By Josh Price

April 5, 2022

One week before Russia invaded Ukraine, the Federal Energy Regulatory Commission (FERC) surprised the natural gas industry by issuing new policies—effective immediately—governing how the commission reviews applications for natural gas infrastructure projects from the standpoints of public need and greenhouse gas (GHG) emissions. The stated goal was to improve the durability of FERC certificates and long-term certainty for natural gas infrastructure, which has faced significant pushback from the D.C. Circuit Court of Appeals recently on the grounds of public need (e.g., Spire, Nexus) and GHG analysis (e.g., Sabal Trail, Tennessee Gas).

However, the new policies create near-term uncertainty for pending projects, leading to significant pushback from industry and policymakers, and FERC rolled back the policies six weeks after issuing them for an additional comment period.

Unfortunately for the Biden administration, there is no “easy button” to push to bring infrastructure online.

We believe FERC’s actions on the natural gas policy statements is emblematic of the Catch 22 the Biden administration—and the Trump administration before it—finds itself in as it struggles to create certainty for natural gas infrastructure to achieve foreign policy goals and dampen high domestic energy prices stemming from Russia’s invasion of Ukraine and rising inflation. On the one hand, the Biden administration needs to ensure its decisions withstand legal review, while on the other hand, industry and political stakeholders demand immediate action to increase capacity. Unfortunately for the Biden administration, there is no “easy button” to push to bring infrastructure online. Ultimately, we expect the Biden administration will prioritize the legal durability of permits throughout the permitting process, providing projects a leg up in future litigation.

We believe Equitrans Midstream’s (ETRN) Mountain Valley Pipeline (MVP) serves as a case study for a project where policymakers failed to strike the right balance between near-term political demands and long-term certainty, as well as bringing to bear the lack of “easy buttons” to bring near-complete gas infrastructure projects online. Upon taking office in 2017, President Trump—through executive orders and other means—made expeditious oil and gas pipeline development the policy of the United States, coloring the issuance of several project permits, including MVP’s October 2017 FERC certificate and its first Biological Opinion—a critical endangered species permit—from the Fish and Wildlife Service (FWS). In 2019, a species of fish along MVP’s route—the Candy Darter—was listed as endangered, leading the FWS to revise the Biological Opinion to include the new fish before issuing it in late 2020.

In vacating MVP’s Biological Opinion in February 2022, the Fourth Circuit Court of Appeals criticized the incoherent structure of and inconsistent analysis in the 2017 Biological Opinion as well as the lack of climate change analysis in the 2020 revised permit. We attribute these flaws in part to the Trump administration’s efforts to expedite pipeline permitting and downplay climate change in public-facing documents—political prerogatives no longer coming from the White House to the agencies.

While the federal attorneys for the FWS argued in briefs and oral arguments that the analysis satisfied legal requirements, the Fourth Circuit panel was not open to these arguments after the fact. At one point during oral arguments, the FWS attorney even conceded that the agency “could have done a better job connecting the dots.” Going forward, we expect the Biden administration will prioritize legal durability and address the permitting issues with the Fourth Circuit in mind, connecting the dots through cogent and coherent analysis at the first instance to leave little room for doubt.

We believe rigorous environmental permitting review is the primary way the Biden administration plans to increase certainty for MVP and other projects.

To this end, we believe rigorous environmental permitting review is the primary way the Biden administration plans to increase certainty for MVP and other projects, given the limited alternatives. While some MVP supporters, including Sen. Joe Manchin (D-WV) have argued President Biden can use the Defense Production Act (DPA) as a form of “easy button” to bring the project online, the DPA does not override environmental laws like the Endangered Species Act or the National Environmental Policy Act. The Biden administration could revise implementing regulations for these laws to expedite permitting—as the Trump administration attempted to do—but these rules would take 12-18 months to be finalized and subject to litigation.

Congress could alter these laws to create a carveout for MVP or similarly situated projects, but this seems incredibly unlikely given Democratic-control of both the House and Senate. Even if Republicans gain control of one or both chambers in the November midterm election, a legislative fix would still be unlikely as evidenced by a failed attempt in 2018 for the Atlantic Coast Pipeline when Republicans controlled both chambers. On all counts, the Biden administration is limited politically and legally in its ability to bring infrastructure online, leaving efficient-yet-robust environmental permitting the only clear option.

In the coming months, we believe industry and investors should watch how the Biden administration—through the FWS, FERC, and other permitting agencies—approaches MVP as a signal for potential changes to permitting in light of litigation risk and the acute political demands for energy security. As we’ve seen with other controversial pipelines—like the Dakota Access Pipeline, which will likely receive its environmental permit a year after schedule—we expect the Biden administration will continue to emphasize legal durability of permits and long-term certainty despite increased pressure to expedite the project, increasing the probability of MVP and other natural gas projects surviving court challenges.

---

About the Author