Legal battle over climate brews between FERC, blue states

By Miranda Willson, Niina H. Farah | 08/22/2023 06:46 AM EDT

A case in the U.S. Court of Appeals for the District of Columbia Circuit could influence pipeline development in states that are setting emissions limits.

FERC and pipelines collage

Claudine Hellmuth/E&E News (illustration); PxFuel (pipes); Francis Chung/E&E News (FERC building)

A lawsuit challenging a natural gas expansion project on the East Coast could change how federal regulators assess state climate policies.

Environmental groups and a landowner sued the Federal Energy Regulatory Commission earlier this year for approving Transcontinental Gas Pipe Line Co.’s pipeline project in Pennsylvania, Maryland and New Jersey over the objections of state officials in the Garden State.

Despite the case’s limited geographic scope, the nearly $1 billion project has become a flashpoint in the debate over FERC’s assessment of new gas projects. How the U.S. Court of Appeals for the District of Columbia Circuit rules in the case could influence pipeline development in states that are setting limits on their total greenhouse gas emissions and moving away from fossil fuels, observers said.


“FERC has taken a position that is contrary to the findings of a state regulatory commission,” Brian Lipman, who advocates for energy consumers as director of New Jersey’s Division of Rate Counsel, said in an email. “It also appears FERC has not taken New Jersey law and policy into account in issuing its decision.”

Transco is building the Regional Energy Access Expansion Project to deliver more natural gas into the three states and ensure residents stay warm during the winter. FERC approved the expansion project in January, finding that its benefits outweigh potential environmental harms.

The New Jersey Conservation Foundation and other groups say FERC disregarded evidence showing the project wasn’t needed. Now, a coalition of Democrat-led states are also pushing back against FERC, writing in a friend of the court brief this month that the commission’s decision “threatens core state interests in protecting our environment, economies, and ability to make effective energy policy in our borders.”

In addition to New Jersey, Maryland, Connecticut, Vermont, Washington, Massachusetts, Oregon and New York joined the brief.

“FERC cannot ensure its regulation of pipelines is complementary to the States’ regulation where it does not adequately analyze the impact of state requirements on the need for and public interest in a project,” the states told the D.C. Circuit.

The states, which all have climate laws on the books, said that FERC’s failure to account for New Jersey’s codified limits on carbon emissions threatened the balance of power between the federal government and states. They warned that not adequately considering the Garden State’s climate law — the Clean Energy Act — would harm consumers, who could end up paying for natural gas infrastructure that might not be needed years later.

“If the D.C. Circuit doesn’t step in, state ratepayers are going to end up paying twice,” said Jennifer Danis, federal energy policy director at the Institute for Policy Integrity, a think tank based at New York University School of Law. “They’ll end up paying more as the states are transitioning away from gas and electrifying building and heating and other uses.”

New Jersey’s Clean Energy Act requires that 100 percent of the state’s electricity come from clean sources by 2035. The state also aims to install zero-carbon-emitting heat systems, such as heat pumps, in 400,000 homes by 2030.

Transco’s natural gas project would account for nearly 48 percent of New Jersey’s total target greenhouse gas emissions by 2050, along with “significant percentages” of the emissions targets in Delaware, Maryland, New York and Pennsylvania, the states said in the brief.

“FERC’s decision abdicates the role Congress intended for it: to harmonize federal regulations with those of the States with the ultimate goal of protecting consumers,” the states said.

Currently, FERC will approve a new natural gas pipeline if gas companies have signed contracts to use the fuel. But clean energy advocates say they are hopeful that the court will require FERC to conduct more comprehensive analyses that consider state policies on climate and natural gas.

“It’s not just about states hitting their climate goals. It’s about states putting orders in place requiring that gas demand decreases year over year, or requiring clean heat or other state-level requirements,” Danis said. “Right now, FERC doesn’t have a process in place to really examine these issues.”

Data, climate and states

The case arrives amid heightened tension at FERC over what analyses should be done before approval of new natural gas projects. The commission currently has four members whose views diverge significantly on how — or if — FERC should analyze climate change impacts.

FERC does not comment on pending litigation and declined to weigh in on the issues before the court.

But in court filings, FERC’s attorneys told the D.C. Circuit in March that it approved Transco’s project because it would provide more reliable energy when natural gas demand is high and increase the diversity of available energy sources.

The Transco case is also noteworthy because FERC was asked to consider multiple analyses of New Jersey’s natural gas needs before the project’s approval.

Transco and natural gas utilities in the Garden State argue that the pipeline expansion project would help avert an impending natural gas supply crunch. New Jersey Natural Gas, one of the gas utilities involved in the project, views Transco’s expansion project as “an integral part of its commitment” to providing reliable and safe service to customers, utility spokesperson Kevin Roberts said in a statement.

To that end, Transco submitted an independent report to FERC last year finding that the pipeline project was needed “to meet the reliability requirements” of gas utilities in New Jersey and southeastern Pennsylvania. The report also said that the project could lower energy costs.

Those findings differed from the conclusions of a separate study, commissioned by the New Jersey Board of Public Utilities and issued last year. That report found that New Jersey gas utilities “easily” had enough fuel supplies to meet customers’ needs using existing gas infrastructure until 2030.

The case exemplifies why FERC must establish “a formal policy” to analyze all evidence presented by state regulators, said Megan Gibson, an attorney at the Niskanen Center, which is representing groups involved in the lawsuit.

“That’s the exact opposite of what [FERC] did here,” Gibson said.

Stalled projects and gas ‘overbuild’

FERC approved Transco’s project in part because natural gas utilities and other companies had signed contracts to use the pipeline’s gas. Known as precedent agreements, the contracts between pipeline developers and gas consumers show that a gas project is needed, per FERC’s long-standing pipeline approval policy.

The commission also analyzed the studies commissioned by Transco and New Jersey regulators on natural gas needs, according to FERC’s January order approving the pipeline.

“We find that the weight of the record supports a need for the [expansion] project, notwithstanding the potential for non-pipeline alternatives at some point in the future,” the commission said in its January decision.

Commissioner James Danly, a Republican, partially dissented in the case. Among other concerns, he took issue with the commission’s consideration of the two independent analyses instead of solely relying on the precedent agreements.

It’s unclear when the D.C. Circuit will rule on the case. In the meantime, the Institute for Policy Integrity has told the court that the case exemplifies flaws in the commission’s “developer-driven, ad hoc basis” of approving gas infrastructure.

In a brief filed this month, the institute said that FERC’s approval process for gas pipelines fails to protect consumers. Pipeline developers have an incentive to “overbuild” to earn a rate of return on projects, and their direct customers — such as natural gas utilities — are also incentivized to buy the gas, since they can sell it on a secondary market for additional revenue, it said.

Williams Co., the parent company of Transco, did not return requests for an interview or comment.

As the D.C. Circuit considers the case, FERC may be struggling to reach consensus on pipeline reviews and greenhouse gas emissions for many gas projects, according to agency observers.

During FERC’s last meeting in July, the commission was slated to vote on eight natural gas proposals. But five were struck from the agenda at the last minute, indicating that the commissioners may have disagreed on how to move forward.

One of the projects removed from the agenda was the Gas Transmission Northwest XPress natural gas project, which lawmakers in Oregon and Washington have said would conflict with state climate policies there.

When asked about the gas items that didn’t get a vote, FERC acting Chair Willie Phillips said he had hoped to see the projects approved and emphasized his interest in compromising with his colleagues.

“If given the opportunity, I would vote for these needed projects this afternoon,” Phillips told reporters after the July meeting.

While FERC commissioners have long disagreed on pipeline issues and greenhouse gases, ClearView Energy Partners said in a research note this month that “the debate is getting more complicated, not less.”

“We are hard pressed to find a clear path forward either based on the late July orders and the accompanying Commissioners’ statement,” ClearView said.