May 2017, Vol. 244, No. 5

Government

Government

Pipeline Industry Worried About Domestic Content Memorandum

President Trump’s stated intention to require new and repaired pipelines to use “domestic content” has the potential to throw a monkey wrench into future construction. But his ability to turn the proposal into reality remains a question.

Pipeline trade groups responding to a Department of Commerce Federal Register notice point out that Trump’s authority to impose a domestic content requirement on privately funded investment is far from clear. The notice was an effort to help flesh out Trump’s Jan. 24 memorandum requiring new pipelines to use American materials “to the maximum extent possible and to the extent permitted by law.” The notice omits any reference to a legal rationale. The requirement would apply to all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside U.S borders including portions of pipelines, to use materials and equipment produced in the United States. The Commerce Department plans to finalize a policy by next January.

James Bowe, Jr., a partner in the energy practice at the law firm King & Spalding, represents interstate pipeline companies. “We have received some alarmed phone calls from current and potential pipeline project sponsors. Some have negotiated rates with anchor shippers based on quotes from suppliers. But if the proposal becomes policy in its stated form, it could raise costs considerably. Projects planning to use 48-inch, 42-inch and even in some cases 36-inch pipe might be canceled because those diameters are not available domestically in the quantities required.”

In their response to Commerce, the American Gas Association (AGA), the Association of Oil Pipe Lines (AOPL), the American Petroleum Institute (API), the Interstate Natural Gas Association of America (INGAA) and GPA Midstream Association (GPA) note that current domestic capacity to produce certain materials and equipment used to construct, operate, and maintain energy pipelines is limited. “For example, one commonly used line pipe material is grade X70 steel, which is not currently produced in any quantities above 0.750-inch thickness at U.S. steel mills; heavier thicknesses are necessary for certain pipelines,” they write. Eric Amundsen, vice president, Energy Transfer Partners L.P., adds, “There are also instances where the lack of domestic mill capabilities for special applications such as low temperature, sour service, and thicker wall requirements, has made non-North American mills the only viable suppliers.”

Domestic and international legal questions will have to be answered sufficiently before any Trump edict can be enacted. First, the World Trade Organizations rules about domestic content laws. “There is no question that consistency with international treaty obligations will be an issue,” states Bowe.

Moreover, the Natural Gas Act, which is the authority the Federal Energy Regulatory Commission (FERC) uses to approval construction certificates, has no provision about the materials an applicant plans to use. Congress would probably have to pass a law giving FERC that authority, which could be a tough political task as House and Senate Republicans have generally opposed to domestic content requirements.

Trump has said since sending the memorandum to Commerce that it does not apply to the Dakota Access and Keystone XL projects because the first was underway and the second had pipe in place prior to its approval by the State Department after Trump took office. But Trump has not addressed projects approved by FERC after he took office. A major one is the Rover Pipeline LLC approved by FERC Feb. 2, the day Commissioner Norman Bay left office.

Energy Transfer is the sponsor of Rover, a new interstate pipeline and related facilities extending from the Appalachian supply area to a proposed interconnection with Vector Pipeline, LP in Livingston County, MI. Vicki Granado, spokesperson for ETP, said, “Construction of the Rover pipeline is already underway.  The steel for this pipeline was purchased and manufactured several years ago. The lead time to produce the amount of pipe needed for a project of this size takes some time.  For Rover, 76% of the pipe was made in the U.S., which represented the total capacity available at that time.” Rover will consist of 710 miles of 24-inch, 30-inch, 36-inch and 42-inch pipeline.

The Trump memorandum specifies that the products which must be domestically sourced include iron or steel products manufactured from the beginning in the U.S. “from the initial melting stage through the application of coatings.” Steel or iron material or products manufactured in the U.S. from semi-finished steel or iron of foreign origin would not qualify as domestic.

Preliminary Trump Budget for 2018 Would End LIHEAP

President Trump’s proposed budget for fiscal 2018 eliminates funding for one key natural gas program. America First: A Budget Blueprint to Make America Great Again proposes budgets for the year beginning Oct. 1 and for Cabinet departments and some agencies such as the EPA. There is no mention of the fate of FERC and the 12.7% projected cut for the Transportation Department doesn’t mention how that might affect PHMSA. Trump will produce more specific numbers in May which will go to Congress where appropriation committees in each house will refine the proposal.

One program proposed for elimination is the Low-Income Home Energy Assistance Program (LIHEAP) funded by the Department of Health and Human Services. The AGA is a strong proponent of the LIHEAP. The Trump budget blueprint says that “compared to other income support programs that serve similar populations, LIHEAP is a lower-impact program and is unable to demonstrate strong performance outcomes.” The National Energy and Utility Affordability Coalition (NEUAC) said the program served over 6 million households in 2016 with home-heating and cooling assistance, weatherization, and/or energy-related low-cost home repairs or replacements.

Katrina Metzler, executive director of the NEUAC, said LIHEAP was funded at $3 billion in fiscal 2017, the current fiscal year.  That total was down $400 million from the year before. “LIHEAP appropriations have fallen by more than a third in five years,” she said.

One independent federal agency not covered in the budget blueprint is FERC. It has been limping along since Feb. 3 when Norman Bay left the agency. Acting Chairman Cheryl LaFleur and Commissioner Colette Honorable do not make a quorum because the commission has five seats, keeping FERC from approving any projects. FERC has kept a low natural gas pipeline profile in the past decade, preferring to concentrate on electric utility issues. That could change if Trump nominates, as rumored, Kevin McIntyre as chairman.

An attorney at the law firm of Jones Day’s Washington office, McIntyre represents pipeline and electric utility companies. Twenty five years ago, he worked for several pipelines, some of which are now under the Enable Midstream umbrella, according to Jim Bowe, who knows McIntyre well. The administration also plans to appoint Neil Chaterjee and Robert Powelson to the fourth and fifth open FERC seats, according to Washington scuttlebutt. Chatterjee is a senior energy adviser to Senate Majority Leader Mitch McConnell. Powelson is a Public Utility Commissioner in Pennsylvania.