© 2017 The Texas Lawbook.
By Jay T. Ryan, Jerrod L. Harrison and Kyle H. Henne of Baker Botts
(April 21) – On January 26, 2017, shortly after President Donald J. Trump appointed Commissioner Cheryl LaFleur as acting chairman of the Federal Energy Regulatory Commission, former Chairman Norman Bay tendered his resignation from the agency, effective February 3, 2017.
Although it is traditional for the chairman to resign from the commission following the inauguration of a president from a different party, the compressed timeline of Bay’s resignation surprised the agency’s staff, regulated entities and members of the energy bar.
Bay’s departure, coupled with two existing vacancies from the Obama administration, left the agency with only two commissioners. By law, the commission must have a quorum of three members to act on major orders and resolve contested proceedings.
While the commission had previously delegated limited authority to its staff to address discrete issues and resolve uncontested matters, Bay’s impending departure led the agency to delegate additional authority to its staff in an order issued February 3, 2017. This additional authority enables staff to preserve the commission’s ability to act on contested issues until a new commissioner is confirmed and a quorum is reestablished. The order also expands staff’s authority to approve uncontested settlements and grant uncontested requests for waivers of tariffs and regulations, such as pipeline capacity release and capacity market rules.
The staff has utilized the additional authority to accept and suspend contested tariff filings, preserve issues for further consideration by the commission and subject filing companies to potential refund obligations. The staff has also continued to act under authority it has long exercised to issue tolling orders to preserve the commission’s ability to act on requests for rehearing, waive affiliate restrictions with respect to market-based rates, authorize pipeline projects to begin construction and commence service, approve uncontested tariff filings, authorize market-based rate sales of electricity, and authorize the disposition and acquisition of electric facilities within its jurisdiction. This level of activity is not unusual, as the staff routinely acts through delegated authority. As acting Chairman LaFleur recently noted, even under normal circumstances the staff issues five times more orders per year than the commission itself.
Despite these delegations, the lack of a quorum has left some energy industry participants in a challenging position. For example, many natural gas projects pending commission approval are now faced with potentially costly delays, due in part to the limited construction windows to which such projects must adhere. Although agency staff can continue to issue public notices, conduct required environmental reviews, request additional information from the applicant as needed and prepare environmental findings and draft orders, staff cannot finalize certificate orders permitting the construction of new projects.
The commission’s inability to act could pose a problem for pipeline projects that have already undergone a full environmental review such as the NEXUS Gas Transmission Project or for those that are far along in the environmental review process, such as the PennEast Pipeline Project. The agency cannot issue a final order and construction of those projects cannot get underway until another commissioner is confirmed.
In addition to delays of natural gas projects, other sectors of the energy industry could be affected. The staff’s delegated authority does not extend to making substantive rulings on contested issues. Accordingly, the commission cannot resolve larger policy questions posed by new rulemakings or contested proceedings until a quorum is established. For example, without a quorum the commission cannot issue final rules in pending rulemaking proceedings affecting the electricity industry, including proposed revisions to its pro forma Large Generator Interconnection Procedures and Agreement, additional primary frequency response requirements and uplift cost allocation standards.
It also cannot address the merits of contentious, often time-sensitive rate and tariff proceedings, such as the New York Independent System Operator’s proposed exemptions from its buyer-side mitigation rules for renewable and self-supply resources. Parties wishing to challenge commission orders in court may also face delays, given that federal law effectively requires the commission to have denied rehearing of its orders prior to permitting aggrieved parties to seek judicial review. Without certainty in these matters, investors may understandably choose to delay decisions on new development until more is known about how or when the commission will proceed.
The Trump administration has repeatedly called for new investment in infrastructure and lamented the regulatory burdens which make it “impossible to get anything built.” In order to spur that new investment and alleviate regulatory burdens within the timeframe presumably contemplated by the new administration, it will be necessary for President Trump to nominate – and for the Senate to swiftly confirm – at least one new commissioner in the coming weeks.
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