that its members are committed to CAA compliance, securing required permits prior to construction, and providing information and data for FERC’s environmental review process and public disclosure under NEPA.  Yet the changes to RR9 appear to compel project proponents to perform air modeling that often is in addition to, and in some cases conflicting with, and/or less accurate than the studies, analyses, and/or monitoring commitments provided to the federally-delegated state permitting agencies.  To Williams, RR9 goes beyond established NEPA principles by imposing new analytical and modeling protocols on project proponents without providing additional environmental protections.  “What the Commission appears to be requiring is essentially duplicative of what is required under the CAA,” the company said.

Rather than require “additional, unnecessary analyses,” FERC should: (1) rely on the analysis, information and data that was collected under the authority of the state and federal agencies charged with protecting air quality under the CAA; (2) not rely exclusively on modeling for determining air impacts; and (3) tailor its NEPA analysis to the particular project.  The EPA and corresponding state and local environmental agencies have been granted the primary responsibility to gather and analyze emissions and air quality data, describe and quantify local and regional air quality, create air quality models, determine what levels of air quality impacts are acceptable, and identify controls necessary and appropriate to mitigate those impacts.

Although FERC must consider the potential effects of projects to air quality, it does not mean that the Commission must “proceed independently in this effort, because it is not the sole agency that holds such responsibility,” Williams stressed.  FERC will have satisfied its “hard look” under NEPA by relying on the federally-delegated state permits without requiring applicants to perform additional modeling.

Williams also identified a provision in RR9 that intends to provide air quality modeling for an entire compressor station. The company argued that only the incremental increase (i.e., new equipment or changes to existing equipment) should be evaluated for each project and then only as required consistent with the federally-delegated state air quality agencies permitting programs.  And Williams pointed out that issuance of a permit to construct air emission emitting equipment is, according to the CAA, a demonstration in and of itself, that the source will meet all applicable federal CAA provisions.

No state air program allows the issuance of a permit to construct a new source without compliance with all applicable requirements.  Moreover, the federally-delegated state agency is responsible for maintaining compliance demonstrations via the emissions permitting process – not the applicant.  Applicants should be deemed to have adequately demonstrated conformance upon obtaining the required air permits.

Furthermore, every source operating within the geographic boundaries subject to the CAA already have an affirmative obligation to comply with applicable standards and permit conditions.  Non-compliance with any of these statutes constitutes an affirmative obligation to report and take immediate corrective actions and subjects the facility to immediate enforcement.  “The draft’s requirement pursuant to NEPA analyses is redundant and overly broad and conflicts with the general NEPA requirement for the lead federal agency to cooperate with the State and local agencies to reduce duplication,” Williams declared.

AERMOD.   Additionally, the draft manual appears to require an AERMOD (alternative EPA-approved air quality model) analysis for LNG facilities and compressor stations, and even for projects that do not require such analyses under state or federal permitting requirements.  The Commission should not rely on AEROMOD, Williams opined.  It is an unreliable tool for modeling one-hour nitrogen dioxide (NO2) emissions from small sources like compressor stations, because the model tends toward over prediction of air quality impacts.

Noise Issues.  INGAA is concerned that the draft “inappropriately expands” the definition of noise-sensitive areas.  Moreover, the draft manual appears to have intentionally deleted the option from its 2002 Guidance of allowing project proponents to estimate typical noise levels at new compressor station sites, and instead, specifies that project proponents must calculate sound level measurements.

Cheniere reasoned that the requirements for noise monitoring within 0.5 mile of meter stations should not apply because meter stations “are not significant sources of noise.” Therefore, conducting noise analysis for meter stations is unnecessary, and this provision should be removed.

Timing of Filings.  Spectra acknowledged that the pre-filing review process at FERC has been “an invaluable tool,” allowing the company to engage with Commission staff and interested stakeholders, and to refine Spectra-affiliated projects and address route concerns prior to filing certificate applications.  However, FERC must “explicitly state” in the guidance manual that the pre-filing process is voluntary for pipeline projects not associated with LNG terminals.  “Certain pre-filing timelines may not be appropriate for those voluntary pipeline projects that will require only an environmental assessment, are able to be reviewed in a shorter timeframe, and/or for which staff provides fewer comments on draft resource reports,” Spectra reasoned.  The draft manual should encourage the applicant to consult with the staff regarding such project-specific variables in order to structure a pre-filing review process schedule that will facilitate FERC’s review and meet the applicant’s contractual commitments.

INGAA and Kern River/Northern Natural noted that FERC’s draft manual provides that an application should not be filed until at least 180 days after the Director of OEP issues a notice commencing the pre-filing process.  However, FERC’s pre-filing regulations applicable to other natural gas facilities (i.e., not LNG terminals or related facilities) indicates that prospective applicants are not precluded from filing an application at an earlier date.

Kern River/Northern Natural believe the manual “oversimplifies” filing requirements and does not recognize the flexibility currently provided by the regulations.  INGAA said the final guidance should be revised to fix “this overstatement.”  The draft manual should not attempt to endorse such a rigid pre-filing timeline but rather reflect staff’s existing discretion to allow for flexibility in the pre-filing process and to adjust timeframes.

FEED.  As mentioned, AGDC and Cheniere took issue with the draft manual’s requirements that applicants submit “substantial detailed engineering data” or front-end engineering design (FEED) information in several of the resource reports RR9, RR11 and RR13, in Volume II — and particularly during the pre-filing process.  According to Cheniere, the draft guidance appears to define FEED in a manner that encroaches upon and includes many aspects of final detail design – which may not be available until a much later stage of project development.  This “suggests a lack of appreciation” of the project development process for large-scale LNG projects.  The draft manual “is replete with requirements” that an applicant provide detailed information that is not available until the project has progressed through the FEED stage, AGDC complained.

Diagrams.  Regarding diagram drawings, INGAA asserted that the guidance in the draft that specifies what should be included in a diagram “is burdensome with little perceived value or benefit.”  INGAA suggested that FERC’s staff revise the final guidance to state that pipeline applicants “identify the pipeline segment(s) and mileposts where the proposed pipeline would be adjacent, co-located or parallel to existing rights-of-way for extended mileage or over significant distances.”

Uniqueness of Pipelines.  While the manual may provide valuable guidance for most projects, each certificate application must be supported on its own facts and circumstances, INGAA and individual companies argued.  In fact, not all of the information identified by the manual’s list of “information recommended or often missing” is relevant to all pipeline cases.  The suggested documentation for the resource reports — while extremely helpful for larger or more contested projects — is “overly inclusive and onerous” for smaller or non-controversial projects.  Therefore, the final guidance should clarify that items identified as “recommended or often missing” are not uniformly applicable to all projects and that a project will not necessarily be delayed if such information is missing.

Overall, the draft manual is setting forth a new, “one-size-fits-all” approach to the assessment of air quality impacts associated with gas pipeline projects – and it is an approach that would “diverge significantly” from both the existing regulations and historic approach, Williams stressed.  The new, more prescriptive approach is unnecessary and would impose additional costs and trigger misrepresentative regulatory requirements on project sponsors.

Emissions.  Spectra reminded the Commission that CEQ’s Revised Draft Guidance for Greenhouse Gas Emissions (GHG) and Climate Change Impacts, issued on 12/18/14, also is a guidance, and it has not been finalized.   “The GHG emissions guidance represents the CEQ’s current thinking, which may change over time, is in some ways inconsistent with court precedent in certain circumstances or jurisdictions, and cannot supersede CEQ or agency regulations implementing NEPA,” Spectra stated.  FERC’s draft manual mentions future versions of the emissions guidance from CEQ, even though it could still “substantially change,” given the detailed comments submitted to CEQ from the industry and stakeholders.  Therefore, FERC should not commit in the draft manual to follow draft CEQ guidance or any final guidance as in effect from time to time, “prior to careful consideration of how such CEQ guidance interacts with regulations and Commission precedent and policy,” the pipeline operator advised.

Spectra suggested that FERC should consider removing specific references to the draft CEQ guidance by revising the GHG emissions guidance “to be more generic.”  The Commission could then consider GHG emissions in proceedings based on then-current policies and precedent.  And the guidance should be revised to reflect that GHGs and climate change would be considered in the environmental reports only as a cumulative impact, if at all.

“Current science cannot establish a causal link between emissions of GHGs from any particular action and specific impacts on the environment,” Spectra said.  Since NEPA requires proximate causation between the federal agency action under review and any alleged direct or indirect impacts, climate change can only be evaluated meaningfully under NEPA as a cumulative impact – consistent with existing CEQ regulations and longstanding NEPA case law.

Cumulative Effects.  INGAA does support FERC’s guidance on how to comply with requirements for applicants to identify cumulative effects on the relevant resources in each resource report.  INGAA also supports FERC staff’s commentary in the draft, which specifies that the “size of the geographic area used in the cumulative analysis should be commensurate with the extent of direct and indirect impacts of the proposed project.”  However, INGAA disagrees with staff’s assertion that applicants for proposed operating stationary sources should consider cumulative impacts with other air emission sources within 50 kilometers of the project source.

Spectra’s Answer to EPA’s Comments – Climate Change.  In its comments, Spectra responded to EPA’s earlier comments to FERC about the draft manual, including the agency’s suggestion that the Commission should include a separate section in RR9 to address GHGs and climate change.  The assertion that FERC should require not only a consideration of GHG emissions from the construction and operation of projects, as well as emissions associated with the production, transport, and combustion of the natural gas, conflicts with CEQ regulations and legal precedent, Spectra responded.  A federal agency does not need to consider under NEPA an environmental effect such as global climate change that is not proximately caused by the proposed action and is outside of the agency’s ability to control, Spectra maintained.

The Supreme Court has explained that the test for determining whether an agency has legal responsibility for a particular effect under NEPA is akin to the “familiar doctrine of proximate cause from tort law,” and that even a “but for” relationship is not enough to render an agency responsible for analyzing a particular effect.  Moreover, the Court determined it was pointless to include such information in environmental impact statements (EISs) because the agency “simply lacks the power” to act on whatever information might be contained in the EIS on that point.

The Court further concluded that the requirement to look at “cumulative impacts” under FERC’s regulations does not alter the determination regarding which effects need to be analyzed and considered under NEPA.   In other words, a cumulative impacts analysis “does not require [an agency] to treat the [action] itself, or consequences from the [action], as an effect.”

The Court’s decision in Public Citizen supports the proposition that an agency need not consider climate change in a NEPA analysis at all, because any individual proposed project does not proximately cause a climate change-related environmental effect.  In addition, the agency need not consider climate change because the agency has no control over other emissions that might lead to climate change effects, including emissions from activities that are “upstream” or “downstream” of the proposed project.

However, FERC’s draft manual suggests that applicants provide information concerning a project’s GHG emissions, so that those emissions can be addressed in the context of overall total emissions of GHGs worldwide.  “This goes beyond the requirements of NEPA,” Spectra argued.

“Thus, EPA’s suggestion that the Commission require analysis of emissions related to ‘production, transmission, and combustion of the natural gas’ is both meaningless and contrary to law.  The Commission would first have to conclude that such emissions are proximately caused by the federal action before NEPA requires consideration of any impacts relating to those emissions.”

In any event, under the current state of science, climate change impacts do not meet NEPA’s proximate causation requirement, and so cannot be analyzed as direct or indirect effects, Spectra continued.  Given the global nature of climate change and the complicated systems in which climate-related impacts occur (e.g., potential increased storm intensity), it is currently not possible to link any specific climate change effect to a single action or source of emissions.

Because scientists cannot demonstrate that GHG emissions from a particular source cause any particular environmental effect — as CEQ itself has conceded — it would be improper for the Commission to incorporate EPA’s suggested changes to the draft manual, Spectra contended.

Consideration of climate change impacts as direct or indirect effects is also misguided when viewed through NEPA’s purpose.  As the Supreme Court made clear in Public Citizen, the intent of NEPA is to ensure that agencies consider the environmental consequences of their actions.  “It makes no sense to require agencies to analyze impacts over which they have no control — doing so would have no effect on the agency’s decision making,” Spectra argued.  The lack of causation, much less proximate causation, between individual projects and climate change impacts indicates that the Commission cannot control or regulate climate change based on its authority granted by the NGA.

Moreover, Spectra attacked, the Commission cannot require an analysis that quantifies the extent to which a relatively miniscule emission of GHGs from a single pipeline or any other infrastructure project will reasonably foreseeably and proximately cause sea-level rise, or any of the other environmental effects that EPA’s comments suggest are caused by GHG emissions.  “This analysis is scientifically flawed and in any event is not required by NEPA,” according to Spectra.  “As a result, the only proper way to consider emissions of GHGs and global climate change impacts in a NEPA analysis is as a cumulative impact, which the Commission’s draft manual already prescribes.”

EPA’s suggestion that the Commission use GHG emissions as a “proxy” for climate change impacts also ignores the requirement of proximate causation – and likewise conflicts with established NEPA law.  First off, NEPA requires analysis of environmental effects, not GHG emissions.  GHG emissions attributable to individual actions are not an environmental effect or impact at all, and are not a suitable “proxy” for an environmental effect that itself is not proximately caused by any individual action.

Second, numerous courts have held that, before an agency is required to analyze an environmental impact under NEPA, there must be a “substantial degree of certainty” that the impact is caused by the relevant federal action.  In this case – as even EPA admits – there is a lack of causation between climate change-related impacts and GHG emissions relating to an individual action.  A single project simply cannot be said to cause – much less proximately cause – any particular climate change-related effect.

Finally, no federal agency has control over all the sources of GHG emissions that lead to global climate change.  “EPA’s flawed suggestion of using emissions as a proxy for effects skips over several relevant steps in the NEPA analysis,” scolded Spectra.

Equally flawed is EPA’s suggestion that the Commission update the draft manual to require applicants to evaluate measures that can reduce or mitigate GHG emissions.  NEPA requires agencies to consider ways to mitigate the impacts of a project, not a project’s emissions.  While traditional air pollutants often have a quantifiable, or even an identifiable, relationship between emissions of the pollutant and its environmental effects, this is not true for GHGs.  It is not scientifically possible to determine a relationship between specific GHG emissions and specific environmental impacts.  Thus, no mitigation measures can be incorporated into a project that could mitigate the relevant impact – global climate change.

Equating a specific project’s GHG emissions with a climate-related impact is both scientifically indefensible and legally unnecessary, and EPA’s suggestions should be rejected, concluded Spectra.  Comparatively, the Commission’s current approach can and should be maintained: discussing global climate change and disclosing GHG emissions in the context of overall global emissions.  This approach is consistent with its NEPA obligations, applicable regulations, and Supreme Court case law, Spectra asserted.


Copyright © 2016 by Concentric Energy Publications, Inc.  All rights reserved.

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