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FERC Proposes to Expand Scope of Blanket Certificate Rules

June 19, 2006
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At a meeting where natural gas dominated the agency's agenda, FERC last Thursday looked favorably upon industry's request for permanent regulatory and policy changes to promote the construction of interstate natural gas pipeline mainline expansions, certain storage facilities and takeaway facilities for liquefied natural gas (LNG) import terminals.

The Interstate Natural Gas Association of America (INGAA) and the Natural Gas Supply Association (NGSA) in November asked FERC to expand the scope of blanket certificate authorizations to include the construction of certain mainline expansions, storage improvements and LNG takeaway facilities (see NGI, Nov. 28, 2005). Traditionally, blanket certificate authority has been limited to only minor gas projects.

The Federal Energy Regulatory Commission at its monthly meeting Thursday issued a notice of proposal rulemaking (NOPR) that for the most part would carry out the wishes of the two gas groups -- to extend blanket certificate authority to larger interstate gas facilities that previously were ineligible for such consideration [RM06-7].

Blanket certificates are granted to companies that already hold a certificate of public convenience and necessity under Section 7 of the Natural Gas Act. The program allows blanket certificate holders to improve and upgrade existing gas facilities that meet certain criteria without the need for a case-specific Section 7 certificate authorization for the project.

In addition to seeking to expand the scope of the program, the Commission proposed to raise the dollar limits for blanket construction projects. For projects that do not require prior-notice from FERC, the agency seeks to increase the per-project cost limit to $9.6 million from $8.2 million. And for projects that do require prior-notice, the per- project cost limit would be raised to $27.4 million from $22 million.

"I'm wondering if the dollar amounts are enough," given the high cost of raw materials, said Commissioner Nora Brownell. FERC Chairman Joseph Kelliher reminded her that this was a NOPR and that industry could recommend higher project cost limits to be included in a final rule. Commissioner Suedeen Kelly called the proposed blanket construction caps "reasonable," saying they reflected the realities of the increase in gas pipeline construction costs.

She noted that it was time the Commission gave its blanket certificate rules, which were established in 1982, a "tune-up."

Further agreeing with INGAA and the NGSA, the Commission proposed that pipelines could charge different (lower) service rates to shippers who anchor a project and make it financially possible.

However, FERC rejected the groups' request to exempt from the mandatory 180-day pre-filing process takeaway pipelines and other facilities that interconnect with LNG terminals. The Commission said the LNG terminal and facilities that attach directly to it are "interdependent -- inextricably bound in design and operation and must be evaluated in tandem; both merit a similar degree of regulatory scrutiny."

FERC also declined to include in the proposed rule criteria sought by the petitioners to expand blanket certificate authority to encompass the development of new storage salt caverns or storage zones within a previously defined and certificated project area. "The Commission...views the blanket certificate program as ill-suited to construction that would create new storage zones because impacts associated with such projects are wide ranging and go beyond the limited impact that increases in deliverability are expected to have on existing fields," the NOPR said.

The agency said the proposed rule is not intended to include storage reservoirs that are still under development or reservoirs that have yet to reach their inventory and pressure levels as specified in their certificates. However, FERC proposes to expand its blanket certificate program to include additional storage field activities subject to the prior-notice provisions, such as a description of the current geological interpretation of the storage reservoir, and the filing of isopach and structural maps of the storage field.

Comments on the proposed rule are to be submitted to FERC within 60 days after publication in the Federal Register.

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