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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 theburgeoning Northeast market, but it’s not a cure-all for all of theissues that accompany such projects, FERC Commissioner WilliamMassey told industrial gas customers last week.
In addressing the Process Gas Consumers Group’s (PGC) FourthAnnual Conference, he said that while the Commission should “trust”the signals being sent by the natural gas market, it also has theresponsibility to “verify” pipelines’ claims about their projects,as well as to “balance all competing concerns” during thecertificate process. “…[W]e are not simply a rubber stamp,” arole that he believes FERC would assume if it blindly okays allpipe projects that agree to bear full risk for underrecovery ofrates, while ignoring other issues. “That is not the role Congressenvisioned in giving FERC certificate authority.”
Rather, “we should verify that there is, in fact, sufficientdemand for a new project to justify it. We must verify that thereis not a superior alternative on the table. We must verify thatproject sponsors bear the risk of capacity turnback. We mustmitigate environmental concerns. We must verify that privateproperty is taken or disturbed only because we have found thisparticular project to be necessary and required by the publicconvenience,” Massey noted.
He said he wants all “necessary capacity” to be built to meetthe growth in gas demand that’s anticipated for the Northeastmarket during the next decade. But, “I do have concerns that markethype may lead to overbuilding and the threat of capacity turnbacksome day,” he remarked at the PGC gathering in Alexandria, VA, lastFriday. “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 gasdemand that they believe interstate pipelines should be permittedto build as much new capacity as they want into the growingNortheast market – provided they meet “some basic standards” andare put at risk. Industrials argue that an at-risk approach wouldprevent pipelines from building “flaky” projects.
But Massey doesn’t believe an at-risk approach could mitigateall project concerns. For instance, henoted his decisiondeclining up-front preliminary determinations (PDs) for theIndependence and Millennium Pipelines was “guided” mostly bylandowner dissatisfaction with the projects. “My view is that theCommission must address, in a responsible manner, significantlandowner concerns…I am not saying that landowner concerns shouldsubstitute for sound business judgment on routes for newpipelines…However, the Commission must exercise care infashioning decisions that will result in the taking, orsubstantially diminish the enjoyment, of private property rights.”
He assured industrial gas customers that FERC’s decision denyingPDs to Independence and Millennium up front did not “signal a’retreat’ from the Commission’s ‘pro-competitive constructionpolicies.'” Additionally, he said, “I have not prejudged these twoprojects.”
Turning to the Outer Continental Shelf (OCS), Massey didn’tindicate when the Commission would complete its inquiry into itsOCS policy – except to say it “will soon crystallize” – or whichdirection it was leaning. Personally, however, he said he had”reservations” about regulating offshore pipelines solely under thelighter handed Outer Continental Shelf Lands Act (OCSLA) – whichgives FERC authority over pipeline discrimination but not overrates. He noted his views “echoed” those of PGC’s – “The OCSLA issimply 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 toregulate the OCS under the Natural Gas Act (NGA) because there is”utterly no evidence that Congress intended to place a wholegeographic area of natural gas transmission service outside thescope of FERC’s NGA authority.” To meet its NGA obligations, henoted the Commission’s OCS policy must: 1) ensure that offshore gasshippers have competitive transportation options to shore; 2) guardagainst abuse of market power by interstate pipelines in settingrates and granting access to their facilities; 3) regulate, ifpossible, in a light-handed manner; and 4) pass judicial muster.
FERC kicked off the latest inquiry into its OCS policy in 1998after the Fifth Circuit Court of Appeals in a remand on Sea RobinPipeline recommended that the Commission give more attention to the”physical and operational” aspects of offshore pipelines whenseeking to determine whether their role is exempt gathering orjurisdictional transportation.
Massey indicated the Commission was eyeing a number of optionsfor OCS policy, but four of them were most prominent: “First, theCommission could reformulate the primary function test [assuggested] in the Sea Robin remand…Second, we could adopt a testthat would sweep most offshore facilities into our jurisdictionunder the so-called ‘free-water’ test. Third, we could declare theentire offshore non-jurisdictional, employing the’behind-the-plant’ test, as has been suggested by a number ofpipelines. Finally, the Commission could regulate solely under theOCSLA…”
Massey also addressed a number of issues that were raised in themega-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 andconditions of service, although he still has an “open mind” on theissue. “I have said from the outset that I have reservations aboutallowing this degree of flexibility, which may conflict with theCommission’s requirements that similarly situated shippers betreated alike.” Industrials are opposed to FERC granting pipesnegotiated authority.
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