The Federal Energy Regulatory Commission (FERC) has issued a Notice of Inquiry (NOI) initiating a review of FERC’s 1999 Policy Statement on the certification of new natural gas transportation facilities (Policy Statement).¹ The NOI seeks “information and stakeholder perspectives to help [FERC] explore whether, and if so how, it should revise its approach under its currently effective Policy Statement” for determining whether a proposed project is required by public convenience and necessity. The NOI notes that FERC’s current Policy Statement has been in place for 19 years, and during that time, there have been significant changes in the natural gas industry including, for example, a “revolution in natural gas production technology leading to dramatic increases in production,” and the increased use of natural gas as a fuel source for electric generation.

Background

Natural Gas Act (NGA) Section 7(c) requires that any person seeking to construct or operate a facility for the transportation of natural gas in interstate commerce must obtain a certificate of public convenience and necessity from FERC. Under NGA section 7(e), FERC will issue a certificate to any qualified applicant upon finding that the construction and operation of the proposed project “is or will be required by the present or future public convenience and necessity.” If an applicant receives a certificate from FERC, the certificate holder is authorized to acquire the property rights necessary to construct and operate its project by use of eminent domain if necessary.

FERC’s current policy when considering whether to approve an application to construct pipeline facilities under NGA Section 7(c) is set forth in its 1999 Policy Statement. The Policy Statement’s threshold requirement is that an applicant financially support the project without relying on subsidization from its existing customers. For existing jurisdictional pipeline companies, the Policy Statement adopted incremental rates as the default pricing mechanism to ensure that the project sponsor and its expansion customers bear all the economic risks of constructing and operating new facilities. When an existing pipeline company proposes to use its existing system rates as initial recourse rates for an expansion, the pipeline company is required to demonstrate that the incremental revenue received would exceed the incremental cost of the new project before being granted approval to roll the costs of the expansion into its system rates.

Once FERC establishes that the no-subsidy threshold requirement has been met, FERC next determines whether the applicant has eliminated or minimized any residual adverse effects the project might have on existing customers, existing pipelines in the market and their captive customers, and landowners and communities affected by the proposed project. Since issuance of the Policy Statement, FERC has expanded its environmental analyses to include consideration of landowner property rights issues.

NOI

In seeking to review its current Policy Statement, FERC, in its NOI specifically seeks input on whether, and if so how, FERC should adjust its methodology for determining whether there is a need for the proposed project, its considerations of the potential exercise of eminent domain and of landowner interests, and its evaluation of the environmental impacts of a proposed project. FERC also seeks input on whether there are specific changes FERC should consider implementing to “improve the efficiency and effectiveness of its certificate processes including pre-filing, post-filing, and post-order issuance.”

FERC has specified four general areas of examination in its NOI:

• The reliance on precedent agreements to demonstrate a need for a proposed project;
• The potential exercise of eminent domain and landowner interests;
• FERC’s evaluation of alternatives and environmental effects under the National Environmental Policy Act (NEPA) and the NGA; and
• The efficiency and effectiveness of FERC’s certificate processes.

In each of these broad areas identified above, FERC has identified specific questions that commenters should seek to address. FERC has specified 26 questions, which it asks commenters to address, including:

• Should FERC consider changes in how it determines whether there is a public need for a proposed project?
• What benefits should FERC consider when determining whether there is a public need, and should FERC consider adjusting its consideration of the potential exercise of eminent domain?
• Should applicants take additional measures to minimize the use of eminent domain?
• Should FERC consider broadening its environmental analysis to consider alternatives beyond those that are currently included, and if so, what specific types of additional alternatives should FERC consider?
• Are there any environmental impacts that FERC does not currently consider in its cumulative impact analysis that could be captured with a broader regional evaluation?
• Should certain portions of FERC’s review process be shortened?
• Are there ways for FERC to work more effectively and efficiently with other agencies?

The NOI encourages commenters to identify any issues with FERC’s current analytical and procedural approaches, and the NOI requests that commenters provide detailed recommendations to address any issues identified. FERC also notes that it will consider only generic issues. It will not consider any comments that refer to open, contested proceedings.

FERC specifies that while this review is ongoing, FERC intends to continue to review the natural gas facility matters before it, consistent with the requirements of the current Policy Statement, and to make determinations on the issues raised in those proceedings on a case-by-case basis.

Comments are due 60 days after the NOI’s publication in the Federal Register.

¹Certification of New Interstate Natural Gas Pipeline Facilities, 88 FERC ¶ 61,227 (1999), clarified, 90 FERC ¶ 61,128, further clarified, 92 FERC ¶ 61,094 (2000) (Policy Statement).

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