FERC denies Oregon LNG project applications

U.S. energy regulators have denied applications to site, construct, and operate the proposed Jordan Cove liquefied natural gas (LNG) export terminal, an associated pipeline and related facilities slated for development in Oregon.

The Jordan Cove LNG Terminal and the Pacific Connector Pipeline were proposed as two segments of a single, integrated project.  According to the FERC record, the applicants designed the facilities to enable the production of up to 6.8 million metric tons per annum (MMTPA) of LNG, using a feed of approximately 1.04 billion standard cubic feet per day (Bcf/d) of natural gas, for export to international or domestic markets in the non-contiguous United States.  The proposed pipeline would carry natural gas to the LNG terminal, for liquefaction, storage in cryogenic tanks, and loading onto ocean-going vessels.

Under U.S. federal law, the Federal Energy Regulatory Commission exercises permitting authority over several types of natural gas infrastructure, including LNG terminals and interstate pipelines.  In 2013, Jordan Cove Energy Project, L.P. applied under section 3 of the Natural Gas Act (NGA) and Parts 153 and 380 of the Commission’s regulations to site, construct, and operate the LNG terminal.  Several weeks later, Pacific Connector Gas Pipeline, LP applied under NGA section 7(c) and Part 157 of the Commission’s regulations for a certificate of public convenience and necessity to construct and operate an approximately 232-mile-long, 36-inch-diameter interstate natural gas pipeline running to the Jordan Cove LNG Terminal.

Over the next few years, Commission staff engaged in a back-and-forth with the applicants over the status of liquefaction contracts for the LNG terminal and precedent agreements for pipeline capacity.  The Sierra Club and others intervened and filed protests.  Concerns stated included environmental issues and landowner complaints, as well as an alleged lack of need for the projects.  Meanwhile the Commission issued the project a generally favorable environmental assessment.

The Commission ultimately denied the applications on March 11, 2016.  In its order denying the applications, the Commission cited its Certificate Policy Statement as providing "guidance for evaluating proposals to certificate new construction."  In the Commission's words:

The Certificate Policy Statement establishes criteria for determining whether there is a need for a proposed project and whether the proposed project will serve the public interest. The Certificate Policy Statement explains that in deciding whether to authorize the construction of major new pipeline facilities, the Commission balances the public benefits against the potential adverse consequences. The Commission’s goal is to give appropriate consideration to the enhancement of competitive transportation alternatives, the possibility of overbuilding, subsidization by existing customers, the applicant’s responsibility for unsubscribed capacity, the avoidance of unnecessary disruptions of the environment, and the unneeded exercise of eminent domain in evaluating new pipeline construction. 

The threshold requirement for pipelines proposing new projects under this policy is that the pipeline must be prepared to financially support the project without relying on subsidization from its existing customers.  In this case, the Commission found that Pacific Connector satisfies the threshold "no subsidization" requirement of the Certificate Policy Statement because it is a new natural gas company and does not have existing customers. 

Next, the Commission determine whether the applicant has made efforts to eliminate or minimize any adverse effects the project might have on the applicant’s existing customers, existing pipelines in the market and their captive customers, or landowners and communities affected by the route of the new pipeline. If these interest groups face residual adverse effects after efforts have been made to minimize them, the Commission essentially performs an economic balancing test on the evidence of public benefits to be achieved as compared to the residual adverse effects. Only when the benefits outweigh the adverse effects on economic interests will the Commission proceed to complete the environmental analysis where other interests are considered.

The benefits test proved problematic for the Pacific Connector pipeline.  The Commission found no adverse impact to existing customers, existing pipelines in the market or their captive customers.  But the Commission noted the landowner concerns, and a lack of evidence that the applicant had obtained any easement or right-of-way agreements for the necessary use of private lands.  In the Commission's view, these concerns must be weighed against the benefits to be gained from the project.

But the Commission found that "Pacific Connector has presented little or no evidence of need for the Pacific Connector Pipeline."  The Commission noted that the pipeline applicant had "neither entered into any precedent agreements for its project, nor conducted an open season, which might (or might not) have resulted in “expressions of interest” the company could have claimed as indicia of demand." According to the Commission, the applicant offered only "generalized allegations of need."  These did include the fact that Jordan Cove received U.S. Department of Energy authorization for export of LNG to free trade agreement and non-free trade agreement nations as "consistent with the public interest."  But the FERC noted that this DOE authorization for LNG was pursuant to different statutes, and moreover did not apply to the pipeline

The Commission noted that it "has not previously found a proposed pipeline to be required by the public convenience and necessity under NGA section 7 on the basis of a DOE finding under NGA section 3 that the importation or exportation of the commodity natural gas by an entity proposing to use the services of an associated LNG facility is consistent with the public interest."  As a result, the Commission found that "the generalized allegations of need proffered by Pacific Connector do not outweigh the potential for adverse impact on landowners and communities." Because the record did not support a finding that the public benefits of the Pacific Connector Pipeline outweigh the adverse effects on landowners, the Commission denied Pacific Connector’s request for certificate authority to construct and operate its project.

Turning next to the LNG terminal, the Commission noted that the Pacific Connector Pipeline is the only proposed transportation path for natural gas to reach the Jordan Cove LNG Terminal, and that the Commission has not previously authorized LNG export terminal facilities without a known transportation source of natural gas. Because the Commission concluded that the record did not support a finding that the Jordan Cove LNG Terminal can operate to liquefy and export LNG absent the Pacific Connector Pipeline, the Commission instead found that authorizing its construction would be inconsistent with the public interest. Therefore, it also denied Jordan Cove’s request for authorization to site, construct and operate the Jordan Cove LNG Terminal.

House subcommittee holds hearing on FERC oversight

Members of the Federal Energy Regulatory Commission testify today before the House Energy & Commerce Committee, Subcommittee on Energy and Power, as that committee considers its oversight of the FERC.

The FERC is an independent administrative agency within the Department of Energy.  Its mandate includes regulating the transmission, reliability, and wholesale sale of electricity in interstate commerce pursuant to the Federal Power Act; the transmission and sale of natural gas for resale in interstate commerce pursuant to the Natural Gas Act; the transportation of oil by pipeline in interstate commerce pursuant to the Interstate Commerce Act; and evaluating proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines, as well as the licensing of non - federal hydropower projects.

As described in a committee background memorandum for today's hearing, the Subcommittee on Energy and Power is exploring whether FERC’s statutory authorities require modernization to reflect current energy realities.  Chief among those statutory authorities are the Federal Power Act and the Natural Gas Act.  The committee memorandum also notes an interest in evaluating "whether FERC is overstepping its existing statutory boundaries to pursue policy goals not intended by Congress."

Specific issues expected to be examined at the hearing include:

• Potential impacts of the U.S. EPA's Clean Power Plan rule on electricity markets, fuel diversity, and electric reliability;
• Commission oversight of organized wholesale electricity markets and their operation
• Risks to the security of the electric grid, including physical and cyber security, geomagnetic disturbances, electromagnetic pulse, and severe weather;
• How to integrate renewable, intermittent resources and distributed generation;
• The role of demand response and other demand-side management technologies in wholesale markets, at issue in the EPSA v. FERC case pending before the U.S. Supreme Court; 
• Electric transmission operations and planning, including implementation of Order No. 1000;
• Natural gas pipeline permitting, LNG siting, and hydropower licensing;
• FERC market manipulation authorities and enforcement practices; and
• FERC’s implementation of the mandatory purchase obligation from qualifying facilities (QFs) under section 210 of the Public Utility Regulatory Policies Act of 1978.

Based on prefiled documents, today's hearing features:

• testimony by FERC Chairman Norman Bay
• testimony by Commissioner Cheryl LaFleur
• testimony by Commissioner Tony Clark
• testimony by Commissioner Colette Honorable

More information about today's hearing can be found on the committee's webpage.

Natural Gas Pipeline Permitting Reform Act

Last week, the U.S. House of Representatives voted to pass a bill to expedite federal review of some spects of proposed natural gas pipelines.  Known as H.R. 161, the Natural Gas Pipeline Permitting Reform Act is officially summarized as providing for the "timely consideration of all licenses, permits, and approvals required under Federal law with respect to the siting, construction, expansion, or operation of any natural gas pipeline projects."  If enacted into law, what would H.R. 161 do?

Congress debates proposed reforms to the natural gas pipeline permitting process.

Relatively brief for federal legislation, the printed draft of H.R. 161 comes in at just 3 pages.  Overall, it defines and accelerates the timelines for federal approvals of some proposed natural gas pipelines.  If enacted, the bill would give the Federal Energy Regulatory Commission one year to decide whether or not to issue a pipeline permit, following which other federal agencies would have 90 days to issue any ancillary permits.

The pipelines that would benefit from this bill are those that have applied to the Federal Energy Regulatory Commission under Section 7 of the Natural Gas Act (15 U.S.C. 717f) for a certificate of public convenience and necessity, and have used the Commission's "prefiling" process.

First, H.R. 161 amends Section 7 of the Natural Gas Act to require the Federal Energy Regulatory Commission to approve or deny an application for a certificate of public convenience and necessity for a prefiled project not later than 12 months after receiving a complete application that is ready to be processed.

Second, H.R. 161 requires any agency responsible for issuing any license, permit, or approval required under Federal law in connection with a prefiled project for which a certificate of public convenience and necessity is sought under the Natural Gas Act to approve or deny the issuance of the license, permit, or approval not later than 90 days after the Commission issues its final environmental document relating to the project.  Generally speaking, if such as agency cannot complete its review process within this timeline, it is compelled to deny the license, permit, or approval, but H.R. 161 would allow the Commission to extend the 90 day deadline by an additional 30 days.  H.R. 161 also changes federal law to provide that in the case of agency inaction within the 90 day time period or extra 30 day period, the requested license, permit, or approval shall take effect upon the expiration of 30 days after the end of such period.

On January 22, the House voted 253-169 in favor of the bill.  It now goes before the Senate.  But on January 20, the Executive Office of the President issued a statement of administrative policy stating, "If the President were presented with H.R. 161, his senior advisors would recommend that he veto the bill."  In that administrative policy statement, the administration acknowledged the need for additional energy infrastructure and supports the timely consideration of project applications, but notes risks from that H.R. 161.  These risks include effective limits on public participation in pipeline review processes, and that agencies may be forced to make decisions based on incomplete information or information that may not be available.  The executive branch's statement also cites a FERC report that since Fiscal Year 2009, FERC has completed action on 91 percent (512 out of 563) of all pipeline applications that it has received within one year of receipt, with the remaining decisions involving complex proposals that merit additional review and consideration.

Will the Natural Gas Pipeline Permitting Reform Act be enacted into law?  How will its enactment -- or non-enactment -- affect proposed new natural gas pipelines, and the customers they would serve?

Constitution Pipeline environmental impact statement

A 124-mile natural gas transmission pipeline proposed from Pennsylvania to New York has received its final environmental impact statement from federal regulators, finding that while the project would cause some adverse environmental impacts but that mitigation would reduce them to less-than-significant levels.

The proposed Constitution Pipeline is designed connect natural gas supplies in northern Pennsylvania with major northeastern markets.  Proposed by Constitution Pipeline Company, LLC, a group whose investors include Williams, Cabot Oil & Gas, Piedmont Natural Gas, and WGL Holdings, the 30-inch underground pipeline would have a design capacity of 650,000 dekatherms of natural gas per day.  Constitution has pitched the project as a response to natural gas market demands in the New York and the New England areas, and interest from natural gas shippers that require transportation capacity from Susquehanna County, Pennsylvania to the existing Tennessee Gas Pipeline Company LLC (TGP) and Iroquois systems in Schoharie County, New York.

Developing an interstate natural gas pipeline requires a series of federal, state, and local approvals.  Under the federal Natural Gas Act, interstate pipelines must obtain a Certificate of Public Convenience and Necessity from the Federal Energy Regulatory Commission prior to construction.  Constitution started the pre-filing process in April 2012, and filed its certificate application under Section 7(c) of the Natural Gas Act with the FERC on June 13, 2013.

Under the National Environmental Policy Act, federal agencies must analyze and document the environmental effects of proposed federal actions such as issuing a certificate of public convenience and necessity for an interstate pipeline.  For the Constitution Pipeline and its associated Wright Interconnect compressor transfer station, FERC staff evaluated the projects' impacts on natural resources including geology, soils, groundwater, surface water, wetlands, vegetation, wildlife, fisheries, special status species, land use, visual resources, socioeconomics, cultural resources, air quality, noise, and safety.  Staff considered the projects' cumulative impacts along with other past, present, and reasonably foreseeable actions in the projects’ area.  Staff also evaluated over 400 alternatives to the projects, including the "no-action" alternative, system alternatives, major and minor route alternatives, and minor route variations.  In a collaborative effort, FERC staff also collected input from cooperating agencies including the U.S. Environmental Protection Agency, the U.S. Army Corps of Engineers, the Federal Highway Administration, and the New York State Department of Agriculture and Markets. 

FERC staff issued their Final Environmental Impact Statement, or EIS, for the Constitution Pipeline and Wright Interconnect projects on October 24, 2014.  In that document, staff concluded that construction and operation of the Constitution Pipeline and the associated Wright Interconnect would result in some adverse environmental impacts, but these impacts would be reduced to less-than-significant levels with the implementation of mitigation measures proposed by the company and additional measures proposed by FERC.  These mitigation measures include implementing plans for upland erosion control, revegetation, and maintenance plan, protecting wetlands and waterbodies, spill plans for oil and hazardous materials, an organic farm protection plan, and a karst mitigation plan. FERC staff also proposed an environmental inspection and mitigation monitoring program to ensure compliance with all mitigation measures that become conditions of the FERC authorizations and other approvals.

For the Constitution Pipeline project, the EIS represents a relatively favorable recommendation by FERC staff to the Commissioners.  The ultimate decision whether FERC will issue the project a certificate rests solely with the Commissioners themselves, but regulators typically rely heavily on their technical staff's evaluation of environmental impacts.  Likewise, while FERC's final EIS is not necessarily binding on cooperating agencies, they may adopt it if it satisfies their own statutory mandates for environmental reviews.

While the applicants had initially proposed to start construction in 2014, FERC staff acknowledged that "the proposed dates for the start of construction are no longer feasible."  Constitution now proposes to start construction in February of 2015 and continue through the end of 2015, pending receipt of all applicable federal authorizations.  The Federal Energy Regulatory Commission may rule on the projects' certificate applications as early as late November this year.

FERC approves Maryland LNG project

A proposed Maryland natural gas liquefaction facility won a key federal approval yesterday, as the Federal Energy Regulatory Commission authorized Dominion Cove Point LNG, LP to build the Cove Point Liquefaction Project in Calvert County, Maryland, and related facilities at an existing compressor station and at metering and regulating sites in Virginia.

Natural gas is an important fuel used globally for electric power generation and heating.  While pipelines offer the most efficient way to transport large volumes of natural gas, liquefied natural gas or LNG can more easily be transported by ship to distant markets.  As US natural gas production has increased in recent years, so too has interest in building facilities to liquefy gas for export or other use.

Under Section 3 of the Natural Gas Act, the Federal Energy Regulatory Commission or FERC authorizes the siting and construction of onshore and near-shore LNG import or export facilities. Section 7 of the Natural Gas Act authorizes FERC to issue certificates of public convenience and necessity for LNG facilities engaged in interstate natural gas transportation by pipeline.

On April 1, 2013, Dominion applied to the FERC for approval under Section 3 of the Natural Gas Act to site, construct, and operate the Cove Point Liquefaction Project for the liquefaction and export of domestically-produced natural gas at Dominion’s existing LNG import terminal in Calvert County, Maryland.  Dominion also requested authority under section 7(c) of the Natural Gas Act to construct and operate facilities at its existing compressor station and metering and regulating sites in Virginia.  Collectively, the project will enable Dominion to transport up to 860,000 dekatherms per day of natural gas form existing pipeline interconnects near the west end of the Cove Point Pipeline to the Cove Point terminal for the export of up to 5.75 metric tons of liquefied natural gas per year.

Dominion's requests triggered a case that stretched for over two years of consideration.  During this time, the FERC heard from more than 140 speakers at three public meetings related to an assessment of the project's environmental impacts, and received more than 650 comments from the public and federal, state and local agencies on the application.  In the end, the FERC determined that Dominion’s proposal, as approved with 79 specific conditions required by the Commission’sauthorization, will minimize potential adverse impacts on landowners and the environment.

According to the FERC, Dominion proposes to complete construction of the liquefaction project so that facilities may start service in June 2017.  Notably, the U.S. Department of Energy has already approved Dominion Cove Point’s export of gas to both Free Trade Agreement and non-Free Trade Agreement countries.

The same economic forces motivating the Dominion project support other proposed LNG export projects.  Indeed, FERC has approved three other LNG export projects, all in the Gulf of Mexico -- the Sabine Pass Liquefaction Project, the Freeport LNG Project, and the Cameron LNG Project -- and 14 more LNG export proposals remain pending.