Legislation at the U.S. state level to support certain power generation resources and state government action to block energy infrastructure projects are posing difficult questions for federal regulators, but updated guidance from the Trump administration could help clarify matters, government and industry experts said Feb. 1.
"I'm a big believer in states' rights," Federal Energy Regulatory Commission member Neil Chatterjee said during a special session of the S&P Global Market Intelligence Power and Gas M&A Symposium in New York.
Chatterjee said state and local governments should have authority to set the policy parameters they find favorable with regard to their power generation portfolios, but FERC has a responsibility to maintain reliability and oversee the proper functioning of wholesale power markets. "And when you have state policies that impact these markets we walk a fine line and weigh in when policies impact our jurisdiction," he said.
States including Connecticut, Illinois, New Jersey, New York and Pennsylvania have enacted or are considering legislation to provide financial support to nuclear plants that have struggled financially in recent years amid low wholesale power prices and weak demand. The New York and Illinois policies are being fought in federal and state courts.
"As states take on policy initiatives to influence the local generation mix, it's having an impact on our markets," Chatterjee said. The question with these various state policies is over the specific market impacts the subsidies are having, "and the commission needs to evaluate whether it needs to make interim changes," he added.
New York has also used its water quality permitting authority under Section 401 of the Clean Water Act to challenge the construction of a natural gas pipeline that would supply a gas-fired power plant being built in the Hudson Valley.
These cases of state and federal jurisdictional tension over energy policy and infrastructure development have caused FERC to play legal referee, and they raise the question of how the state-federal relationship could be better managed.
"As we've seen in New York where we addressed this [Section 401] issue … we feel confident we followed the law," Chatterjee said. "The administration is looking potentially at federal reform of the infrastructure process, but for the time being the venue for this will be in courts," he added.
'Ancient' guidance could be updated in the next 6 months
President Donald Trump discussed the need to speed up the time it takes to build new infrastructure projects during his State of the Union address on Jan. 30. Creating new laws to streamline infrastructure development is one option, but the administration can also provide guidance, said Scott Segal, partner at law and government relations firm Bracewell.
"Some of these will be addressed not through legislation," he said. They will be framed through infrastructure legislation and thought about in those terms, "but the actual action needs to be in terms of guidance from the administration itself."
For example, the National Environmental Policy Act, or NEPA, is a very important statute, he said. Energy infrastructure projects such as gas pipelines, LNG facilities and high-voltage transmission lines are subject to NEPA review.
It is not a question of statutory reform with NEPA, but it is a question of updating "ancient administrative guidance," Segal said. "And this quarter we predict or we believe the administration will advance a new guidance document for NEPA."
Section 401 of the Clean Water Act and the role of states could also be clarified. Segal said he thinks the authors of Section 401 would be surprised if New York Gov. Andrew Cuomo or "similarly situated" governors viewed the law as an "absolute backstop" to building infrastructure in their states.
"Now as the FERC has ruled, any amount of time up to a year is considered de facto reasonable on the part of the state to review [projects] under Sec 401," Segal said. One of the changes being discussed is decreasing that to 90 days, but the ability to get that passed through Congress is questionable and there is much the administration can do on its own, he suggested.
For example, the U.S. Environmental Protection Agency wrote the guidance "that essentially tells the states what they can and cannot do under Sec 401," Segal said. That guidance document has not been updated in "years and years," so in the second quarter of this year look for a new guidance document, he said.
Segal also said a new guidance document on NEPA or Section 401 would be relatively durable from a legal perspective.
In addition, efforts to resurrect comprehensive energy legislation from last year "are happening behind the scenes in the Senate," Tom Hassenboehler, former chief counsel of the House Energy and Commerce Committee and partner at consulting firm COEFFICIENT, said. However, he added, the issues that make it into a package that could be brought the floor are "anyone's guess."
Jared Anderson is a reporter for S&P Global Platts which, like S&P Global Market Intelligence, is owned by S&P Global Inc.
