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In the June issue of the Wiley journal Climate and Energy, NERA Managing Director Dr. Jeff D. Makholm explores the Federal Energy Regulatory Commission’s (FERC’s) new policy statements on natural gas pipelines, a topic on which NERA has a robust history. In fact, NERA has wrestled with US natural gas industry problems under the 1938 Natural Gas Act (NGA) for over 65 years. We have, as Dr. Makholm describes, “the long perspective.”

On 18 February 2022, the FERC issued two lengthy policy statements, one updating its 2000 policy statement and the other a new “Interim” statement on how it would assess greenhouse gas (GHG) emission questions in the future regarding the certification of new interstate natural gas pipelines. Both policy statements passed by slim partisan vote—calling into question the FERC’s authority to take such actions under the NGA and essentially inviting the courts to intervene. Dr. Makholm explains what he describes as two major problems with the new policy statements.

First, they both fail to consider the limits of the FERC’s effective jurisdiction—where decentralized planning and state action, not the FERC action, built such a productive competitive interstate pipeline system providing such benefits for US energy. Federal action in natural gas markets was always about conquering geography. The fuel requires capital-intensive pipelines to reach consumers over land, which encounter a variety of natural and political barriers. To overcome such geographical barriers to a competitive natural gas market, the NGA gave the FERC regulatory muscle in some areas and imposed restraint in others. The restraint involved letting the state-regulated utilities handle the supply-and-demand planning for consumer reliability, in conjunction with their state regulators, for natural gas service to millions of US gas consumers taking service from their local monopolies.

Second, the FERC essentially forgot the elements of “regulatory common law” that make US regulation uniquely effective in supporting investment in essential public services. In its prior policy statements, the FERC showed a mindfulness of orderly regulatory action involving investments made to support public services—US regulatory common law. Evidence that the FERC has veered away from that basic standard of US regulation is in the lengthy and vigorous partisan dissents to its new policy statement, which describe the new GHG evaluation methods as vague, subjective, burdensome, and unworkable under the NGA.

In conclusion, Dr. Makholm observes that the new policy statements show no appreciation for the importance of bedrock principle evident in the NGA, facilitating the type of investment that uniquely typifies the American way of supporting its interstate energy infrastructure systems. Instead, the 2022 policy statements manifest a vision of unparalleled widening of the FERC’s intervention in a way that cannot help to achieve useful GHG mitigation measures, which was its stated aim.

Makholm, Jeff D. (June, 2022). “A Long Economic View of the FERC’s New Policy Statements on Natural Gas Pipelines,” Climate and Energy38/12, ©2022 Wiley Periodicals, Inc., a Wiley Company.  

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