Daily Rules, Proposed Rules, and Notices of the Federal Government
1. On June 16, 2006, the Federal Energy Regulatory Commission (Commission) issued a Notice of Proposed Rulemaking (NOPR) in this proceeding.
2. A natural gas company must obtain a certificate of public convenience and necessity pursuant to section 7(c) of the Natural Gas Act (NGA) to construct, acquire, alter, abandon, or operate jurisdictional gas facilities or to provide jurisdictional gas services. Once issued a case-specific NGA section 7(c) certificate, a gas company may also obtain a blanket certificate under NGA section 7(c) and Part 157, Subpart F, of the Commission's regulations to construct, acquire, alter, or abandon certain types of facilities without the need for further case-by-case certificate authorization for each particular project.
3. This Final Rule expands the scope of activities that can be undertaken pursuant to blanket authority by (1) increasing the project cost limit to $9,600,000 for an automatic authorization project and $27,400,000 for a prior notice project
4. On November 22, 2005, the Interstate Natural Gas Association of America (INGAA) and the Natural Gas Supply Association (NGSA) jointly filed a petition under § 385.207(a) of the Commission's regulations proposing that the blanket certificate provisions be expanded to include mainline facilities, LNG takeaway facilities, and certain underground storage field facilities which are currently excluded from the blanket certificate program, and that the cost limits for all categories of blanket projects be raised. Petitioners also argue in favor of preferential rate treatment for “foundation shippers,”
5. Notice of the INGAA/NGSA petition was published in the
6. After consideration of the petition and comments thereto, the Commission issued a NOPR that (1) proposed adopting the petitioners' requested regulatory revisions, with relatively minor modifications, and (2) clarified that the petitioners' hypothetical tiered rate structure for a new project could be accepted under the Commission's current policies. Notice of the NOPR was published in the
7. The blanket certificate program was designed to provide an administratively efficient means to authorize a generic class of routine activities, without subjecting each minor project to a full, case-specific NGA section 7 certificate proceeding. In 1982, in instituting the blanket certificate program, the Commission explained the new program as follows:
[T]he final regulations divide the various actions that the Commission certificates into several categories. The first category applies to certain activities performed by interstate pipelines that either have relatively little impact on ratepayers, or little effect on pipeline operations. This first category also includes minor investments in facilities which are so well understood as an established industry practice that little scrutiny is required to determine their compatibility with the public convenience and necessity. The second category of activities provides for a notice and protest procedure and comprises certain activities in which various interested parties might have a concern. In such cases there is a need to
8. The Commission continues to apply the above criteria in an effort to distinguish those types of activities that may appropriately be constructed under blanket certificate authority from those projects that merit closer, case-specific scrutiny due to their potentially significant impact on rates, services, safety, security, competing natural gas companies or their customers, or on the environment. The Commission believes the regulatory revisions put in place by this Final Rule are consistent with the above-described rationale for and constraints on the blanket certificate program.
9. In addition, “[u]nder section 7 of the NGA, pursuant to which the blanket certificate rule is promulgated,” the Commission has “an obligation to issue certificates only where they are required by the public convenience and necessity. The blanket certificate rules set out a class of transactions, subject to specific conditions, that the Commission has determined to be in the public convenience and necessity.”
10. The Commission proposes to expand the scope of blanket certificate activities to include facilities and services that have heretofore been excluded from the blanket program and to expand the scale of blanket certificate activities by raising the current project cost limits.
11. The Final Rule adds §§ 157.210, .212, and .213 to include, respectively, certain mainline, LNG and synthetic gas, and storage facilities within the blanket certificate program. As discussed in the NOPR, these facilities were initially barred from the blanket program out of concern that their cost and operation could adversely impact existing customers' rates and services. These concerns remain valid, and in addition, there has been increased attention to the environmental, safety, and security implications of all natural gas facilities. To ensure these matters receive appropriate review, all projects involving the additional types of facilities now permitted under the expanded blanket certificate program (with the exception of the remediation and maintenance of underground storage field facilities) will be subject to the prior notice provisions of the regulations regardless of their estimated costs. As explained in the NOPR, the Commission expects that by requiring prior public notice for blanket projects involving these previously excluded facilities, and by providing for more information to be included in notices to affected landowners and the public, and by providing additional time to assess proposed blanket projects, the Commission, affected landowners, and others will be afforded a reasonable opportunity to review the potential impacts of proposed projects prior to construction.
12. APGA asks that the Commission affirm these measures will ensure adequate staff review of prior notice submissions. The Commission expects that the revised regulations will enable staff to make a meaningful assessment of proposed blanket projects—and as appropriate, protest pursuant to § 157.205(e) of the Commission's regulations—prior to a project going forward.
13. The Final Rule adds § 157.210 to allow blanket certificate holders to acquire, construct, modify, replace, and operate mainline gas facilities. The Final Rule makes the following modifications. At the end of the first sentence of this section, the phrase “natural gas mainline facilities,” is qualified by adding “including compression and looping, that are not eligible facilities under § 157.202(b)(2)(i).” This clarifies that blanket certificate authority can be employed for mainline projects that include compression and loop line facilities, and also clarifies, in response to INGAA's request, that this new section does not displace, but is in addition to, the existing provisions which state that certain mainline facilities are eligible to be replaced or rearranged under blanket authority. In addition, the reference in the NOPR to the authority to “abandon” is removed, since as Williston observes, blanket abandonment provisions are described in § 157.216 of the Commission's regulations. Instead, a cross-reference to § 157.210 will be added to § 157.216, so that the blanket abandonment authority and procedure now in place will be extended to new mainline facilities and services.
14. INGAA, Duke, and Dominion insist there is no need for prior notice for mainline projects that come under the automatic authorization cost limit, asserting that the Commission already has the capability to monitor mainline projects for adverse impacts, abuses, and segmenting by means of a review of annual reports and post-construction audits. On the other hand, APGA and IPAA argue in favor of prior notice for all § 157.210 mainline activity, regardless of cost.
15. Although the Commission is comfortable with its capability to assess and monitor the variety of activities currently included within the blanket certificate program, this Final Rule draws into the blanket program facilities which heretofore have been deliberately excluded due to the expectation that the limited regulatory oversight provided under the blanket program would be inadequate to properly review such facilities. Oversight via review of annual reports and post-construction audits, as suggested in comments, would only identify transgressions after the fact, whereas prior notice functions as a preventive measure. Given the Commission's lack of experience under the blanket program in supervising mainline, LNG and synthetic gas, and storage facility projects, the NOPR reasoned it would be prudent to provide prior notice for all projects involving these newly blanket-enfranchised facilities. The Commission affirms that reasoning here, with an exception described below for certain storage facilities.
16. In the NOPR, in response to a query by Kinder Morgan Interstate Gas Transmission, LLC (Kinder Morgan), the Commission stated its expectation that the proposed regulatory revisions would provide certificate holders with the
17. The Final Rule adds § 157.212 to allow certificate holders to acquire, construct, modify, replace, and operate facilities used to transport LNG or synthetic gas. The Final Rule removes the reference in the NOPR to the authority to “abandon,” and instead adds a cross-reference to the blanket abandonment authority described in § 157.216 of the Commission's regulations. In addition, § 157.212 will be revised to clarify that it applies to facilities that transport a mix of synthetic and natural gas and to facilities that transport exclusively revaporized LNG.
18. As was the case regarding the issue of prior notice for mainline facilities, comments both favor and oppose applying prior notice to all LNG and synthetic gas facilities that are now newly subject to authorization under the blanket program. In accord with the above discussion regarding mainline facilities, the Commission will retain the prior notice requirement. In the NOPR, the Commission added that automatic authorization was unsuited to LNG and synthetic gas facilities because these projects raised fact-specific issues of safety, security, and gas interchangeability.
19. In opting for prior notice, INGAA contends the Commission is being “unduly cautious,” since “LNG supplies are not new to the natural gas industry and have been flowing into the U.S. grid for a long time now.”
20. The NOPR states that “blanket certificate authority will not apply to the outlet pipe of an LNG or synthetic gas plant, but only to those facilities that attach to the directly interconnected pipe.”
21. The Commission views Duke's suggestion as incompatible with the statutory and regulatory requirements applicable to LNG terminal facilities. In the NOPR, the Commission explained that:
LNG plant facilities are not within the class of minor, well-understood, routine activities that the blanket certificate program is intended to embrace; LNG plant facilities necessarily require a review of engineering, environmental, safety, and security issues that the Commission believes only can be properly considered on a case-by-case basis.
22. In view of the complexity of the issues raised by LNG terminals, § 157.21 requires that proposals to construct a new LNG terminal, or to make certain modifications to an existing LNG terminal, be subject to a mandatory 180-day prefiling procedure. The 180-day prefiling procedure conflicts with the expedited nature of the blanket certificate program. Thus, facilities subject to mandatory prefiling cannot be authorized under the blanket certificate program.
23. For example, in the case of a planned, but not yet authorized, LNG terminal, if the facilities that attach directly to the new terminal are “related jurisdictional natural gas facilities,” as defined by § 153.2(e)(1) of the Commission's regulations, they must be considered in conjunction with the LNG terminal in a 180-day mandatory prefiling procedure. In the case of an existing LNG terminal, if the construction or modification of facilities that attach directly to the terminal will result in modifications to the terminal, and those modifications to the terminal
24. However, blanket certificate authority can be applied to facilities that attach directly to an existing LNG terminal if the construction and operation of the attached facilities will not involve any modifications to the terminal, or if there are modifications to the terminal, they are not significant modifications that trigger the 180-day mandatory prefiling process. In view of this latter category of facilities, the Commission qualifies its description in the NOPR on the applicability of the blanket program. Provided the construction and operation of facilities that attach directly to an existing LNG terminal do not involve modifications to the terminal that result in a mandatory prefiling process, blanket certificate authority extends to such facilities.
25. Sempra complains that an existing blanket certificate holder, in seeking to build a pipeline to attach to an LNG terminal, would have a competitive advantage over a new entrant compelled to seek case-specific authority. Sempra asks the Commission to preclude any project sponsor from using blanket certificate authority to gain a timing advantage over a new entrant in seeking to serve the same LNG supply source or market.
26. As discussed above, a new line to a new LNG terminal could not be built under the expanded blanket certificate authority, and depending on circumstances, neither could a new line to an existing LNG terminal. That notwithstanding, the Commission acknowledges that, to the extent proceeding under the blanket program provides an expedited authorization compared to a case-specific applicant, new entrants could be placed at a competitive disadvantage. However, the Commission notes that any timing-related advantage is diminished because a blanket-eligible line interconnecting directly with an LNG terminal will be subject to prior notice, and thus to protest, and an unresolved protest would cause the prior notice blanket application to be treated as an application for case-specific NGA section 7(c) authorization.
27. The Final Rule adds § 157.213 to allow certificate holders to acquire, construct, modify, replace, and operate certain underground storage facilities. As with § 157.210 and § 157.212, § 157.213 is revised to remove the reference in the NOPR to the authority to “abandon,” and instead a cross-reference is added to the blanket abandonment authority described in § 157.216 of the Commission's regulations. The Commission will further revise this section as described below.
28. Comments again both favor and oppose applying prior notice to all underground storage projects. However, in this instance, the Commission finds it appropriate to permit automatic authorization for certain types of storage projects. Dominion contends that automatic authorization should be allowed for storage projects limited to remediation and maintenance, on the grounds that such activities have little impact on customers or operations compared to projects to improve a storage facility. The Commission concurs and will provide for automatic authorization for storage remediation and maintenance activities under revised § 157.213(a).
29. The NOPR states that “the proposed expanded blanket certificate authority is not intended to include storage reservoirs that are still under development or reservoirs which have yet to reach their inventory and pressure levels as determined from their original certificated construction parameters.”
30. The Commission disagrees. While it may be true that reliable operational data are available for some existing fields that have yet to reach capacity, this is not always the case. Thus, the Commission does not believe that the blanket program, which permits an expedited and generic approval following a limited prior notice period, is the appropriate means to review and approve such projects. As stated in the NOPR, storage reservoirs that are still under development or reservoirs which have yet to reach their inventory:
31. Dominion questions whether the Commission needs an inventory verification study, shut-in reservoir pressures, and cumulative gas-in-place data, which would be required for blanket projects under proposed §§ 157.213(b)(7) and (8), since the Commission does not currently require submission of this information in case-specific NGA section 7(c) applications for storage projects.
32. Dominion is correct in observing that the information specified in §§ 157.213(c)(1) through (9) is not now required to be submitted under the existing regulations for case-specific certificate applications. However, the Commission considers this information necessary to make an informed decision on storage projects. Therefore, when this information is not included in a case-specific application, Commission staff, as a matter of routine practice, will request the data from the project sponsor. Section 157.213(c)(1) through (9) merely codifies this practice. Were this information not included in a prior notice filing, in all likelihood, Commission staff would request this data from the project sponsor, and in the event the response was incomplete or staff lacked time to assess the information by the conclusion of the prior notice period, staff could be compelled to protest the filing. Thus, to ensure the timely consideration of a prior notice request for a storage project, the filing must contain the information specified in §§ 157.213(c)(1) through (9). However, the Commission acknowledges that not all the information specified in §§ 157.213(c)(1) through (9) will be relevant in all cases, and will thus adopt Dominion's suggestion and qualify § 157.213(c) to state that the information requirements apply “to the extent necessary to demonstrate that the proposed project will not alter a storage reservoir's total inventory, reservoir pressure, reservoir or buffer boundaries, or certificated capacity, including injection and withdrawal capacity.”
33. The NOPR proposes raising the blanket certificate program's 2006 cost limits from $8,200,000 to $9,600,000 for each automatic authorization project and from $22,700,000 to $27,400,000 for each prior notice project. AGA, APGA, Con Ed, and Orange and Rockland urge the Commission not to raise the cost limits, cautioning that permitting more expensive projects would risk transforming the nature of the blanket program from one intended to cover small and routine construction activities into a program under which projects with potentially significant rate and environmental impacts could be built.
34. While gas project costs, including environmental compliance and public outreach, have trended up since 1982, so have the blanket program cost limits, almost doubling since 1982.
35. INGAA and NGSA propose making permanent the doubled project cost limits that are currently in place temporarily.
36. Blanket services are provided at a certificate holder's existing Part 284 rates, and blanket project costs are afforded the presumption that they will qualify for rolled-in rate treatment in a future NGA section 4 proceeding. Since blanket costs are presumed to be so small as to have no more than a de minimis rate impact, the proposal to increase cost limits calls this presumption into question. Therefore, the NOPR sought comment on whether to permit project sponsors the option of requesting an incremental rate for a particular blanket certificate project.
37. Commenters generally support this option, and note that applying an incremental rate to blanket projects would address the worry that existing customers might be made to subsidize new projects. INGAA argues that
38. Commenters present no compelling reason to modify the current practice of presuming, initially, that blanket project costs will qualify for rolled-in rate treatment, then evaluating the validity of this presumption, subsequently, in an NGA section 4 rate proceeding. Accordingly, for the time being, the Commission will continue to apply a presumption that blanket costs will qualify for rolled-in rate treatment. However, the Commission will revisit this question if there is evidence that the enlargement of the blanket certificate program to permit additional facilities and higher cost limits materially alters the manner in which project sponsors employ their blanket certificate authority or otherwise undermines the basis for the presumption of rolled-in rate treatment. Absent any such indication, the Commission hesitates to put in place a procedure to assess and approve initial rates for proposed blanket projects, since the additional time necessary to complete such a review will inevitably stretch the span between notice of a project and commencement of construction. To the extent practicable, the Commission aims to retain the benefit of an expedited project authorization available under the current blanket certificate program.
39. Emphasizing that revised blanket certificate regulations do not require project sponsors to demonstrate that a proposal conforms to the Policy Statement on New Facilities, Con Ed and Orange and Rockland request that the Commission (1) require that the prior notice of a proposed blanket project quantify impacts on existing customers and verify that the project will be fully functional without any additional construction; (2) allow protests to a blanket project that raise legitimate rate-related issues to be resolved in a case-specific proceeding; (3) extend the presumption of rolled-in rate treatment to a blanket project's costs only if the blanket project sponsor demonstrates the project will be fully subscribed or provide benefits to existing customers; and (4) find that the presumption favoring rolled-in rate treatment is rebutted if a blanket project is subsequently determined to be a segmented portion of a larger undertaking. Sempra suggests requiring project sponsors that undertake blanket storage projects and that have an existing cost-based recourse rate to discuss the rate implications of a proposed project in the prior notice of the project in order to demonstrate that existing customers will not subsidize the new facilities.
40. The Commission believes that the existing blanket certificate regulations are adequate to address the matters Con Ed, Orange and Rockland, and Sempra raise. The existing prohibition against segmentation is intended to preclude projects that would not be functional without additional construction. The rate impacts of a blanket project, while not now reviewed in advance, are considered in a future rate proceeding—and in the rate proceeding, the issues of subsidization and system benefits can be addressed. The regulations permit any interested person to protest a blanket project subject to the prior notice provisions; each protest, whether rate related or otherwise, will be considered on its merits on a case-by-case basis.
41. Con Ed, Orange and Rockland complain that the presumption favoring rolling in blanket costs is rarely rebutted.
42. The Commission acknowledges that in the vast majority of rate proceedings, the outcome affirms the presumption favoring rolling in blanket costs. The Commission notes that in rate proceedings, there is rarely any effort to rebut the presumption, which the Commission takes to be an indication of the legitimacy of the presumption. The Commission recognizes that a certificate holder is likely to weigh its own self interest when considering whether to initiate an NGA section 4 rate proceeding. However, if a company fails to initiate a rate proceeding in a timely manner, such that distortions over time have rendered its rates unjust and unreasonable, a complaint can be filed under NGA section 5.
43. In initiating the blanket certificate program in 1982, the Commission explained that § 157.206(a)(1) was intended to “reserve the Commission's right to amend Subpart F so as to add, delete or modify the standard conditions and any procedural requirements * * * if changing circumstances or experience so warrant.”
44. The NOPR proposed revising § 157.203(d)(2)(iv) to state that in the notice to affected landowners of a proposed project, the project sponsor include the most recent edition of the Commission pamphlet titled “An Interstate Natural Gas Facility on My Land? What Do I Need to Know?” INGAA and Williston point out that the current edition of the pamphlet describes the Part 157, Subpart A, case-specific certificate process generally, but does not describe the Part 157, Subpart F, blanket program specifically, and suggest the pamphlet be revised or a separate pamphlet be prepared to cover the blanket certificate procedures. The Commission will adopt the latter approach, and to enhance administrative efficiency and ensure information remains up-to-date, rather than a pamphlet, the Commission will require that notice include blanket-specific information that will be available on the Commission's Web site. Accordingly, § 157.203(d)(2)(iv) of the Commission's regulations is revised to read as follows: “A general description of the blanket certificate program and procedures, as posted on the Commission's website at the time the landowner notification is prepared, and the link to the information on the Commission's website.”
45. In response to Williston, the Commission clarifies that the information requirements stated in § 157.203(d)(1), including the additional requirements of revised § 157.203(d)(1)(iii), are applicable to landowner notification for proposed blanket certificate projects that qualify for automatic authorization. The information requirements stated in § 157.203(d)(2), including the additional requirements of revised § 157.203(d)(2)(i), (ii), (iv), (v), and (vii), are applicable to public notice for proposed blanket certificate projects that do not qualify for automatic authorization.
46. Revised § 157.203(d)(2)(v) requires that in the notice to affected landowners of a proposed project, the project sponsor include a brief summary of the rights the landowner has in Commission proceedings and in proceedings under the eminent domain rules of the relevant state(s). INGAA contends affected landowners will perceive any discussion of eminent domain “as a threat that their property will be condemned if they do not consent to an easement agreement,” an interpretation that “could cause more harm than good,”
47. As INGAA recognizes, discussions concerning the potential to acquire property rights by means of eminent domain can be disconcerting to affected landowners. It has been the Commission's experience that such discussions are most prone to be perceived as threatening when the initial contact with landowners is made in person by a project sponsor's representative seeking physical access to the property. The Commission believes a far less provocative means to inform affected landowners is to present them with a brief, clear, and candid description of the eminent domain process in written form. Landowners cannot be expected to engage in negotiations and reach decisions regarding their property without such information. The Commission concurs with INGAA's apprehension that landowners may be confused by a description of state condemnation if federal condemnation is employed; accordingly, § 157.203(d)(2)(v) of the Commission's regulations is revised to omit the reference to state proceedings and to instead require a “brief summary of the rights the landowner has in Commission proceedings and in proceedings under the relevant eminent domain rules.”
48. The Commission agrees with Duke's observation that affected landowners ought to be informed of their right to obtain counsel, and this fact should be included in the required summary of landowner rights. In response to Duke's concern that complying with § 157.203(d)(2)(v) could constitute the practice of law or place project sponsors with an ethical quandary, the Commission clarifies that the required brief summary of rights and procedures is descriptive, not interpretative. Project sponsors are expected to summarize or recite applicable law, and no more. Not only need no advice be proffered, none should be. Finally, the Commission notes similar arguments were presented when the original landowner notification rule was instituted in 1999;
49. As proposed, § 157.203(d)(1)(B) requires that in a notice to affected landowners of a proposed project, the project sponsor include a local contact to call first with problems or concerns. INGAA points out that for certain projects, the personnel best able to respond to problems or concerns may be remotely located,
50. Currently, under § 157.203(d)(1) of the Commission's regulations, before commencing construction of an automatically authorized blanket project, project sponsors are required to give affected landowners 30 days notice in advance of construction. For blanket projects that do not qualify for automatic authorization, under § 157.203(d)(2), project sponsors are required to provide a 45-day prior notice to the public, during which any person, or the Commission, can protest the proposal. The Final Rule extends each of these time frames by 15 days. INGAA, NGSA, and pipelines object to offering additional notice time, arguing that (1) the proposed increase in project
51. The NOPR stated:
In view of the proposed expanded scope and scale of blanket certificate authority, which can be expected to increase the number of automatic authorization projects undertaken and the number of people impacted, an additional 15 days offers greater assurance that there will be adequate time for landowners to state their concerns and for project sponsors and the Commission to respond * * * [T]he additional time will provide the Commission with a more reasonable period of time to conduct and conclude its environmental assessment (EA) of a proposal. This NOPR contemplates an increase in the number, extent, kind, and complexity of facilities subject to blanket certificate authority, yet even for the types of projects currently permitted, 45 days has proved to be, on occasion, an unrealistically short time for the consultation and analysis required to complete an EA. The additional time will ensure the Commission is not forced to protest a prior notice project merely as a means to gain time to finish an EA. The Commission does not expect the extended landowner and public notice periods to unduly delay blanket certificate projects, since natural gas companies, in large part, can dictate when a blanket certificate project may begin construction by when the company elects to initiate the notice process.
52. It is not only the increase in project costs,
53. Revised §§ 157.208(e)(4)(ii) and (iii) require that the annual report filed for automatic authorization projects document the progress toward restoration and discuss problems or unusual construction issues and corrective actions. INGAA, Duke, and Williston contend that providing this information will be burdensome, especially for large pipelines that might rely on automatic authorization for numerous projects each year, and may require placing additional personnel on site to monitor progress on each project.
54. The Commission has a different perspective. Certificate holders are currently required to comply with all the conditions in § 157.206(b) of the Commission's blanket certificate regulations. Section 157.206(b), in addition to setting forth specific conditions, makes blanket certificate activities subject to the conditions in § 380.15 of the Commission's regulations implementing NEPA, as well as requiring that all blanket certificate activities be consistent with all applicable law implementing the Clean Water Act, the Clean Air Act, and other statutes relating to environmental concerns. Consequently, in order to satisfy all the conditions applicable to blanket certificate activities, it is already necessary for project sponsors (1) to have plans and procedures in p