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FERC Won't 'Rubber Stamp' Northeast Projects

FERC Won't 'Rubber Stamp' Northeast Projects

Putting pipeline sponsors at risk for their projects would be a "useful check" against the overbuilding of new capacity into the burgeoning Northeast market, but it's not a cure-all for all of the issues that accompany such projects, FERC Commissioner William Massey told industrial gas customers last week.

In addressing the Process Gas Consumers Group's (PGC) Fourth Annual Conference, he said that while the Commission should "trust" the signals being sent by the natural gas market, it also has the responsibility to "verify" pipelines' claims about their projects, as well as to "balance all competing concerns" during the certificate process. "...[W]e are not simply a rubber stamp," a role that he believes FERC would assume if it blindly okays all pipe projects that agree to bear full risk for underrecovery of rates, while ignoring other issues. "That is not the role Congress envisioned in giving FERC certificate authority."

Rather, "we should verify that there is, in fact, sufficient demand for a new project to justify it. We must verify that there is not a superior alternative on the table. We must verify that project sponsors bear the risk of capacity turnback. We must mitigate environmental concerns. We must verify that private property is taken or disturbed only because we have found this particular project to be necessary and required by the public convenience," Massey noted.

He said he wants all "necessary capacity" to be built to meet the growth in gas demand that's anticipated for the Northeast market during the next decade. But, "I do have concerns that market hype may lead to overbuilding and the threat of capacity turnback some day," he remarked at the PGC gathering in Alexandria, VA, last Friday. "Also, I believe we should ensure that existing capacity is [used] efficiently as we consider new capacity applications."

Massey's views contrasted with those of industrial gas users, who told FERC at the recent public conference on Northeast gas demand that they believe interstate pipelines should be permitted to build as much new capacity as they want into the growing Northeast market - provided they meet "some basic standards" and are put at risk. Industrials argue that an at-risk approach would prevent pipelines from building "flaky" projects.

But Massey doesn't believe an at-risk approach could mitigate all project concerns. For instance, he noted his decision declining up-front preliminary determinations (PDs) for the Independence and Millennium Pipelines was "guided" mostly by landowner dissatisfaction with the projects. "My view is that the Commission must address, in a responsible manner, significant landowner concerns...I am not saying that landowner concerns should substitute for sound business judgment on routes for new pipelines...However, the Commission must exercise care in fashioning decisions that will result in the taking, or substantially diminish the enjoyment, of private property rights."

He assured industrial gas customers that FERC's decision denying PDs to Independence and Millennium up front did not "signal a 'retreat' from the Commission's 'pro-competitive construction policies.'" Additionally, he said, "I have not prejudged these two projects."

Turning to the Outer Continental Shelf (OCS), Massey didn't indicate when the Commission would complete its inquiry into its OCS policy - except to say it "will soon crystallize" - or which direction it was leaning. Personally, however, he said he had "reservations" about regulating offshore pipelines solely under the lighter handed Outer Continental Shelf Lands Act (OCSLA) - which gives FERC authority over pipeline discrimination but not over rates. He noted his views "echoed" those of PGC's - "The OCSLA is simply too thin a reed to bear the entire weight of Order 636, including its rate and pro-competitive policies."

Massey said he "firmly" believes FERC should continue to regulate the OCS under the Natural Gas Act (NGA) because there is "utterly no evidence that Congress intended to place a whole geographic area of natural gas transmission service outside the scope of FERC's NGA authority." To meet its NGA obligations, he noted the Commission's OCS policy must: 1) ensure that offshore gas shippers have competitive transportation options to shore; 2) guard against abuse of market power by interstate pipelines in setting rates and granting access to their facilities; 3) regulate, if possible, in a light-handed manner; and 4) pass judicial muster.

FERC kicked off the latest inquiry into its OCS policy in 1998 after the Fifth Circuit Court of Appeals in a remand on Sea Robin Pipeline recommended that the Commission give more attention to the "physical and operational" aspects of offshore pipelines when seeking to determine whether their role is exempt gathering or jurisdictional transportation.

Massey indicated the Commission was eyeing a number of options for OCS policy, but four of them were most prominent: "First, the Commission could reformulate the primary function test [as suggested] in the Sea Robin remand...Second, we could adopt a test that would sweep most offshore facilities into our jurisdiction under the so-called 'free-water' test. Third, we could declare the entire offshore non-jurisdictional, employing the 'behind-the-plant' test, as has been suggested by a number of pipelines. Finally, the Commission could regulate solely under the OCSLA..."

Massey also addressed a number of issues that were raised in the mega-notice of proposed rulemaking (NOPR) and notice of inquiry (NOI). He said he has yet to develop the "necessary comfort level" with respect to granting pipelines authority to negotiate terms and conditions of service, although he still has an "open mind" on the issue. "I have said from the outset that I have reservations about allowing this degree of flexibility, which may conflict with the Commission's requirements that similarly situated shippers be treated alike." Industrials are opposed to FERC granting pipes negotiated authority.

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