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Relaxation of FERC Blanket Rules Sought for Pipe, Storage, LNG Facility Construction

A pipeline group and producer association teamed up last Tuesday to ask FERC to make a series of permanent regulatory and policy changes to spur the construction of interstate natural gas pipeline expansions, new storage capacity and facilities related to liquefied natural gas (LNG) import projects.

In a 22-page petition for rulemaking filed at the agency, the Interstate Natural Gas Association of America (INGAA) and Natural Gas Supply Association (NGSA) called on FERC to allow blanket authorizations for the construction of certain mainline pipeline expansions, underground storage improvements and takeaway facilities for LNG projects.

The two industry groups also urged the Federal Energy Regulatory Commission to begin an inquiry and rulemaking process to raise the dollar limits for blanket construction facilities beyond the inflation levels recognized by the agency in its existing regulation. With respect to larger, non-blanket projects, they asked the Commission to issue a policy statement or rule "clearly [stating] that it will not be construed as undue discrimination under the Natural Gas Act to provide favorable rate treatment for the shippers who make a project financially possible."

The joint INGAA-NGSA request came less than a week after FERC waived regulations on a temporary basis to raise the cost limitations for projects that gas pipelines can construct without prior specific authorization from FERC under Part 157 blanket certificates. The order raised the cost limit of project that can be built under the automatic provisions of blanket certificates by two-fold to $16 million, and raised the cost limit for projects that can be constructed under the prior-notice provisions of blanket certificates to $50 million from $22 million (see NGI, Nov. 21).

The order further expanded the definition of eligible pipeline projects to include mainline facilities. The increased dollar limits and expanded eligibility definition applies to any project that provides increased or alternative access to natural gas supply, provided the facilities are constructed and placed into service by Oct. 31, 2006.

In their joint petition, INGAA and the NGSA said "there is little to be improved in the Commission's processing of certificate applications once those applications have been filed," particularly in light of the "steady improvement" that has occurred over the last several years. "This petition focuses on the factors that affect the number and timing of projects, before applications are filed."

Dating back to the creation of the blanket certificate rules with Order 234 in 1982, certain facilities have been excluded from eligibility of blanket treatment, always requiring a full certificate application and approval proceeding in order to be authorized, the groups said. Blanket authorization was intended to address minor, routine facilities. But they noted there has been "significant fundamental change" in the pipeline industry since then.

"However, the authorization of an increase in mainline capacity, even when such an increase may be implemented at low costs, requires the additional time impact of a full-certificate proceeding. Certainly, based on cost, there should be no distinction between low-cost lateral facilities and low-cost mainline facilities."

In seeking blanket treatment for mainline facilities, INGAA and the NGSA said that this "would be an appropriate recognition that one of the industry's major challenges today is very much the assurance of adequate delivery capability to market, and that any cost-effective means of addressing this challenge should be accorded as much deference and flexibility as possible."

FERC's existing regulations exclude from blanket eligibility any facilities that increase the deliverability of a storage field and any wells necessary to utilize the field, according to the two groups. "Given the critical need for expedited enhancements of storage capability, these particular restrictions should be modified," they implored the Commission.

"Clearly, operations that could change the physical characteristics of a storage field, such as changes in the geographic size of the field, present issues other than cost that require more review than can be accomplished under blanket rules. However, deliverability enhancements or 'infill wells' to increase injection or withdrawal capability frequently do not present such issues.

"Similarly, the development of new caverns or storage zones within a previously defined project area or field, where Section 7(c) authority under the Natural Gas Act was previously granted and where all issues with respect to safety, the environment and cultural and social concerns had been addressed, may not present such issues." INGAA and the NGSA said they believe Commission regulations should be amended to allow blanket treatment in these storage cases.

The Commission's current rules also say that facilities "used to receive gas...from plants gasifying liquefied natural gas" are not eligible for blanket certificates. "Because of this specific exclusion in the regulations, current pipeline blanket holders have significant doubt as to whether they can construct facilities associated with attaching LNG to their existing pipelines, absent a full Commission certificate proceeding for review. This would include pipeline laterals, headers and connectors and any other related construction required to receive gas from an LNG terminal."

Petitioners "submit that it is problematic to have rules in place that make it considerably more difficult to hook up LNG to the interstate grid (as compared with other supplies) at a time when all supply sources are critical to meet demand. [We] do not believe it is appropriate to differentiate between facilities for different types of supply; such differentiation appears unduly discriminatory," INGAA and the NGSA said.

Lastly, "it would be timely to revisit the fundamental evaluation of the blanket [cost] limits, in light of today's project costs," the groups said. "The intent should be that any project which could have fit within the blanket dollar limits in 1992 would still fit within the limits if it were constructed today. Thus, it is not contemplated that an increase in the dollar limits will cause blanket projects to be larger, in terms of the project footprint or right of way needed, than they would have been in 1992."

In the end, "we hope that an increase in the types of projects permitted under a blanket certificate coupled with the appropriate cost increases for blanket treatment will increase the number of projects the Commission may see, leading to a tangible impact on our nation's transportation capacity and system flexibility."

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