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FERC Asserts Jurisdiction over Sound Energy LNG Project

FERC Asserts Jurisdiction over Sound Energy LNG Project

FERC laid down the legal gauntlet for California regulators last Wednesday by asserting "exclusive jurisdiction" over Sound Energy Solutions' planned liquefied natural gas (LNG) terminal for the Port of Long Beach, CA.

In a declaratory order, the Federal Energy Regulatory Commission said it had jurisdiction under Section 3 of the Natural Gas Act (NGA) and by the authority of the energy secretary over the siting, construction and operation of the import terminal proposed by Sound Energy, a U.S. subsidiary of Japan's Mitsubishi Corp.

The order held that California's jurisdiction would not kick in until the LNG-sourced gas is delivered into the intrastate delivery system. But in a conciliatory gesture, it invited the California Public Utilities Commission (CPUC) and other state agencies to work with FERC on the LNG project.

The CPUC, which challenged FERC's jurisdiction over the proposed terminal, can appeal the decision at the Commission within 30 days, but FERC noted that last Wednesday's order represents final agency action on the jurisdictional dispute, and sets the stage for the issue to be litigated in the courts [CP04-58].

In a protest filed at FERC in late February, the CPUC argued that it had jurisdiction over the siting and construction of the proposed Sound Energy LNG terminal because the gas from the facility would be transported entirely within the state of California. The agency argued that FERC's authority was limited to the actual importing of LNG.

"I regret that the CPUC precipitated what I think is a totally unnecessary confrontation," said Commissioner Joseph Kelliher. "In my view, the law is clear" and gives jurisdiction to federal regulators.

Commissioner Nora M. Brownell agreed the law was explicit on the jurisdictional question, but she noted the courts would ultimately decide the issue. In the meantime, "I would not want to see the much-needed project... held hostage to a jurisdictional debate" between state and federal regulators.

Commissioner Suedeen Kelly said she "appreciated" that the dispute had been a "straightforward, non-rancorous one" on the part of the CPUC, but she also believed that jurisdiction over the LNG project fell to FERC.

"A holding to the contrary would really require every state that sees an LNG facility on its radar-screen connecting to an intrastate pipeline to develop its own set of regulatory resources to analyze the safety and environmental impacts of LNG imports and [the] safety of the facilities," as well as to coordinate with the U.S. Coast Guard and Department of Transportation, she said.

"I don't think that Congress intended that the states be required to duplicate those kind of regulatory resources."

As expected, California regulators were disappointed with the decision. "We've done a thorough analysis of the issue and do not see how FERC can claim exclusive jurisdiction," said a spokesperson for the San Francisco-based CPUC, noting that the state regulators submitted just prior to the Commission's order a brief further outlining their arguments against exclusive FERC jurisdiction over the LNG project. "We wish they would have read our brief rather than ruling so quickly."

The CPUC will consider its options for appealing the ruling, the spokesperson said. Tom Giles, COO for the Sound Energy LNG project, said the FERC decision reflected the company's position supporting federal jurisdiction.

"Our project will get a thorough review and we want that," Giles said. In California, he noted that California's Lands Commission and Coastal Commission will review the company's LNG proposal, along with the lead agency, the Port of Long Beach, and the U. S. Coast Guard.

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