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Feb 01, 2017

Executive Actions Provide Clues to Development of US Energy Policy Under a Trump Administration

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Since November 9, observers of the energy industry have been poring over the campaign speeches and statements of candidate Donald Trump to divine the energy policy that may be promulgated by President Donald Trump.  

In a May 2016 speech to the North Dakota Petroleum Council, Trump announced an “America First Energy Plan,” promising, among other things, that during his first 100 days in office he would “rescind the Climate Action Plan,” “save the coal industry,” “ask TransCanada to renew its permit application for the Keystone Pipeline,” “lift moratoriums [sic] on energy production in federal areas” and “cancel the Paris Climate Agreement.”

In a September 2016 speech delivered in Pittsburgh to the Marcellus Shale Coalition, the Ohio Oil and Gas Association, and the West Virginia Oil and Natural Gas Association, Trump proposed to “streamline the permitting process for all energy infrastructure projects,” “lift the restrictions on American energy” and “eliminate all unnecessary regulations.”  Trump also declared that his energy policy “will make full use of our domestic energy sources, including traditional and renewable energy sources.”

During the first presidential debate in September 2016, Trump declared that “[US] energy policies are a disaster.”

In several actions taken during his first full week in office, President Trump signaled his preference for using executive authority to fulfill his energy-related campaign promises and implement his “America First Energy Plan.”

On January 25, Trump issued a Presidential Memorandum to the Secretaries of State, the Army and the Interior inviting TransCanada Keystone Pipeline, L.P. (TransCanada) to resubmit its application to the Department of State for a Presidential permit for the construction and operation of the Keystone SL Pipeline (Keystone) to import petroleum to the United States from Canada[1].   The memorandum requires the Secretary of State to reach a final permitting decision within 60 days of the date of TransCanada’s application and to the extent permitted by law, consider the Final Supplemental Environmental Impact Statement issued for Keystone in 2014 to satisfy the National Environmental Policy Act of 1969 (NEPA) and any other provision of law that requires executive department consultation or review.

Trump also issued an executive order directing the Chairman of the White House Council on Environmental Quality (CEQ) to identify “high priority” infrastructure projects that require federal reviews and approvals and to coordinate with the head of the relevant agency to establish expedited procedures and deadlines for completion of environmental reviews and approvals of those projects[2]

Finally, Trump issued a Presidential Memorandum requiring the Secretary of Commerce to submit to the President within six months a plan under which all new pipelines, as well as retrofitted, repaired or expanded pipelines, inside the borders of the United States, use materials and equipment produced in the US to the maximum extent possible and to the extent permitted by law[3]

Trump’s executive orders likely will be challenged in court by environmental groups, either as executive orders or in challenges to the federal approvals issued consistent with the executive orders.

US energy policy is comprised of statutes enacted by Congress, regulations, orders and policy statements issued by independent agencies and cabinet departments implementing those statutes, executive orders issued by the President and federal court decisions reviewing those statues, regulations and executive orders; not to mention the laws enacted by state legislatures, the regulations, orders and policy statements issued by state-level commissions agencies and state court decisions reviewing those state laws, regulations and orders. 

In addition to executive orders, President Trump can utilize executive authority in the short term to shape US energy policy through his appointments to the US Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC).

DOE

Created by the Department of Energy Organization Act of 1977 (DOE Organization Act),DOE is a cabinet-level department headed by the Secretary of Energy, who is appointed by the President and confirmed by the Senate.  The Secretary of Energy serves at the pleasure of the President.  DOE’s primary responsibilities are managing the nation’s nuclear weapons, the environmental cleanup of the national nuclear weapons complex and overseeing the national laboratories.  However, DOE also is the lead agency with respect to the formulation and implementation of national energy policy mandated by the DOE Organization Act.  In addition, DOE’s Office of Fossil Energy is responsible for authorizing exports of natural gas, including liquefied natural gas (LNG), and DOE’s Office of Electricity Delivery and Energy Reliability is responsible for authorizing exports of electric energy and issuing Presidential Permits for the construction, operation, maintenance and connection of electric transmission facilities at the international border. 

President Trump has nominated Rick Perry, the former Governor of Texas, to be the Secretary of Energy.  If confirmed, Perry, who previously advocated eliminating DOE, could promote the US oil and natural gas industries by proposing DOE budgets that increase funding for fossil energy-related programs and decrease funding for renewable energy and climate change-related programs at DOE.

Perry also could direct DOE’s Assistant Secretary for Fossil Energy, who also will be nominated by President Trump and confirmed by the Senate, to act more quickly on applications for long-term, large-scale exports of US-produced LNG while at the same time complying with the requirements of the Natural Gas Act (NGA) and NEPA.

Section 3 of the NGA gives DOE authority over exports of US-produced natural gas, including LNG.  Under Section 3(c) of the NGA, exports of natural gas to countries with which the United States has free trade agreements that require “national treatment” for trade in natural gas are automatically considered in the public interest, and applications to export gas to such countries must be approved without modification or delay.  The United States currently has such free trade agreements with Australia, Bahrain, Canada, Chile, Colombia, Dominican Republic, El Salvador, Guatemala, Honduras, Jordan, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, Republic of Korea and Singapore (FTA Countries).

On the other hand, authorization to export natural gas to non-FTA Countries requires DOE to find that the proposed exports are not inconsistent with the public interest.  In making this determination, DOE considers the domestic need for the natural gas proposed to be exported, whether the proposed exports pose a threat to the security of domestic natural gas supplies and other factors bearing on the public interest.  DOE also must review the potential environmental effects of the proposed export under NEPA.

Project developers have expressed frustration at the length of time it takes to receive authorization from DOE to export LNG to non-FTA Countries.  Legislation introduced into Congress in 2016, but ultimately not passed after the presidential election, would have required DOE to issue a final decision on any application for authorization under Section 3 of the NGA to export LNG to non-FTA Countries no later than 30 days after concluding the review to site, construct, expand or operate the LNG facilities required by NEPA.

The Republican-led Congress could reintroduce such a requirement in a new omnibus energy bill that would have the support of President Trump, but absent that, the new Secretary of Energy could effectively place an internal requirement on issuance of final decisions.

President Trump and his Secretary of Energy also could begin to shape US energy policy by utilizing the energy policy plan requirement in the federal law that created the Department of Energy.  Title VIII of the DOE Organization Act requires the President to submit to Congress a comprehensive National Energy Policy Plan (NEPP) every two years, starting in 1979, for the purpose of formulating and implementing a coordinated national energy policy.   

Key elements of the NEPP include establishing five- and 10-year energy production, utilization and conservation objectives focusing on the need for full employment, price stability, energy security, economic growth, environmental protection and nuclear non-proliferation, as well as special regional needs and the efficient utilization of public and private resources; identifying strategies to be followed to achieve the objectives and outlining the appropriate policies and actions of the federal government to maximize private production and investment in each significant energy supply sector; and estimating the domestic and foreign energy supplies on which the United States will be expected to rely and evaluating current and foreseeable trends in the price, quality, management and utilization of energy resources and the effects of those trends on the social, economic, environmental and other requirements of the nation.  The Energy Policy Act of 1992 modified Title VIII of the DOE Organization Act to require that future NEPPs include a “least-cost energy strategy.”

From 1979 to 1998, six NEPPs were submitted to Congress by Presidents Carter, Reagan, George H.W. Bush and Clinton.  Although in 2001, the administration of President George W. Bush issued a National Energy Policy prepared by a National Energy Policy Development Group headed by Vice President Cheney, it was not submitted to Congress as an NEPP under the DOE Organization Act.

Starting with President Carter, presidents utilized a national energy policy process to develop and propose major energy legislation.  In 1978, in response to President Carter’s proposals, Congress enacted several major pieces of legislation that still are in effect today, including the Powerplant and Industrial Fuel Use Act, the Natural Gas Policy Act of 1978 and the Public Utility Regulatory Policies Act of 1978 (PURPA).

PURPA established a new class of generating facilities—qualifying small power production facilities and qualifying cogeneration facilities known as “QFs.”  Two of the major benefits of QF status are the requirement that electric utilities purchase the output of QFs at avoided cost rates and exemption from certain federal state laws and regulations.  PURPA often is credited with helping to create the independent power industry and increasing the use of renewable energy resources in the generation of electric energy.

In 2005, as part of the Energy Policy Act of 2005, Congress amended PURPA to, among other things, give FERC authority to terminate the mandatory QF purchase obligation of electric utilities after making specified findings.
The National Energy Strategy submitted in 1991 by President George H.W. Bush formed the basis for the Energy Policy Act of 1992, which among other things, amended the Public Utility Holding Company Act of 1935 to create exempt wholesale generators—or EWGs—that are exempt from PUHCA regulations.

In 2014, President Obama proposed to change energy policy development under the DOE Organization Act.  He issued a Presidential Memorandum establishing a Quarterly Energy Review (QER) Task Force to include the heads of 22 federal agencies and offices, and directing the QER Task Force to deliver a report to the President that provides an integrated view of, and recommendations for, federal energy policy in the context of economic, environmental, occupational, security and health and safety priorities, reviews the adequacy of existing executive and legislative actions and recommends additional executive and legislative actions as appropriate, assesses and recommends priorities for research, development and demonstration programs to support key energy innovation goals, and identifies analytical tools and data needed to support further policy development and implementation.

The Presidential Memorandum required that the first QER focus on “challenges facing the Nation’s energy infrastructures.”

In April 2015, as part of its Climate Action Plan, the Obama Administration issued the first QER developed by the QER Task Force.  This QER asserted that the United States has become the world’s leading producer of oil and natural gas combines, is less dependent on foreign oil as a percentage of national oil consumption than it has been since 1971, US electricity consumption was flat during the period 2005-2014 and total energy use declined by 1.9 percent.  The QER further provides that the composition of US energy supply also has shifted, petroleum consumption is flat and coal consumption is declining, while the use of natural gas and renewables is growing.  In 2014, renewable energy sources accounted for half of newly installed electric generation capacity, with natural gas units making up most of the remainder.  

The first QER noted that “the last national energy policy report was published nearly 14 years ago,” and argues that the focus of US energy policy discussions has shifted from concerns about rising oil imports and high gasoline prices to debates about how much and what kinds of US energy should be exported, concerns about the safety of transporting large quantities of domestic crude oil by rail and questions of what changes in patterns of US energy supply and demand will be needed for the United States to meet global climate change and how they will be achieved.

The QER examined infrastructures for energy transmission, storage and distribution, including among other things, electricity transmission and distribution lines and storage; natural gas gathering, pipelines, storage, distribution and LNG production and storage; coal rail, truck and barge transport, and export terminals; and crude oil pipelines and refineries.  The QER’s major recommendations included establishing a program at DOE to provide financial assistance to the states for the purpose of providing incentives for cost-effective improvement in the safety and performance in natural gas distribution systems, and coordination between DOE, the Department of Homeland Security and other Federal agencies, the states and industry on an initiative to mitigate the risk associated with the loss of transformers in the US electricity grid, including development of one or more “transformer reserves.”

At least two proposals have been introduced into Congress to codify the QER as a replacement for the biennial NEPP requirement under the DOE Organization Act, but neither proposal has passed.  At this time, it is not clear whether President Trump and his new Secretary of Energy will use the QER process initiated by President Obama to set US energy policy through executive action, or return to the NEPP process for the purpose of proposing major new energy legislation.

FERC

President Trump’s appointments to FERC could change the way in which FERC regulates the natural gas and electricity industries.

FERC is an independent agency under DOE that regulates the interstate transmission of electricity, natural gas and oil.  FERC authorizes the construction and operation of LNG terminals and interstate natural gas pipelines and licenses hydroelectric projects.  FERC also authorizes certain public utility mergers, the disposition and acquisition of facilities subject to its jurisdiction and corporate transactions by public utility companies.

FERC is composed of up to five commissioners who are appointed by the President and confirmed by the Senate.  FERC commissioners serve five-year terms and the President designates the Chairman of FERC from among the sitting commissioners.  The Chairman is FERC’s chief operating officer and determines when and how the full commission acts on applications, rulemakings and other matters requiring a commission vote.  Historically, FERC commissioners have been appointed from the oil and gas industry, state public utility commissions and congressional energy committee staff.  By law, no more than three FERC commissioners may be from the President’s political party.

Since assuming the presidency on January 20, Donald Trump has the ability over the next several months to appoint four new FERC commissioners.  He will appoint three new commissioners from his party, following the resignation of FERC Chairman Norman Bay, and one new commissioner that is either a democrat or an independent, as Democrat Colette D. Honorable’s term expires in June 2017.

On January 26, Trump designated Cheryl A. LaFleur, who is a democrat appointed by President Obama, as Acting Chairman of FERC until he has a chance to nominate new FERC commissioners and designate a Chairman from those new commissioners.  

FERC, headed by a Republican Chairman named by President Trump with a majority of commissioners nominated by President Trump, could revise its regulations and its internal review processes to expedite consideration of applications for the construction of LNG terminals and interstate natural gas pipelines and applications for public utility mergers and other transactions subject to FERC jurisdiction.  During the last Congress, legislation had been proposed to expedite FERC authorization of pipeline and LNG facilities, but did not pass.  Trump’s executive order with respect to “high priority” infrastructure projects could be used in connection with FERC’s authorizations for natural gas pipelines, LNG terminals and hydroelectric licenses.  Two projects appearing on a list of “high priority” projects reported by McClatchy, the Atlantic Coast Pipeline and the Alaska LNG Project, are currently under review by FERC.  During the presidential campaign, Trump criticized FERC’s denial of authorization for the Jordan Cove LNG project (see related article).

Finally, many energy industry observers wonder what the Trump Administration working with a Republican-led Congress will mean for the renewable energy industry, particularly in light of some of the statements in the Republican platform during the election.  The energy plank of the Republican platform encouraged “the cost-effective development of renewable energy sources—wind, solar, biomass, biofuel, geothermal, and tidal energy—by private capital.”

It is not clear what effect the Trump Administration will have on a major driver of US renewable energy development—renewable tax credits for wind and solar electric generation projects.  In December 2015, Congress passed and President Obama signed a five-year extension of renewable energy tax credits for wind and solar.  At this time, there is no indication that either the Trump Administration or the Republican-led Congress would seek repeal of the tax credits, either as part of omnibus energy legislation or as part of a tax legislation proposal, or that the Trump Administration would seek to change the implementation of the tax credit through Treasury- or IRS-issued guidance on the use of the tax credits.

It is also not clear whether the Trump Administration or the Republican-led Congress would seek further amendment of PURPA or changes in its implementation at FERC.

On June 29, 2016, FERC staff conducted a technical conference to discuss implementation issues related to PURPA[4].   After reviewing the comments submitted in the proceeding, FERC could initiate a new rulemaking proceeding to revise its regulations under PURPA.

To date, President Trump has not announced any nominations for FERC commissioners.

Footnotes

[1] Presidential Memorandum Regarding Construction of the Keystone XL Pipeline, Jan. 24. 2017
[2] Executive Order Expediting Environmental Reviews and Approvals For High Priority Infrastructure Projects, Jan. 24, 2017
[3] Presidential Memorandum Regarding Construction of American Pipelines, Jan. 24, 2017
[4] Implementation Issues Under the Public Utility Regulatory Policies Act of 1978, Docket No. AD16-16-000.

Authors and Contributors

Donna J. Bobbish

Counsel

Project Development & Finance

+1 202 508 8089

+1 202 508 8089

Washington DC

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