Alongside your irregularly-scheduled Green Tape programming, we will also be posting Right of Way episodes and transcripts here.
In this episode, we discuss:
Permitting horror stories
The history of Clean Water Act Sec. 401
Why pipeline and transmission reforms go hand in hand
Thomas: Welcome back to Right of Way, a podcast about energy policy, energy politics, and above all the current permitting reform negotiations. I’m Thomas Hochman, consultant and non-resident senior fellow at the Foundation for American Innovation, and I’m joined by Pavan Venkatakrishnan, consultant and fellow at the Searchlight Institute.
Here on Right of Way, we’ve talked to a number of energy industry leaders; we’ve also talked to a number of members of Congress. But we have not yet talked to someone who has held both roles – first, as CEO of a Fortune 500 energy company, and now as a U.S. Senator.
So we’re excited to welcome today’s guest, whose experience with the permitting process as a developer was so visceral that he has declared permitting reform his “sole focus” in the Senate.
We’re looking forward to hearing some permitting horror stories, and getting into the nitty gritty of what the permitting process looks and feels like from a project sponsor’s perspective.
Our guest today is Senator Alan Armstrong. Senator Armstrong is the junior Senator from Oklahoma, appointed this past March by Governor Stitt. Prior to joining the Senate, Senator Armstrong served as CEO and then executive chairman of Williams, a natural gas processing and transportation company that handles roughly a third of America’s natural gas. Few people have spent more time trying to get pipelines permitted and built, and since arriving on the Hill, he’s become one of the Senate’s most vocal advocates for permitting reform.
Senator Armstrong, welcome to Right of Way.
Senator Armstrong: Thank you. Glad to be here today.
Thomas: So you’ve said that the pipe itself is roughly a six-month construction job on average, but it sits inside this five-to-six-year project timeline. If you could, walk us through the other five years of this process, from the day you green-light the project to the day that the gas is actually flowing.
Senator Armstrong: Yeah, sure. I think generally the issue is not the difficulty in meeting environmental standards. It’s not the studies. It’s the fact that the process itself today doesn’t really have any sequence to it. In other words, it’s very much a process that has do-loops in it. So you get this done, you go on to the next agency. That agency says, “No, we don’t like this route.” And you compound that with 20 different agencies, and you’re constantly in a state of loop.
In some cases, FERC has done a really nice job, frankly, of bringing some leadership to the issue. But there’s a lot of areas, particularly state agencies, that say, “Well, sorry, we don’t have to be a part of that. We’re gonna do our own thing.” So a lot of the challenge really is that if you were actually designing a process that said, “Hey, we want to have really tight environmental standards, and we want to know what it takes to get a pipeline built in a way that’s efficient, but we’re going to damage the environment as little as possible,” and there’s these 20 different groups that have an opinion on the right way to do that, you would force those voices to come together and to reconcile those different points of view. But that’s not the way the process works today.
And really, therein lies the problem. It’s not that it takes that long to actually test for what species we’re going to affect on this project, or what water body we’re going to affect. None of that is really all that difficult by itself. It’s just the fact that you have a combination of opinions. And by the way, people that regulate this, they love having the power to regulate this.
And this is something that I think is very, very practical, that people wouldn’t appreciate if you haven’t been in the trenches, so to speak, of getting this done. If you’re a project manager, your job is to go get this done as quick as you can. And an agency says, “You know, last time you did it this way, but this time we’ve got this really cool new idea that we want you to try. Nobody else has ever seen it. None of the other agencies have approved it, but we think you should try this. And if you want a permit from us on a timely basis, this is what you’re gonna do.” If you’re that project manager, you have zero clout or stroke. You’re just gonna say, “Yes, ma’am, may I have another.” And you’re gonna take on this new issue, because it’s the path of least resistance in terms of timing.
And the problem is that over time, thousands and thousands and thousands of those iterations have occurred, to where the project manager just says, “Okay, yes, please.”
The great example is a project one time in Pennsylvania where three different agencies were each dictating a different type of erosion control. Erosion control is where you put up – you see silt fences sometimes alongside a highway project or something like that, where you’re trying to catch any runoff when you’ve exposed bare earth. You’re trying to make sure that you don’t have erosion and dirt making its way into waterways. So it’s a very common issue for a pipeline project.
But on this project in Pennsylvania, three different agencies wanted it done their way, and if it wasn’t done their way, they were not going to issue a permit. So you’d say, “Well, what’s the big deal? Just put in three different erosion control methods.” The problem was there wasn’t enough right-of-way to comply with all three, because they all had to have a certain amount of setback. So you literally couldn’t comply with all three of them.
And the agencies all just kind of crossed their arms and said, “Well, whenever you figure it out, let us know.” Because there’s not really anybody at those agencies that – well, I shouldn’t say nobody. That is not fair. But for the most part, they don’t feel like their job is to help the project get done. They feel like their job is to impose whatever they think is the best way of doing that at the time.
That’s just an example of how this grows on itself over time. The project manager just says, “Okay, fine, whatever, I’ll do that.” And the next time, you have that new requirement, plus another regulatory person comes along and they have a new requirement. It’s like if they just have you do it the same old way we’ve been doing it – which, by the way, really works well – they haven’t done their job. They feel like they need to be coming up with something new. And so all of that crowds into the process.
But there’s nobody there really in defense of good long-term standards. The pipeline project manager is just trying to get the project built. He’s not worried about the next person. So that’s how this just builds on itself over time, to the point where nothing can get done.
Thomas: So this multi-agency, multi-stakeholder coordination issue that you’re talking about is a good segue, because we want to talk a lot about Clean Water Act Section 401 in particular. The Clean Water Act is a bit different from a lot of the other permitting laws and processes that we talk about on this podcast. Laws like NEPA and processes like NHPA Section 106 are purely procedural in nature, right? NEPA, NHPA, and ESA all share this federal action trigger. Section 401 doesn’t perfectly fit into those buckets. So for us and for our listeners, what is Section 401? What was it meant to do when it was first created, and what does it do now?
Senator Armstrong: Yeah. Well, if you look back to the source of that – and by the way, this is exciting, to get to talk in detail on these issues, because it’s usually at such a high level that it’s not all that interesting.
Thomas: Well, this is a nerdy podcast, Senator, so we appreciate you joining us on it.
Senator Armstrong: I love it. I love it. You guys will have to stop me. So 401 actually came along as part of the Clean Water Act because the feds, and particularly the Corps of Engineers – authority was being granted to the Corps of Engineers to provide water quality standards for navigable waterways. That’s how it was actually originally invented. The word “navigable” has taken on a completely different meaning over time than what I think was intended by that, and that’s been the source of a lot of different regulatory changes. But nevertheless, that’s how it started.
And the states were up in arms, because they felt like they were getting any and all of their control taken away. And so as a consolation in that process, the feds agreed to give the states these certificate rights, the 401 water quality certificate, which was kind of a pat on the head to say, “Okay, well, if you have something you really, really see wrong, then we’re going to give you this right to review water quality.” So that’s why it was actually set up, but it really wasn’t intended to be the permit. In fact, it’s not a permit. It’s a certificate. The permit is actually the 404 permit.
But over time, we’ve lost the original meaning of that, and today the states have used it as a veto right, because there really weren’t any standards put around it. In other words, it didn’t say, “Okay, well, you can only take issue with the 300-series standards in the Clean Water Act.” You can take it on according to your own standards, and there’s really not any governance about when or how you can make those up, or how you can apply them to a pipeline versus how you apply them to something else.
So it was kind of given as a gift, almost: “Here, you guys can still have your say-so.” But it wasn’t intended to be taken completely out of context the way it is today. So that’s how we got here. It was something that was just lightly written, and not a lot of detail was put into it. Nobody ever dreamed it would turn into what it is today.
Thomas: It’s a story we’ve heard a number of times, right? Not just Clean Water Act 401. You get the stories of NEPA being written just before Christmastime, when everybody just wanted to go home, not imagining that it would become the process that it is today.
Senator Armstrong: Right.
Pavan: So you’ve remarked that the denials, when you get them, are often just a couple of lines long on the actual germane water quality impacts, but they are maybe dozens of pages on unrelated or non-germane items. I’d appreciate it if you could talk us through what that looks like.
Senator Armstrong: Yeah. I would say the perfect document to go see that in was the original New York DEC denial for NESE, not for Constitution. Constitution’s similar, but NESE is the worst I’ve ever seen. It just went on and on and on about the impacts of greenhouse gas emissions and how it was gonna ruin the earth.
And then it had a little bit about, “And by the way, there’s turbidity issues here in the water on the New York Harbor crossing.” Which was fascinating, because we actually had to get the water samples for that and do the testing for that. We had to wait for the Corps of Engineers to stop the open dredging they were doing across the same channel where we were going to have to do silt-fence-lined dredging. In other words, we were gonna have to contain any spoils. The Corps was doing open dredging across the exact same channel that New York said we were gonna mess the water up through our pipeline dredging activities.
Those are the kind of things where, if you really know the facts, you read that and you think, “Boy, they didn’t even do a good job of disguising this.”
Thomas: One thing I’ll add here, because I think 401 continues to be not wildly well understood by most: I think people often think of the pipelines and power lines that require that certification as being permitted under 401 for, say, discharge from inside the pipe or something like that. But no, right? It’s for the dredge-and-fill activity – it’s for when you’re moving dirt.
So Clean Water Act 401 technically creates this one-year deadline for state certifications, but we know that in practice, that shot clock has been incredibly gameable on the side of the state. This sort of issue is relevant to other permitting deadlines as well, so I think it’s hopefully super useful for us to get into how that issue works.
You mentioned Constitution. That pipeline was first filed with New York DEC in August 2013, was then withdrawn and resubmitted in 2014, and then again in 2015, at the state’s request. Explain that dance to us.
Senator Armstrong: Yeah. This is a really good question, and I think it really kind of tells the lack of balance that has existed in the process. And I think the new permitting bill really hits this nail on the head, because it shifts the burden over to the agency, and it changes dramatically the judicial standard by which this was done.
Because in the past, I was front and center on us agreeing to re-up our application, because the state DEC promised us that it was just another month or two: “You don’t want to make us deny this. And if you don’t do this, we’re gonna deny it, and we’ll start this whole process over. But we are gonna deny it if you don’t re-up your application.”
And you are sitting there with zero leverage in that discussion, because the judicial standard under that particular item was arbitrary and capricious. So we were going to have to prove that the state of New York was acting in an arbitrary and capricious manner. If their legal department’s at all doing their job, that’s almost impossible to prove. They can always argue that there was some concern, some issue. They had a document internally that raised a concern. To be able to show that it’s arbitrary and capricious is really, really hard.
So that judicial standard leaves the developer with zero leverage in that discussion, and really nowhere to turn to get a fair resolve of the issue. And so that’s why you wind up saying, “Okay, fine, we’ll reapply. We don’t really have much choice here.”
And it’s funny, though. In hindsight, what we found out it was about was that they were wanting to be able to deny it on Earth Day. This extended it by the number of days that would allow them to deny the certificate on Earth Day. So there you go. That’s what you get for playing nice, I’m afraid to say.
Pavan: So another theme in the recent debates over permitting is the value of writing policy in regs versus in statute, right? EPA has written three different 401 rules over the last couple of years. What does that penduluming of regulatory changes do to a company that’s trying to plan a multi-decade-long asset? And why is the legislation preferable to another regulatory fix?
Senator Armstrong: Yeah. Well, I think it’s obvious, the way you pose the issue there, that companies just cannot not know what risk they’re taking when they take on a project. When you take on a big project like this, you’re spending billions of dollars, and you have to go define all of the risk that you’re taking on, because you’re comparing it to other alternative investments that may or may not have that risk.
And I can tell you the return that a company like Williams would take – and I know Williams was not distinct from any of the other pipeline players – the return that we would demand to be able to offset the risk in an area like trying to build across New York is three or four times higher than what it would be to go build something in Texas or Oklahoma or Louisiana, where there’s reasonable and dependable regulation applied at the state level. So people wonder why their utility bills are so enormously high in places like New York and New England. They need to not look any further than that risk, and the fact that things change all the time.
So yes, we need law that’s durable in both directions. And frankly, we’d be better off as a country if it was not perfect, but durable. But certain. And hopefully that’s what we’ll get out of this new permitting bill. I do think there’s some amazing, really positive things in this bill. And I think one of the most important things that it does is shift the burden over to the agency to prove that you’re actually going to cause damage, and that they’ve given you the least burdensome alternative. So that’s a huge shift from where we’ve been in permitting in our country.
Thomas: So let’s talk about the permitting bill. In June, you named three must-haves. You said fix 401, require clear evidence of real harm before a project is stopped, and an end to vacatur for projects already built. So how would you grade the Senate bill on each of those three?
Senator Armstrong: I think it’s hit these. It’s not the way I necessarily would have, and I’ve been so nervous for the last six or seven months. I’ve been super nervous that we were gonna get a weak bill, and people would call it permitting reform and pat themselves on the back, and it would get passed even though it really didn’t change the game. And that is not the case. I am so pleasantly surprised at how good this bill is. It’s balanced.
One of the standards we had when we were writing the bill that we put forth was that it wasn’t going to dilute any of the environmental protections that we have today, that it was going to be energy-source neutral, that it was going to force more common process, and that it was going to change our judicial standards in a way that developers would have a fair fight in terms of being able to get their projects approved. And I think it’s accomplished all of those and more. So I think it has absolutely nailed all of those issues.
Now, I do think there’s going to be a period of time where we’re going to have to have some precedent in law established to help us move through these processes faster. But I think that’s going to come with any new law. I do think this bill in particular is going to take some time to really get its feet, if you will. And FERC has a ton of work to do on the transmission side of this. That’s going to be super important as well. But my hat’s off to the folks that worked on this bill. It is an extremely well-balanced document.
Pavan: Yeah, here at Right of Way, we agree: BAAJA’s a great bill.
You’ve argued that if Congress can address the Clean Water Act, that could take away a potentially potent veto of interstate linear transmission lines. Can you give us the elevator pitch on that? Why is this really a pipes-and-wires provision?
Senator Armstrong: Yeah. Well, I think it’s any linear infrastructure that faces 401. The difference is, typically, if you’re building, for instance, an interstate highway inside a state, the states can see the obvious benefit to them, and so that gets done. But there’s a couple of big transmission lines, one that tried to go across Arkansas and one that tried to go across Missouri, and both of those got stopped, mostly by state actions. They didn’t really have adequate eminent domain rights under state law to be able to get those built.
And my point is that anything blocking interstate infrastructure – anything that doesn’t have clear standards, or allows the states to come up with their own standards on the fly – is going to be subject to this issue. Listen, if you dig a hole in Missouri or Arkansas, and you’re under construction and it’s a NEPA project, there’s a very good chance that you’re gonna be subject to the 401 water quality certificate. So even without that, you could be subject to that. So I think it’s really important.
And I really want to give credit where credit is due to a lot of the big transmission developers that weighed in with us on this. They helped keep industry in general speaking off of one page on this issue. And I think that’s why this bill’s going to get passed when previous bills have failed: because industry, for the most part – there’s a little bit of a transmission issue that’s still rattling around – but for the most part, industry writ large is really behind this and really excited about this bill, because it is addressing things for everybody.
The renewables industry was supportive of making sure that 401 – a lot of the big developers, big transmission developers, knew that this was going to be a risk to them as well. And they had the foresight to see it and stand up for it with the Democrats, because 401 was seen as just purely a pipeline issue. And I think industry coming together on this topic was really powerful in getting it done so effectively.
Thomas: This has been great – we really appreciate you coming and taking the time.
We always end each of our episodes by asking our guests for an energy policy hot take, and so we have to ask you, too, Senator. So what’s your hot take?
Senator Armstrong: Man, I have so many thoughts on this topic. When I saw this question, I didn’t know where to start or stop on this. But first of all, we are coming up against a period in our country where energy demand is gonna be really ramping up. If you roll the clock back four or five years, the natural gas industry said, “Man, we don’t know how we’re gonna keep up with all this LNG demand that’s coming on.” And then, lo and behold, all the gas-fired generation demand’s coming on. And it’s not just AI. There certainly is a lot of data center load, but it’s even beyond that. There’s a lot of advanced manufacturing, a lot of general electrification that’s putting a tremendous amount of demand up against the business.
And if this bill doesn’t get done, people being upset about high energy prices – that is just the beginning, because that demand is out there. We have the resource, but if we can’t build the infrastructure to connect all that supply to this fast-growing demand... I’m telling you, it is really coming at us in the next two or three years like we’ve never seen before. On the power generation side and the power demand side, we’ve never seen this kind of run-up. And so we’d better be able to build, because it’s just the tip of the iceberg in terms of high utility prices and high energy prices if we can’t get the infrastructure built out for the demand that’s growing right now.
Thomas: Senator Armstrong, thanks for joining Right of Way.
Senator Armstrong: Yeah, thank you all very much. Really enjoyed getting to talk in some detail about the topics. Thank you.
