A federal appeals court on Tuesday tossed out an approval for a Northeastern gas project, a major victory for New Jersey’s climate ambitions and advocates who want federal regulators to rethink how they weigh the need for new fossil fuel infrastructure.
The U.S. Court of Appeals for the District of Columbia Circuit found that the Federal Energy Regulatory Commission had failed to consider significant environmental consequences and a lack of market demand for additional gas capacity when it granted a certificate for the contested project in 2023.
The court also found that FERC had not accounted for New Jersey state laws requiring reductions in gas consumption.
The record before FERC showed that the Transcontinental Pipe Line Co. Regional Energy Access Expansion (REAE) project would result in “enormous” emissions for the next half century, said Judge J. Michelle Childs, writing the opinion for the D.C. Circuit.
“But it then walked away from the issues with a fatalistic shrug,” she said.
Nowhere in FERC’s certificate approving construction of the Transco project did the commission explain whether or how it had considered emissions, or how it found that those emissions were outweighed by the project’s benefits, Childs continued.
Instead, she said, FERC stated that it agreed with the conclusion of its National Environmental Policy Act analysis that this was an acceptable project, and summarized other impacts.
“These broad-brush statements do not provide assurance that the Commission balanced the climate-related emissions to which the Commission refused to assign a significance label,” she said.
Judges Cornelia Pillard, an Obama pick, and Brad Garcia, a Biden appointee, also joined Childs’ opinion.
The three-judge panel ordered FERC to start over on the certificate, noting that it was not “sufficiently likely” that the commission would be able to explain its decision-making if the court simply remanded the approval.
“It is far from clear that FERC’s failure here is only one of explanation,” Childs wrote. “Petitioners have identified potentially consequential deficiencies in the Certificate Order’s requisite considerations of market need and balance of public benefits and harms.”
Opponents of the Transco project hailed the ruling and predicted the decision could push FERC to expand its justification for future gas projects in light of their expected effects on the climate.
“The D.C. Circuit’s opinion is clear and unequivocal,” said Jennifer Danis, federal energy policy director at New York University’s Institute for Policy Integrity. Danis penned a “friend of the court” brief on behalf of the project’s opponents.
“FERC ignored its [Natural Gas Act] mandate to protect the public interest when it approved the REAE pipeline despite substantial record evidence showing the project would serve private interests at the public’s expense,” she said.
The D.C. Circuit took a “significant step” toward ensuring that FERC rigorously evaluates project proposals, said Megan Gibson, chief counsel at the Niskanen Center, which represented challengers in the case.
“The court has set a precedent for demanding greater accountability and thoroughness in FERC’s decision-making, which hopefully takes hold and FERC starts really looking under the hood and examining these projects,” she said.
The $1 billion Transco gas expansion project included about 36 miles of new pipe, as well as new and modified compressor stations and other facilities to serve about 3 million customers, primarily in New Jersey, as well as in other Eastern states.
The D.C. Circuit sided with many of the claims brought by the New Jersey Conservation Foundation, the New Jersey Division of Rate Counsel and others, but the court stopped short of finding fault with FERC’s decision not to calculate likely emissions resulting from either extracting or burning gas associated with the Transco project. The D.C. Circuit also upheld FERC’s definition of the purpose and need for the project.
In a note to clients, ClearView Energy Partners said that because the REAE project is now in full service, FERC will likely issue a temporary certificate to allow the project to operate through the 2024-2025 winter season.
Williams Cos., the parent company for Transco, said in a statement Tuesday that the ruling would not have an immediate impact on the project or delay plans to place its full capacity into service.
“We believe the court erred in vacating the certificate and we are taking the necessary legal and regulatory steps to address the court’s concern and to ensure that this much-needed firm transportation capacity continues to be available to serve the needs of our customers without interruption,” a Williams Cos. spokesperson said in an email.
‘Significant’ emissions
The D.C. Circuit came down hard against FERC for declining to decide whether emissions from the Transco project were significant — a type of analysis that the commission has resisted in recent years.
FERC had stalled on finalizing a proposal to set a specific emissions threshold that would qualify a project as a significant source of emissions that required a more thorough environmental review.
The ruling recognized that the important issue before FERC is not whether to label a project as significant or not, but for regulators to really analyze climate risks and use that information to decide whether to issue an approval under the Natural Gas Act, said Moneen Nasmith, an Earthjustice attorney who argued on behalf of Transco’s opponents in the case.
“What the court really understood extremely well here is that it’s not just about what justification did FERC give or not give for failing to do the greenhouse gas significance analysis,” Nasmith said.
The D.C. Circuit’s decision is the culmination of a litany of lawsuits against FERC, she said.
“There are a lot of cases out there where this might have an impact,” said Nasmith. “We still have some work to do to try to wrap our heads around that at this early stage.”
The D.C. Circuit noted that anticipated emissions from the Transco project were more than 100-fold the 100,000 metric tons per year threshold that FERC had considered in its proposed guidance for designating gas projects as “significant” emissions sources.
FERC did not explain why the project’s emissions could not be considered significant, even if its own policies on analyzing emissions are evolving, the court said.
“Even if FERC is not required to make a significance determination, choosing not to do so on the basis of an arbitrary and capricious explanation is nevertheless a violation of the” Administrative Procedure Act, the court said.
Lack of market demand
One of the D.C. Circuit’s key findings was that FERC had ignored evidence that there was not market demand for the Transco project.
According to the court, FERC did not explain why it “entirely discredited” the findings of two market studies that showed sufficient gas capacity to meet the needs of New Jersey ratepayers past 2030.
FERC also did not explain how precedent agreements with local gas distribution companies demonstrated market need when those companies can pass along fixed pipeline construction costs to ratepayers, the court found.
The D.C. Circuit’s decision could send a message to FERC to do a more thorough examination of the need for projects — especially if there is clear evidence presented to the commission that there is a lack of market need, said Gibson of the Niskanen Center.
“This is a consistent issue that we’ve had with some of its approvals,” said Gibson.
One of the more recent examples is FERC’s approval of Venture Global’s Calcasieu Pass 2 (CP2) liquefied natural gas terminal in Louisiana. Opponents of the planned facility filed rehearing requests to reconsider its authorization for the export project this week.
It’s unclear how the D.C. Circuit ruling might affect consideration of the project at FERC or before a court, particularly because pipelines and LNG export terminals are authorized under different sections of the Natural Gas Act, Gibson said.
But in both cases, FERC is refusing to assess if there is a need for these projects, she said.
The ruling also bolsters state climate policy objectives — like New Jersey’s — that aim to reduce demand for gas.
“The case is incredibly important precedent as states move forward towards implementing greenhouse gas reduction laws, which will continue to impact market need for fossil gas projects like this one,” said Danis of the Institute for Policy Integrity.
The D.C. Circuit found that FERC had not substantiated its claims during commission proceedings that New Jersey’s state laws requiring a reduction in natural gas use did not have “mandated mechanisms to implement those goals.”
The court also said that FERC misconstrued New Jersey’s energy efficiency laws, requiring public utilities to significantly and continuously reduce their gas usage as unenforceable.
“To the contrary, New Jersey law is mandatory and includes mechanisms for its enforcement,” the court said.
