On January 18, 2024, FERC granted a certificate of public convenience and necessity to Transcontinental Gas Pipe Line Company, LLC (“Transco”) to construct and operate the Texas to Louisiana Energy Pathway Project (“Texas to Louisiana Project”), an approximately $91.8 million expansion project designed to provide 364,400 dekatherms per day of firm transportation service to EOG Resources, Inc. (“EOG Resources”). The Texas to Louisiana Project will provide firm transportation service to EOG Resources through a combination of (1) the conversion of Transco’s IT Feeder System to firm transportation service, (2) the turnback of certain firm transportation service by Transco’s existing customers, and (3) the addition of incremental firm transportation service made possible by the construction of a new compressor station and modifications to existing compressor stations in Texas. The Texas to Louisiana Project is fully subscribed by EOG Resources pursuant to a fifteen-year precedent agreement (“Project Precedent Agreement”).

In evaluating the Texas to Louisiana Project under FERC’s Certificate Policy Statement, the Commission determined that there is a demonstrated need for the Texas to Louisiana Project, that the Texas to Louisiana Project will not have adverse economic impacts on existing shippers or other pipelines and their existing customers, and that the Texas to Louisiana Project will have minimal economic impacts on landowners and surrounding communities. With respect to project need, the Commission held that the Project Precedent Agreement provided significant evidence of the need for the Texas to Louisiana Project and that the Texas to Louisiana Project will benefit and enhance the efficiency of the domestic natural gas market in general because it will increase the volume of natural gas that can reach a pooling point.

In setting rates for the Texas to Louisiana Project, FERC rejected Transco’s proposed incremental recourse rate and instead required Transco to use its existing system rate as the initial recourse rate for the Texas to Louisiana Project. FERC explained that Transco’s proposed incremental recourse rate included costs associated with turnback capacity – i.e., costs associated with existing capacity that were already reflected in existing rates – and that these costs could not also be included in the incremental recourse rates. Without the turnback capacity costs, FERC found that the incremental recourse rate would be lower than the system recourse rate. As such, to ensure that the Texas to Louisiana Project will not be subsidized by Transco’s existing customers, FERC required Transco to use its existing system rate as the initial recourse rate.  Additionally, because FERC changed Transco’s initial recourse rate from an incremental rate to an existing system rate, it stated that it was appropriate to evaluate whether to issue a predetermination of rolled-in rate treatment. In evaluating the Texas to Louisiana Project, the Commission found that the incremental revenues from the Texas to Louisiana Project will exceed the incremental cost of service. Therefore, FERC approved a presumption of rolled-in rate treatment for the cost of the Texas to Louisiana Project in a future Natural Gas Act section 4 rate case.

In its environmental analysis, FERC held, among other things, that preparation of an environmental assessment, rather than an environmental impact statement, for the Texas to Louisiana Project was appropriate and that there currently are no accepted tools or methods for FERC to use to determine the significance of a project’s greenhouse gas (“GHG”) emissions.

Commissioner Clements issued a dissenting opinion, stating that (1) the record lacked evidence of public need for the Texas to Louisiana Project, and (2) the environmental analysis for the Texas to Louisiana Project was insufficient because the majority’s claim that there are no acceptable tools for determining the significance of GHG emissions is unsupported and arbitrary. Commissioner Clements asserted that while the Project Precedent Agreement was “evidence of EOG[] [Resource’s] need (or at least desire) for service from Transco, [] it is not sufficient evidence of the public’s potential benefit from the project.” Commissioner Clements explained that Transco did not provide information on the actual end use of the gas or any evidence of public benefits beyond the Project Precedent Agreement. Given this “threadbare record,” Commissioner Clements asserted that it was arbitrary and capricious for FERC to conclude that the Texas to Louisiana Project is required by the public convenience and necessity.

A copy of the order, issued in Docket No. CP22-495-000, can be found here.