FERC, CFTC, and State Energy Law Developments

On June 14, the US Court of Appeals for the DC Circuit vacated and remanded two challenged orders and directed FERC to explain or reconsider whether data made available after a challenged rate increase becomes effective (i.e., post–rate increase information) should be considered. The court found that, prior to the challenged orders, FERC only reviewed the data from the two years preceding the rate increase (i.e., pre–rate increase information) to determine whether rate increases were substantially in excess of the actual cost increases that the pipeline incurred. The court did not opine on whether FERC’s consideration of post–rate increase data was appropriate, but held that FERC failed to explain why it departed from its practice of considering only pre–rate increase data, and why it considered post–rate increase data in evaluating the rate increases at issue.

Recent developments over the last several weeks have intensified the ongoing struggle between the current administration of President Donald Trump and the federal judicial system concerning energy policy as it relates to the exploration and production of crude oil and natural gas. Below is a brief summary of these latest events.

Trump Issues New Presidential Permit Authorizing Construction of Keystone XL Pipeline

In the latest saga of the proposed Keystone XL pipeline, US District Court Judge Brian Morris, sitting in the Great Falls Division of the District of Montana, issued an order on November 8, 2018, blocking early construction efforts on the project. In a case filed by several environmental groups, including the Indigenous Environmental Network, Judge Morris ruled that the environmental reviews conducted by the US Department of State had failed to consider the cumulative greenhouse gas emissions impacts of the Keystone XL project when combined with the expansion of another proposed Canadian pipeline, and also that the reviews failed to take into account updated information on the risk of leaks or spills. Accordingly, the court halted any further activities “in furtherance of the construction or operation of Keystone.”

The US Supreme Court has denied a petition for certiorari filed by the Delaware Riverkeeper Network, which challenged a decision by the US Court of Appeals for the Third Circuit concerning Pennsylvania’s water quality certification for Transcontinental Gas Pipe Line Company LLC’s (Transco’s) Atlantic Sunrise Project. The project expands Transco’s interstate pipeline network in Pennsylvania and on the East Coast. The Supreme Court’s April 29 denial comes as another success for the project, which has been defending against several challenges, first at the agency level and now at the appellate level, since Atlantic Sunrise first filed its FERC application to construct and operate the expansion facilities in March 2015.

A recent advisory published by the Commodity Futures Trading Commission’s Division of Enforcement and comments of the division director have highlighted the CFTC’s attention toward investigating potential violations of the Commodity Exchange Act (CEA) that involve foreign corrupt practices. On March 6, CFTC Director of Enforcement James M. McDonald addressed this very issue in remarks before the ABA National Institute on White Collar Crime. At the same time, the division issued an Enforcement Advisory providing guidance on how the CFTC will treat instances of self-reporting and cooperation concerning CEA violations that also involve foreign corrupt practices.

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Concurring and dissenting statements issued with the Federal Energy Regulatory Commission’s (FERC’s) February 21 order granting construction and operating authorization for a liquefied natural gas (LNG) export terminal highlight the increased scrutiny that gas construction projects are receiving concerning their potential effects on climate change. Despite misgivings from some Commissioners, FERC issued a 3-1 decision conditionally authorizing the construction and operation of the Calcasieu Pass Terminal and TransCameron Pipeline Project (Project), an LNG export terminal and an associated lateral pipeline project that will be located along the Calcasieu Ship Channel in Cameron Parish, Louisiana. The decision found that FERC Staff’s quantitative and qualitative assessments of greenhouse gas (GHG) emissions impacting the climate on a regional and global scale were sufficient.[1] However, even if FERC would like to use the decision as a blueprint to greenlight similarly stalled or pending terminal construction and expansion projects, it is unclear whether appellate courts might have the appetite to agree in analogous cases.

The US Energy Information Administration (EIA) updated its website on January 7 to report that, once all its data is finalized, natural gas prices, production, consumption, and exports will reflect record increases in 2018. According to the preliminary release, the average annual Henry Hub natural gas spot price in 2018 went up 15 cents from the 2017 average. Simultaneously, consumption, production, and exports all saw a rise in 2018.

The US Government Accountability Office (GAO) issued a report on December 18, 2018, identifying significant weaknesses in the Department of Homeland Security’s (DHS) Transportation Security Administration’s (TSA) Pipeline Security Program management and recommending improvements to address those weaknesses. The report was driven by a recognition that “pipelines increasingly rely on sophisticated networked computerized systems and electronic data, which are vulnerable to cyber attack or intrusion,” and that “new threats to the nation’s pipeline systems have evolved to include sabotage by environmental activists and cyber attack or intrusion by nations.”

The Federal Energy Regulatory Commission (FERC or the Commission) Office of Enforcement (OE) issued its 2018 Report on Enforcement on November 15. The report provides a review of OE’s activities during fiscal year 2018 (FY 2018), which begins October 1 and ends September 30 annually. Like last year, the report reveals likely areas of focus for FERC enforcement in the coming year, and provides guidance to the industry based on the wide variety of enforcement matters that are otherwise non-public by synthesizing some of the more disparate developments from audits, market surveillance, and other enforcement activities for the benefit of industry stakeholders.

The August 2018 enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) came after more than two years of debate over the appropriate scope of jurisdiction for the Committee on Foreign Investment in the United States (CFIUS). Much has already been written about FIRRMA and its potentially ambitious reach, as well as about the interest by certain parties, including members of Congress, to keep CFIUS away from some transactions. The result was a law that amended a number of provisions defining CFIUS jurisdiction, both expanding and narrowing key parts of the Committee’s reach. The pilot program is focused on certain specific types of transactions, without regard to the country of the acquiring entity, that CFIUS can review under FIRRMA, including transactions involving “Nuclear Electric Power Generation;” “Petrochemical Manufacturing;” “Power, Distribution and Specialty Transformer Manufacturing;” “Storage Battery Manufacturing;” and “Turbine and Turbine Generator Set Units Manufacturing.”

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The Federal Energy Regulatory Commission (FERC) and the US Department of Transportation’s (DOT’s) Pipeline and Hazardous Materials Safety Administration (PHMSA) released a Memorandum of Understanding (MOU) on August 31 to improve coordination throughout the Liquefied Natural Gas (LNG) permit application process for FERC-jurisdictional LNG facilities. The MOU describes FERC and PHMSA’s respective roles and responsibilities concerning siting, construction, and operation of LNG facilities pursuant to currently applicable statutory and regulatory law, and establishes a new coordination framework to streamline the approval process for those facilities. The agencies’ coordination has already helped streamline the environmental review schedules for 12 LNG export terminal applications pending before FERC. Those updated schedules were also released on August 31. The MOU supersedes and provides an updated and more concrete coordination framework than the prior iteration of the agreement between the two agencies that was signed in 1985.