Ideas for a New Federal-State Partnership Process for Siting and Approving Interstate Pipelines with Intrastate Benefits

The Keystone XL pipeline was dealt a death blow when President Obama rejected it in early November. While it was a setback for that project’s developers, it hardly represents a halt to the development of all transmission pipeline infrastructure projects. As of September of 2015, U.S. Industrial Info, a leading provider of global market intelligence with a specialization in energy markets, was tracking 72 active oil and gas pipeline projects across the country. More are surely to come.¹

The main takeaway from the Keystone XL decision should not be that future pipeline projects are doomed, but rather that the process to get to the final decision took far too long. The example serves as a call to regulatory bodies in the energy industry to take a look at how they might make improvements to any and all review processes. Prominent among the regulatory reviews is the Federal Energy Regulatory Commission’s (FERC) interstate pipeline review process which could be refined to become more efficient.

To understand how the FERC process could be revised, it’s first important to look at the differences between interstate pipeline projects that cross multiple state lines and intrastate pipeline projects, those located entirely within a single state. FERC has authority at the federal level to review and approve the need and siting for interstate pipeline projects. Meanwhile, intrastate pipeline projects are subject to whatever process state authorities have established for review and approval. In some states, such as New York and Ohio, there is a clear state review process for obtaining authorization to construct certain types of intrastate pipelines. In contrast, Pennsylvania currently has no intrastate transmission pipeline siting process and no review of the need for such a project, except under very limited circumstances.

Interstate pipeline projects can both impact and benefit local communities, especially the local production, gathering and distribution components of the gas industry. This local impact is one of the reasons why much of the opposition to interstate pipeline projects originates at the state and local level. While FERC technically has complete authority over the interstate pipeline siting and approval process, it would be hard to argue that local voices do not have any influence.

Local impacts can vary widely based on the specifics of a project. For instance, a project taking natural gas liquids from Pennsylvania to a gulf coast processing area may have minimal service impact on the states in between. But a regional dry gas transmission project in three adjoining states, while technically an interstate project, can significantly affect and improve local services available in each of those states.

Similarly, intrastate projects can impact interstate service. An intrastate gas transmission pipeline project can connect with interstate facilities and improve services available in other states. For example, an intrastate pipeline project could relieve excessive demand for use of a nearby interstate pipeline, eliminating costly congestion and inefficiencies.

All of this is to say that, regardless of whether a pipeline is interstate or intrastate, it has understandable and necessary impacts on local, state and national constituencies. In fact, FERC often requires that pipeline projects obtain necessary federal, state and local construction-related approvals and permits in addition to FERC approvals.

The conflict between those wanting to harness the full benefits of the country’s vast natural gas resources and local activists and environmentalists often opposing infrastructure projects presents an opportunity, not just a challenge. The pipeline industry, the public and regulatory agencies must work together to establish a transmission pipeline review process that delivers timely, evidenced-based decisions and considers all reasonable stakeholder input at the local, state and federal level. Sound projects that impact multiple states should not fail to be developed or proposed out of fear that the siting process is too expensive or too long.

A New Approach: The Federal-State Partnership Process

Before any new review processes are established, all parties must work to fill gaps in existing facility siting processes. States that currently have no established process for the siting review and approval of intrastate transmission pipeline projects, like Pennsylvania, must establish them. Without clearly defined state authority over siting issues, it would be nearly impossible to develop a more efficient review framework.

Secondly, there must be a reframing of how we define interstate and intrastate pipeline projects. Since FERC has already acknowledged the local impacts of interstate projects, it must find a better way to address local opposition and challenges. To do this, it could consider borrowing concepts from the process used for the siting and development of interstate electric transmission lines. The national electric grid is connected through a series of intrastate lines each approved and sited at the local level. While the electric transmission line siting process puts the authority entirely with the states, FERC might benefit from giving some level of authority to the states in the development of transmission pipelines.

A new review paradigm might be called the “Federal-State Partnership Process.” In this process, the intrastate “legs” of an interstate transmission pipeline project would be concurrently reviewed by each state authority for purposes of line siting issues and state and local permit approvals. Meanwhile, FERC could simultaneously address federal environmental standards and the interstate need for the transmission pipeline. To be eligible for this review process, states would be required to demonstrate they have an adequate review process and must adhere to a timeline for review that lines up with the FERC process. States should also not be able to condition their approvals with requirements that conflict with FERC.

Dividing responsibility clearly between FERC and state authorities in this manner would hit the sweet spot of each jurisdiction doing what it does best. It would also provide certainty in timing so that when a FERC approval is received, project developers can move quickly to obtain construction permits and move the transmission pipeline project forward. This approach would not be a circumvention or substitution of FERC policies, but rather an efficient process designed to address FERC’s and the public’s increasing demand for local oversight of transmission pipeline projects.

The Benefits of a Collaborative Approach

Undoubtedly, any efforts to introduce a new transmission pipeline review process will take time and effort, but a potential Federal-State Partnership Process will have benefits for almost all of the parties involved in what has become a complex and at times contentious endeavor. These benefits would include: 

• A Clear Timeline– Both the public and pipeline industry would benefit from understanding the timing involved in executing transmission pipeline projects and would be able to take the necessary steps to prepare for the ultimate execution of those projects.
• More Local Input, More Local Buy-in— By empowering states and local governments in the siting process, it would be easier to secure the local buy-in necessary to move transmission pipeline projects forward. The local opposition that has voiced concerns over recent projects would have a more appropriate forum for their arguments and transmission pipeline companies would be able to re-focus their efforts to answer concerns.
• A More Comprehensive View of Infrastructure Development – With state and federal input into siting and a more clear process for development, the transmission pipeline industry would be able to more effectively build-out other necessary components of the country’s energy infrastructure. The certainty of the process would allow for the development of refineries and the direct delivery of resources to utilities for energy production, among others.

The last decade has seen dramatic changes in the U.S. energy landscape, which have been accompanied by optimism about the potential for natural gas to help solve many of the country’s pressing energy concerns. Now, it is incumbent upon all stakeholders to establish the processes to make that optimistic vision a reality. The Federal-State Partnership Process could be a good first step.