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1 the Federal Energy Regulatory Commission: a Very Brief - The Federal Energy Regulatory Commission: A Very Brief Introduction to Regulation of the Application and Approval Process for Interstate Natural Gas Pipeline Construction By ©Kurt L. Krieger Steptoe & Johnson PLLC [email protected] 304-353-8124 I. The Federal Energy Regulatory Commission Few outside of the energy industry recognize the name of the Federal Energy Regulatory Commission (“FERC”) and its significant role in regulating several important energy segments. The FERC is an independent agency under the United States Department of Energy located in Washington, D.C., that regulates the interstate transmission of electricity, natural gas, and oil. FERC’s (and predecessor Federal Power Commission’s) roots are in the Federal Power Act of 19351 and Natural Gas Act of 1938 (“NGA”)2 -- the later being an act of Congress that defines FERC’s jurisdiction over the transportation and/or sale for resale of natural gas in interstate commerce, but excludes the local distribution of gas, gathering and production. The FERC also reviews proposals to build or abandon liquefied natural gas (“LNG”) import/export terminals and certain hydropower projects. Unlike its role and jurisdiction over the electric and oil segments, FERC has the exclusive jurisdiction and authority to review and approve the siting and construction of interstate natural gas pipelines; a summary of which is the primary purpose of this brief article. 1 16 U.S.C. §§ 791, et seq. 2 15 U.S.C. §§ 717, et seq. 1 6964319 - FERC is composed of five commissioners who are appointed by the President with the advice and consent of the United States Senate. Commissioners serve five-year terms and have an equal vote. No more than three commissioners may belong to the same political party. The President’s appointments are an important factor in the shaping and administration of national energy policy. FERC’s decisions are not subject to review by the President or Congress, but rather by the United States Courts of Appeals. FERC has broad enforcement and penalty/disgorgement authority, and the penalties for non-compliance with FERC’s rules and regulations have substantially increased since and because of Enron. The Energy Policy Act of 2005 (“EPAct 2005”)3 increased FERC’s civil penalty authority from a few thousand dollars per day to $1,000,000 per day, per violation for any violation of the NGA and other federal statutes that FERC administers. II. The Scope of FERC Regulation The FERC is active in both the big picture, high visibility areas of energy regulation, and in technical and narrowly focused areas. The FERC: regulates the transmission and wholesale sale of natural gas for interstate commerce; approves the siting and abandonment of interstate natural gas pipelines and storage facilities; oversees environmental matters related to interstate natural gas pipeline and hydroelectric projects and other matters; regulates the transmission and wholesale sale of electricity in interstate commerce; reviews certain mergers and acquisitions and corporate transactions by electric companies; regulates the transportation of oil by pipeline in interstate commerce; 3 Pub. L. No. 109-58, 119 Stat. 594 (2005). 2 6964319 - approves the siting of electric transmission projects under very limited circumstances; ensures the safe operation and reliability of proposed and operating LNG import/export terminals; licenses and inspects private, municipal and state hydroelectric projects; protects the reliability of the high-voltage interstate transmission system through mandatory reliability standards; monitors and investigates energy markets; enforces its regulatory requirements through imposition of civil penalties and other means; and administers accounting and financial reporting regulations and the conduct of regulated companies. While the list above is extensive and broad in scope, there are many aspects of the energy industry that are not FERC regulated. FERC is not involved in the: regulation of retail electricity and natural gas sales to consumers; approval of the physical construction of electric generation facilities; regulation of activities of the municipal power systems, federal power marketing agencies like the Tennessee Valley Authority and most rural electric cooperatives; regulation of nuclear power plants; oversight for the construction of oil pipelines; abandonment of service as related to oil facilities; mergers and acquisitions as related to natural gas and oil companies; responsibility for pipeline safety; and reliability problems related to failures of local distribution facilities. Responsibility for these areas is spread among various other federal and state agencies. 3 6964319 - III. FERC Regulation of Interstate Natural Gas Pipelines Interstate natural gas pipelines are comprehensively regulated by the FERC. Each interstate pipeline must have a FERC-approved “tariff” which contains the pipeline’s approved services, rates to be charged, and the terms and conditions under which service will be rendered. The rates charged may be cost-based reflecting the cost of building and operating the infrastructure necessary to render the service (and paid for by all pipeline customers via rates), cost-based but incremental (and paid for only by those for whom the expansion project is built and will benefit most from the additional service), or market-based reflecting market demand for the service (and paid for by only those customers of the pipeline using the new or additional service). Each interstate pipeline applies for and receives a blanket construction/abandonment certificate from FERC that authorizes the pipeline to construct less complex facility projects without an extensive advance review process at FERC.4 The construction/abandonment blanket certificate offers two authorization mechanisms both of which require advance written notification of construction activity to the landowner similar to but less detailed than that which is described later in this article for more complex projects. The “automatic” authorization within the blanket certificate authorizes the pipeline to construct and/or abandon facilities within certain cost and project purpose limitations without seeking any advance permission from FERC.5 For projects that exceed that cost limit and/or which do not fit the project purpose limitations for the automatic authorization, the second mechanism requires the pipeline company to file a mini- application with the FERC. Like the automatic authorization mechanism, this mechanism has limitations but the cost limits are significantly higher and the purpose limitations much less 4 18 C.F.R. §§157.201-157.216. 5 18 C.F.R. §§157.208(a) and 157.216(a). 4 6964319 - strict. Known as the “prior notice” mechanism, the pipeline receives approval from FERC by silence if no one objects to the project within a certain time period after the FERC issues a notice to the public that the pipeline has filed the mini-application.6 Regardless of which mechanism within a pipeline’s blanket construction/abandonment certificate is used, the pipeline must avoid “segmenting” a project into smaller pieces in order to squeeze the project in under the “per project” cost limits set forth in the blanket certificate project cost regulations. Similarly, the pipeline must take seriously the cost estimating process to insure that any project is, in fact, built under the applicable cost limit. Cost limits are adjusted upward annually. For projects that do not fit either mechanism within the blanket construction/abandonment certificate, the pipeline must seek a project specific certificate from the FERC under Section 7 of the NGA. That process requires a detailed application covering a variety of topics.7 The application must include a narrative describing the project and contain exhibits covering: Corporate structure and related details of the applicant. Maps and project facts including location, length and size of pipelines and compressor stations and connections with other entities. Environmental information (broadly defined). Preparation of the environmental exhibits will bring the applicant into contact with a variety of major federal laws and programs including the National Environmental Policy Act, National Historic Preservation Act, Clean Water Act, Clean Air Act, Coastal Zone Management Act, Wild and Scenic Rivers Act, National Wilderness Act, National Parks and Recreation Act and more. The required information must be presented to the FERC as part of the application but set forth in 13 separate “Resource Reports” covering: o detailed project description with photo based alignment sheets, topographic maps, methods to be used for construction and/or 6 18 C.F.R. §§157.205, 157.208(b) and 157.216(b). 7 18 C.F.R. §§157.6-157.22. 5 6964319 - abandonment activities and a complete listing of all other authorizations required for the project and the status of the pipeline company’s efforts to obtain those authorizations; o water use and quality; o fish, wildlife and vegetation; o cultural and historic resources; o socioeconomics; o geological resources; o soils; o land use, recreation and aesthetics; o air and noise quality; o alternatives to the pipeline company’s siting proposals; o reliability and safety; o PCB contamination; o engineering and design; o flow diagrams showing a variety of pipeline operational dynamics including pressure, capabilities/capacity under various scenarios, pressure, pipe wall thickness, etc.; o gas supply data where relevant; o market
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