FERC, CFTC, and State Energy Law Developments

On August 1, the Federal Energy Regulatory Commission (FERC or the Commission) issued a notice establishing the dates by which certain jurisdictional natural gas pipeline companies must file FERC Form No. 501-G, the “one-time” informational filing the Commission plans to review to ascertain whether the pipelines have, in light of the Tax Cuts and Jobs Act, accounted for reduced federal corporate income taxes in their cost-of-service rates (one-time report). The notice revises the submission dates in FERC Form No. 501-G’s Implementation Guide, which was released alongside FERC’s final rule in Order No. 849, the decision directing the natural gas companies to submit the one-time reports. The final rule is described in more detail in our previous LawFlash.

Under the revised Implementation Guide, natural gas pipeline companies that are required to FERC Form No. 2 or 2-A for calendar year 2017 are organized into three distinct groups. Group I must file FERC Form No. 501-G by October 11, 2018; Group II, by November 8, 2018; and Group III, by December 6, 2018. In its final rule, FERC explained that if a pipeline refuses to promptly submit the one-time report, or fails to correct a patently erroneous or incomplete one-time report, the Commission could consider the pipeline to be in violation of its reporting obligation under FERC’s rules and regulations, provided the Commission does not otherwise grant a waiver for good cause. FERC also emphasized that pipelines may file FERC Form No. 501-G earlier than these dates.

FERC is allowing interested parties to file interventions, protests, and comments in response to the submissions. Those filings will be due 12 days after each pipeline’s one-time report due date.

On July 25, the Department of Energy (DOE) issued a final rule, effective August 24, to provide expedited authorization of applications to export liquefied natural gas (LNG) to non–Free Trade Agreement (FTA) countries (i.e., those countries with which the United States has not entered into an FTA) using “small-scale” natural gas export facilities. To qualify for expedited treatment, applicants must satisfy two criteria:

  1. The application must propose to export a volume of natural gas that does not exceed 51.75 Bcf/yr
  2. The application will not require DOE to issue an environmental impact statement (EIS) or an environment assessment (EA) pursuant to the National Environmental Policy Act of 1969 (NEPA)

Any non-FTA application that satisfies these two criteria will qualify as a “small-scale natural gas export” and therefore will be deemed to automatically satisfy DOE’s Natural Gas Act (NGA) Section 3 public interest standard. Additionally, DOE will not provide a public notice and comment period for qualifying small-scale natural gas export applications, nor will it apply other procedures typically used during its review of large-scale LNG export applications to non-FTA countries.

Pursuant to Section 3 of the NGA, applications to export natural gas or LNG to FTA countries are automatically deemed to be in the public interest and do not require DOE to conduct a detailed review process. Thus, DOE’s final rule will significantly streamline the review process for qualifying small-scale applications by putting them on equal footing with large-scale and small-scale FTA applications.

In the final rule, DOE agreed that small-scale exports will provide a variety of benefits both to the United States and to importing countries primarily located in the Caribbean, Central America, and South America. For the United States, some of the anticipated benefits include stimulating the natural gas market, generating economic growth, strengthening the global natural gas market, and enhancing US national security interests abroad. Additionally, DOE determined that small-scale exports will not adversely affect the availability of natural gas supplies to domestic consumers.

DOE welcomes suggestions, data, and information on additional deregulatory efforts that it could undertake with respect to its NGA Section 3 authority.

The Federal Energy Regulatory Commission recently issued two orders intended to alleviate concerns that jurisdictional natural gas pipelines may be over-recovering cost-of-service rates due to (1) a reduction of the federal corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act and (2) the DC Circuit Court of Appeals’ decision in United Airlines Inc. v. FERC, which found that FERC’s existing income tax allowance policy, when applied to pass-through entities such as master limited partnerships, creates a possibility of double recovery for income tax allowances under cost-of-service rates. The Commission will now require pipelines to submit informational filings identifying whether the benefits of federal tax reform have been passed on to ratepayers, and has also clarified its guidance that pass-through entity pipelines may eliminate the accumulated deferred income tax component from their rates when they exclude income tax allowances from their costs of service.

Read the full LawFlash.

In response to concerns raised by authorization holders, potential liquefied natural gas (LNG) importers, and companies financing LNG export projects, the US Department of Energy’s Office of Fossil Energy (DOE/FE) issued a policy statement affirming its commitment to the non–free trade agreement (FTA) export authorizations it has granted and any export authorizations it grants in the future.

To date, DOE/FE has issued 29 final authorizations to export LNG to non-FTA countries. In each of the orders granting these authorizations, DOE/FE included a statement that it has the authority under Section 16 of the Natural Gas Act (NGA) to “make, amend, and rescind such [export] orders . . . as it may find necessary or appropriate.”

Commenters have asked DOE/FE to clarify the circumstances under which DOE/FE would exercise its authority to revoke an LNG export authorization. In response, DOE/FE has stated that it cannot identify all of the circumstances in which it would take such action but that it is authorized to exercise its authority to protect the public interest. DOE/FE noted that it has vacated one FTA order but that it was due to prolonged inaction by the authorization holder.

The Federal Energy Regulatory Commission is seeking stakeholder comments through a Notice of Inquiry as it contemplates updating its policy statement on how FERC-jurisdictional facilities are reviewed and authorized, a move that could revamp the FERC’s 19-year-old policy statement on its certification of new natural gas transportation facilities.

Read the full LawFlash.

The heads of 12 federal agencies signed an MOU on April 9 committing to “a more predictable, transparent and timely Federal review and authorization process for delivering major infrastructure projects.” The signatory agencies, all of which have responsibilities to review or authorize infrastructure projects, agreed to take certain steps to create a more coordinated and streamlined federal environmental review process. Although the commitments in the MOU are voluntary and not mandated by statute, adherence to them could shorten the period of time required by the Federal Energy Regulatory Commission (FERC) to perform National Environmental Policy Act (NEPA) reviews.

Background

President Donald Trump signed Executive Order (EO) 13807 (“Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects”) in August 2017. This EO was intended to speed up the environmental reviews required for major infrastructure projects by mandating additional coordination and planning activities among various federal agencies. The EO defines “major infrastructure project” as “an infrastructure project for which multiple authorizations by Federal agencies will be required to proceed with construction, the lead Federal agency has determined that it will prepare an Environmental Impact Statement (EIS) under [NEPA] . . . and the project sponsor has identified the reasonable availability of funds sufficient to complete the project.”

Over a half dozen natural gas rate proceedings are expected to be initiated at the Federal Energy Regulatory Commission in 2018, many of which will raise issues that are historically addressed in pipeline general rate case proceedings, as well as novel issues such as the impact of the new tax laws on rates and the inclusion of a pipeline modernization tracker in rates.

Read the full LawFlash.

The DC Circuit has found that the Federal Energy Regulatory Commission (FERC) adequately and reasonably explained its decision to adopt the index formula that governs pipeline rates for the 2016 to 2021 period. Oil pipeline rates are governed by an indexed ratemaking system, and each year FERC calculates the index used to set pipeline-specific rate ceilings by using a formula that captures the cost change in the oil pipeline industry. FERC reviews this formula every five years and adopted the most recent one on December 17, 2015 after a notice and comment rulemaking.

The Association of Oil Pipelines challenged the index formula for the 2016-2021 period on the grounds that FERC did not apply the same methodology used in prior index reviews. First, FERC relied solely on the middle 50% of pipeline cost-change data and did not incorporate the middle 80%. Second, FERC used Page 700 cost-of-service data to calculate the index level instead of the Form No. 6 accounting data it had used in the past.

Although FERC remains hobbled by its continued lack of quorum since then-Commissioner Norman Bay’s departure earlier this year, recent ratemaking challenges remind the industry that the specter of FERC’s unresolved income tax allowance policy for pass-through entities (e.g., master limited partnership pipelines) remains an ever-present conundrum for the industry and the Commission. Two protests submitted earlier this week in response to Great Lakes Transmission, LP’s (Great Lakes’) rate case filed in March raised the issue of FERC’s unresolved income tax allowance policy. The challenges demonstrate that the income tax allowance policy for pass-through entities can, and in many cases, is likely to, be disputed by customers involved in proceedings seeking to amend the rate structures of pass-through entity pipelines.

The recent US presidential election results will bring new faces and policies to the energy world next year when the 115th Congress convenes and President-Elect Donald Trump and Vice President–Elect Mike Pence are sworn into office. Read more about the changes for the energy industry on our nuclear blog, Up & Atom.