Transcript Federal Regulation of Natural Gas Transportation and

University of Pittsburgh School of Law
Energy Law & Policy Institute
August 1, 2013
U.S. Natural Gas Pipelines:
Regulatory and Policy Developments
David L. Wochner, Partner
Washington, DC
[email protected]
© Copyright 2013 by K&L Gates LLP. All rights reserved.
Overview
 FERC Regulation of Natural Gas
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General Agency Overview
FERC Process
Pre-Filing Process
Formal Application
Environmental Review
FERC Decision
 Other Issues
 Supply Changes
 Environmental
 Commercial
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FERC REGULATION OF NATURAL GAS
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FERC Regulation of Natural Gas
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General Agency Overview
FERC Process
Pre-Filing Process
Formal Application
Environmental Review
FERC Decision
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FERC Basics
 Independent (non-political) agency
 5 Commissioners
 5-year terms
 Senate confirmed
 3 from President’s political party
 2 from the opposition party or Independent
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FERC Organization
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FERC General Regulation
 FERC regulates:
 Transportation and sale of natural gas for resale in
interstate commerce
 Transportation of oil and products by pipeline in
interstate commerce
 Transmission and wholesale sale of electricity in
interstate commerce
 Other matters related to the operation of oil, natural
gas, electric, and hydro-projects
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FERC Regulation of Natural Gas
 Natural Gas Pipelines and Storage Facilities
 Rates (Pipelines and natural gas storage, not LNG)
 Regulates to ensure rates and terms of service are “just and reasonable” and
detailed in publicly available “tariffs”
 Access
 Requires open and non-discriminatory access to interstate natural gas
facilities and services
 Abandonment
 Regulates termination of service and abandonment of interstate facilities
 Siting, Construction, Operation
 Approves location, construction and operation of facilities for liquefaction,
regasification, transportation and storage of interstate natural gas
 Environmental
 Coordinates requirements relating to natural gas pipeline and LNG projects
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Natural Gas Act of 1938
 Basis of FERC’s authority to regulate facilities used for
the transportation and wholesale sale of natural gas in
interstate commerce
 Section 3
 Import/export of natural gas
 LNG facilities
 Section 4
 Pipeline and storage rate
filings
 Terms and conditions of
service
 “Just and reasonable” rates
 Section 4A
 Market manipulation
 Section 5
 Complaint oversight
 Section 7
 Construction and operation
of facilities
 Section 21
 General enforcement
 Section 23
 Transparency
 Reporting requirements
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FERC Regulation of Natural Gas
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General Agency Overview
FERC Process
Pre-Filing Process
Formal Application
Environmental Review
FERC Decision
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FERC Process
 To construct a natural gas pipeline, developer must first
obtain from FERC a certificate of public convenience
and necessity
 FERC’s review addresses rate, terms and conditions of
service, environmental and safety issues
 FERC coordinates with multiple federal, state, and
local government agencies who provide input to FERC
regarding their respective areas of authority and
influence
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FERC Process
 Phases to the traditional FERC certification process
 Applicant’s planning process
 FERC review procedure
 Pre-filing process – Optional for natural gas pipelines
 Preparation of (draft and) final resource reports
 Formal application
 Participation of interested parties
 Preparation of draft and final environmental impact
Statement (“EIS”) or environmental assessment (“EA”)
consistent with the National Environmental Policy Act
(“NEPA”)
 FERC decision
 Construction process
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FERC Regulation of Natural Gas
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General Agency Overview
FERC Process
Pre-Filing Process
Formal Application
Environmental Review
FERC Decision
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Pre-Filing Process
 Under EPAct 2005, FERC was required to enact rules mandating
FERC’s previously voluntary NEPA environmental pre-filing
process for LNG facility proposals
 FERC’s regulations made pre-filing voluntary for pipelines
 However, many new pipelines and expansion now utilize the prefiling process
 Regulations require that pre-filing procedures be initiated a
minimum of 6 months prior to filing formal application
 FERC’s pre-filing process is an informal review process
 No ex parte rules apply so FERC Staff is free to have private,
non-public conversations with the project proponent
 During the pre-filing process FERC Staff works with the applicant to
gather information about the proposed project
 Identify and resolve as many potential issues or obstacles in
advance of the formal application when ex parte rules do apply
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Pre-Filing Process
Source: http://www.ferc.gov
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FERC Regulation of Natural Gas
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General Agency Overview
FERC Process
Pre-Filing Process
Formal Application
Environmental Review
FERC Decision
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Formal Application
Source: http://www.ferc.gov
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Formal Application
 Once a party files its formal application, FERC will issue
notice of the application and all interested parties may
intervene and submit comments
 FERC will prepare an EA or a draft/final EIS, which
interested parties also may comment on
 Detailed filings required, including rate analysis and
justification for proposed cost-based rate, a draft tariff,
engineering and design information, maps and diagrams,
an environmental report, pro forma tariffs and initial rate
services, as well as financial and operational information
 Even an uncontested application can take between 8-12
months for FERC to review and issue decision
 FERC approval process is elaborate and public
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FERC Regulation of Natural Gas
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General Agency Overview
FERC Process
Pre-Filing Process
Formal Application
Environmental Review
FERC Decision
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Environmental Review
 NEPA requires that federal agencies conduct an
environmental analysis of proposed federal actions prior to
decision-making
 Approval or denial of an application to site, construct, or
operate an interstate natural gas pipeline is a federal action
 FERC conducts comprehensive environmental assessment
and coordinates with other agencies and with retained thirdparty environmental contractor paid for by the applicant
 Environmental review is time consuming
 Must submit extensive environmental reports, including
studies and consultations with federal, regional, state and
local agencies
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Environmental Review
 FERC’s environmental review includes
 The applicant’s receipt of environmental authorizations from
other government bodies
 The applicant’s preparation and submission of resource
reports
 FERC’s preparation of an EA, and/or possibly an EIS
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Environmental Authorizations
from Other Agencies
 FERC’s final authorization is conditioned on satisfaction of statutory
environmental requirements
 Two primary federal environmental laws figure into FERC’s
analysis
 Clean Air Act
 Clean Water Act
 Authority to administer these federal laws is delegated to the states
in which the proposed activities occur
 These are federal laws and are of equal power and authority to
FERC’s authority under the Natural Gas Act
 If a state environmental agency determines that the proposed
activities have not and cannot comply with one of these federal
laws, it likely has the authority to stop a project
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Resource Reports
 To implement NEPA, FERC’s regulations require an
applicant to submit an Environmental Report that consists
of 13 resource reports
 The Environmental Report contains the applicant’s analysis
of the environmental impact of the proposed activity
 The applicant submits draft versions of its resource reports
during the pre-filing process
 The applicant submits the final version of its resource
reports with its formal application
 Cooperating federal and state agencies have the opportunity
to comment on the draft resource reports
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Resource Reports
Report
Description
Required For
1
General project description
All applications
2
Water use and quality
All applications outside area of existing compressors,
meters, and regulator stations
3
Fish, wildlife, and vegetation
All applications outside improved area of existing
compressors, meters, and regulator stations
4
Cultural resources
All applications
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Socioeconomics
All applications involving aboveground facilities
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Geological resources
All applications outside the boundaries of existing
aboveground facilities
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Soils
All applications involving soil disturbance
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Land use, recreation, and aesthetics
All applications
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Air and noise quality
New LNG facilities
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Alternatives
All applications
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Reliability and safety
New and recommissioned LNG facilities
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PCB contamination
Removal or abandonment of PCB pipe
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Engineering and design material
New and recommissioned LNG facilities
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EIS v. EA
 EAs serve three main purposes
 To briefly provide sufficient evidence and analysis for
determining whether to prepare an EIS
 To aid FERC’s compliance with NEPA when no EIS is
necessary
 To facilitate preparation of an EIS when one is necessary
 EAs are concise documents and must include a brief
discussion of the proposal, alternatives, the environmental
impacts of the proposal and alternatives, and a list of the
agencies and persons consulted
 EAs conclude either with a finding of no significant impact
(“FONSI”) or a finding that an EIS is required
40 CFR § 1508.9
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EIS v. EA
 By contrast, an EIS is a more robust and
comprehensive document
 The process for preparing an EIS is proscriptive
 Publish notice of intent to prepare an EIS in the Federal
Register (public notice)
 Scoping
 Prepare and circulate draft EIS
 Receive comments from interested parties on draft EIS
 Issue final EIS
 Prepare and issue CPCN that adopts and sometimes
modifies the environmental conclusions and alternatives and
mitigation measures recommended in the final EIS
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FERC Regulation of Natural Gas
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General Agency Overview
FERC Process
Pre-Filing Process
Formal Application
Environmental Review
FERC Decision
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FERC Decision
Source: http://www.ferc.gov
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FERC Decision
 No deadline for FERC to issue a decision on a new pipeline
certificate project
 If FERC approves a project, its order will contain a number of
environmental mitigation measures
 Once FERC issues a decision, the applicant and parties who
intervened in the proceeding can file a request for rehearing
within 30 days
 FERC is then required under the NGA to answer that request
within 30 days or the request is deemed denied
 FERC may issue a tolling order
 If FERC rejects a party’s request for rehearing, the party may file
an appeal of the decision in U.S. federal appeals court within 60
days
 If the project developer has satisfied all of the measures in
FERC’s order, it will be able to continue construction of the
project throughout any appeals process
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CURRENT ISSUES
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Current Issues – Supply Changes
 U.S. domestic gas picture has changed
 Massive new technically and economically recoverable shale gas
resources
 Surplus has quelled concerns of many elected officials about
adequacy of supply
 Support of domestic natural gas production and use from
White House … kind of
 Repeated statements by President Obama recognizing economic
and environmental benefits of natural gas
 Growth in manufacturing and petrochemical sectors
 Increased use as a transportation fuel
 As a result, substantial increase in natural gas pipeline
infrastructure
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Current Issues – Environmental
 Keystone XL is a line in the sand for the U.S. environmental
movement
 Movement has now shifted to hydraulic fracturing and LNG
exports – Sierra Club is leading the opposition
 Quantifiable shift from previous position in first half of last decade
 Opposition is rooted in concerns over increased shale gas
production and hydraulic fracturing
 Asserts that FERC and DOE should look at the environmental
impacts of hydraulic fracturing since allowing exports
necessarily will result in additional shale gas production
 Argues that the environmental reviews are inadequate and do
not satisfy NEPA
 Indirect effects
 Reasonably foreseeable
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Current Issues – Environmental
 April 2012 Sierra Club letter to White House Council on
Environmental Quality (CEQ) asserting the alleged harms
of natural gas production and use in generation
 “Unconventionally sourced LNG is the very dirtiest form of a dirty
fuel.”
 EPA regional inquiries in FERC pipeline certificate
proceedings related to upstream production
 Methane emissions from natural gas pipelines
 Questions about adequacy of technology
 Questions about pipelines’ ability to recover costs
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Current Issues – Commercial
 Conversion of existing natural gas pipelines to
transport oil and oil products
 Existing customer protections
 Substantial new pipeline capacity in previously lessserved regions provide utilities and large industrials
opportunities for new gas supply
 Become an “anchor shipper”
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QUESTIONS?
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