Reconciliation Bill Would Create New FERC Siting Regime for Petroleum, Hydrogen, and Carbon Dioxide Pipelines

On May 11, the House Committee on Energy and Commerce released its proposed energy provisions for inclusion in the budget reconciliation package, including several provisions that could dramatically reform the federal pipeline permitting process. One of these provisions would create a new optional siting regime for carbon capture, hydrogen, and petroleum pipelines. The amendment would allow pipeline developers the option to pay $10,000,000 to apply for a Certificate of Public Convenience and Necessity (“Certificate”) under the Natural Gas Act (“NGA”). Issuance of a Certificate would allow pipeline developers to use federal eminent domain authority and preempt state and local siting laws.

Under the NGA, the Federal Energy Regulatory Commission (“FERC”) regulates the transportation and sale of natural gas in interstate commerce.^[1] Section 7 of the NGA governs the construction and operation of interstate natural gas facilities. Section 7 requires anyone constructing or extending any interstate natural gas pipeline to first obtain a Certificate from FERC.^[2] In assessing section 7 certificate applications, FERC determines if the project “is or will be required by the present or future public convenience and necessity,” by reviewing the economic and environmental consequences of the project.^[3] Certificate holders may use federal eminent domain authority to acquire needed rights-of-way to construct the certificated natural gas facility.^[4]

As part of the NGA, section 7 applies only to “natural gas companies,” including interstate natural gas pipelines. Currently, there is no comparable federal mechanism that requires or makes available federal Certificates for carbon dioxide, hydrogen, or petroleum pipelines. FERC economically regulates interstate oil and petroleum products pipelines under the Interstate Commerce Act (“ICA”),^[5] but that statute does not provide FERC siting authority. Further, Pipeline and Hazardous Materials Safety Administration (“PHMSA”) regulates the safety of all pipeline facilities. However, no federal agency is currently tasked with the economic regulation of hydrogen or carbon dioxide pipelines transportation, as discussed in prior alerts and Congressional testimony by Venable’s energy attorneys.^[6] Previous efforts to include hydrogen within the scope of FERC’s NGA authority have failed, including a 2022 Senate bill that would have amended the definition of “natural gas” to include hydrogen gas.^[7] 

Section 41006 of the current reconciliation bill proposes to add a new “section 7A” to the NGA. Section 7A would apply to “covered pipelines,” including pipelines or pipeline facilities “for the transportation of carbon dioxide,” “a gas pipeline facility . . . for the transportation of hydrogen,” and “a hazardous liquid pipeline facility . . . for the transportation of petroleum or a petroleum product,” as defined by PHMSA’s regulations.^[8] Notably, because PHMSA’s regulations generally extend to all pipelines, even those not subject to FERC economic regulation, this new definition would appear to contemplate FERC certification for more local projects compared to the NGA, including oil pipelines traditionally considered to be intrastate under FERC precedent and thus not regulated under the ICA.

Section 7A would provide that “any person may submit” an application for a certificate for public convenience and necessity for a covered pipeline if they also submit a $10,000,000 fee.^[9] The permissive language indicates that while interstate natural gas pipelines are required to apply for a FERC certificate under section 7, section 7A would be voluntary for “covered pipelines.” The text requires FERC to consider the application in accordance with NGA section 7(c)(1)(B), excluding the proviso empowering FERC to temporarily certify a natural gas project on an emergency basis.

The primary benefits of a section 7A certificate are the grant of federal eminent domain authority,^[10] which is currently only available to natural gas pipelines, and the preemption of state and local siting law under certain circumstances. Where “the licensee is in compliance with such license, no requirement of State or local law that requires approval of the location of the covered pipeline . . . may be enforced.”^[11] The text of the bill does not explain how to determine which state laws deal with the “location” of the pipeline as opposed to, for instance, its environmental impact, or what body would make that determination, whether it be FERC, a state or local permitting agency, or a federal court. 

The draft bill also appears to subject section 7A licensees to some (but not most) aspects of NGA regulation, including the requirement to obtain authorization to abandon a facility or service.^[12] Given that a section 7A facility such as a hydrogen, carbon dioxide or intrastate oil pipeline would not be subject to FERC rate regulation, it is unclear how FERC will adjudicate a licensee’s proposed exit from providing a service that is otherwise unregulated. In any event, under current law, FERC has no authority over oil pipeline abandonment, which has often led FERC to permit such pipelines to abandon transportation service of specific commodities or at specific locations.^[13] Pipelines electing to become section 7A licensees would appear to surrender any such flexibility. 

It is not clear whether the section 7A procedure will allow for section 7-style blanket certificates that authorize certain facility modifications and expansions on an automatic basis or under FERC’s prior notice procedures,^[14] or whether each modification, expansion or change to the service provided would require an amended certificate. If the latter, the imposition of a $10,000,000 fee for every amendment would obviously diminish the utility and appeal of this optional certificate procedure.

Other provisions of section 7A applied to covered pipelines would include the provisions on high-priority use certificates^[15] and service area determinations.^[16] FERC presumably would need to propose and adopt regulations adapting these natural gas concepts to the markets for oil, hydrogen and carbon dioxide. The bill also incorporates the NGA’s rehearing and judicial review provisions to section 7A licenses^[17] and extends FERC’s authority to bar natural gas market manipulators from holding certain officer or director positions to positions with section 7A licensees, although it does not appear to extend the NGA’s substantive provisions on market manipulation to non-natural gas pipelines.^[18]

If enacted, covered pipelines would need to carefully weigh the benefits of opting into these procedures. Preemption of state law and eminent domain are certainly appealing. However, NGA siting proceedings can be expensive, protracted, and uncertain, with potentially lengthy proceedings including mandatory rehearing at the agency level and multiple appeals to courts. This uncertainty is compounded by the recent decisions by the Trump Administration and courts to change the standard of review under the National Environmental Policy Act, which applies to all NGA certification proceedings.^[19] If these new certification procedures are found useful it may drastically change the landscape of oil and petroleum products pipeline siting, which has been the near-exclusive^[20] role of states due to the lack of siting jurisdiction under the ICA.

The Committee on Energy and Commerce met on Tuesday, May 13 to discuss this provision, among others, where the merits of the proposed bill’s permitting reforms were hotly debated. Democratic representatives proposed various changes to the bill, but none passed. The ultimate outcome of the proposal will be determined in the coming weeks, as the House and Senate hash out the various provisions of the budget reconciliation package.