Natural Gas Transmission Regulation in the US Jeff Wright, Chief Energy Infrastructure Policy Group Office of Energy Projects Federal Energy Regulatory Commission At Comisión Federal de Electricidad Mexico City, Mexico July 29, 2004

FERC Office of Energy Projects 2 What Is FERC? An Independent Regulatory Agency in the Executive Branch of the US Government Created by the Department of Energy Organization Act (1977) Federal Power Commission was the predecessor of FERC

FERC Office of Energy Projects 3 How is FERC Organized? There are 5 Commissioners –Nominated by the President, confirmed by the Senate, President designates Chairman –Each commissioner has a 5-year fixed term, with one term expiring each year The Chairman sets the triweekly Commission agenda –Orders voted out by majority rule

FERC Office of Energy Projects 4 FERC is an Independent Federal Regulatory Agency Political Party –No more than 3 commissioners from one political party President and Congress –No review of FERC’s decisions by President, Department of Energy or other agencies Industry Participants –No private discussions of open cases –Restrictions on FERC employees: stock, gifts, future employment

FERC Office of Energy Projects 5 Program Offices Office of Energy Projects Natural Gas Pipeline Construction and Abandonment Hydroelectric Projects (licensing, safety, compliance Environmental Reviews for Natural Gas and Hydro Projects) Office of Markets, Tariffs, and Rates Natural Gas, Electric, and Oil Rates and Terms/Conditions of Service Office of Market Oversight and Investigation Market Monitoring and Enforcement Office of Administrative Litigation FERC Trial Staff

FERC Office of Energy Projects 6 FERC Helping Markets Work Adequate Infrastructure OEP Effective Market Rules OMTR Market Oversight OMOI Competitive Market FERC

Office of Energy Projects 7 FERC Chairman Wood (R) External Affairs General Counsel Markets, Tariffs, Rates Executive Director Administrative Litigation Administrative Law Judges Energy Projects Secretary Commissioner Brownell (R) Commissioner Kelliher (R) Commissioner Kelly (D) Vacant Market Oversight & Investigations

FERC Office of Energy Projects 8 What Does FERC Regulate? Natural Gas Industry –Interstate transportation rates and services –Interstate gas pipeline and liquefied natural gas terminal construction and oversee related environmental matters Electric Power Industry –Interstate transmission rates and services –Wholesale energy rates and services –Corporate transactions, mergers, securities issued by public utilities

FERC Office of Energy Projects 9 What Does FERC Regulate? (con’t) Oil Pipeline Industry –Interstate transportation rates and services of crude oil and petroleum products Hydroelectric Industry –Licensing of nonfederal hydroelectric projects –Oversee related environmental matters –Inspect nonfederal hydropower projects for safety issues

FERC Office of Energy Projects 10 Major Pipeline Construction Projects

FERC Office of Energy Projects 11 The Regulatory Process As A Balancing Act

OEP Organizational Structure LNG Engineering Branch Chris M. Zerby 8/28/ FERC Office of Energy Projects

FERC Office of Energy Projects 13 Natural Gas Act (NGA) Natural Gas Policy Act (NGPA) Regulation of Interstate Construction

FERC Office of Energy Projects 14 Facilities to Transport Gas Under NGPA Section 311 May Be Constructed Without FERC Approval. Facilities can only be used to transport on behalf of an intrastate or LDC Must comply with environmental requirements If cost of facilities exceeds $7.5 million, FERC must be notified 30 days prior to construction NGPA

FERC Office of Energy Projects 15 Natural Gas Act NATURAL GAS ACT Section 3 Import/Export Case Specific Case Specific Blanket Authority Automatic Prior Notice Section 7(c) Interstate

FERC Office of Energy Projects 16 Automatic Authorization Cost of facilities is less than $7.5 million Facilities are “eligible” facilities Prior Notice Cost is between $7.5 and $21 million 45-day notice period prior to construction Facilities are “eligible” facilities Natural Gas Act Blanket Certificate

FERC Office of Energy Projects 17 Conduct a full review of proposal including engineering, rate, accounting, and market analysis Conduct an environmental review by preparing an Environmental Assessment or an Environmental Impact Statement Natural Gas Act Case Specific Section 7(c) Certificate

FERC Office of Energy Projects 18 NGPA OR NGA? NGA Certificate Grants a Right of Federal Eminent Domain NGPA Does Not Confer Any Rights of Federal Eminent Domain; Pipeline May Seek State Eminent Domain

FERC Office of Energy Projects 19 Imports/Exports Any entity that proposes to site, construct and operate or modify facilities used to import or export gas must file an application pursuant to Section 3 of the NGA and file for the issuance of a Presidential Permit. –In order to obtain a Presidential Permit, the Commission must "consult" with the Secretaries of State and Defense prior to its issuance.

FERC Office of Energy Projects 20 Imports/Exports The owner of the gas must apply to the Office of Fossil Energy, Department of Energy (DOE/FE) for Section 3 authority as well. Jurisdictional pipelines that filed for Section 3 authorization to site, construct, and operate border facilities will not be the same party that applies for Section 3 authority from DOE/FE.

FERC Office of Energy Projects 21 Major Pipeline Projects

FERC Office of Energy Projects 22 Projects Certificated

FERC Office of Energy Projects 123 Major Pipeline Projects Certificated (MMcf/d) January 2002 to July BCF/D Total 2,778 Miles Transco (323) Southern (330) Kern River (886) 5 North Baja (500) Tuscarora (96) Northwest (162,113) Kern River (282) Iroquois(70) TETCO(250) Northwest (224) NFS/DTI (150) Georgia Straits (96) 1. Algonquin (285) 2. Islander East (285) 3. Iroquois (85) 4. Columbia (135,270) SCG Pipeline (190) Northwest (191) East Tennessee (510) Tennessee (320) TETCO (197) Greenbrier (600) El Paso (320) WBI (80) ANR (220,107,143) El Paso (140) TETCO(223) Office of Energy Projects Cove Point (445) Ocean Express (842) 6 Cheyenne Plains (560) 8 5. CIG (282,92) 6. CIG (118) 7. TransColorado (125) 8. WIC (116) 7 Calypso (832) Discovery (150)

FERC Office of Energy Projects 24 Currently Pending Projects

FERC Office of Energy Projects 125 Major Pipeline Projects Pending (MMcf/d) July BCF/D Total 153 Miles Trunkline (1,500) Cheniere Corpus Christi (2,600) Cheniere Sabine (2,600) Mill River (800) McMoRan (1,500) Compass Pass (1,000) Algonquin (140) Algonquin BG LNG (500) San Juan Expansion (Transwestern) (600) Cheyenne Plains (170)

FERC Office of Energy Projects 26 On The Horizon

FERC Office of Energy Projects 27 How Does FERC Evaluate All Of These Major Projects? Are There Any Criteria Used in This Evaluation? Project Evaluation

FERC Office of Energy Projects 128 Major Pipeline Projects in Pre-filing (MMcf/d) July BCF/D Total 402 Miles Questar (102) Seafarer Pipeline (El Paso) (372) Entrega (EnCana) (1,300) Logan Lateral (Texas Eastern) (900) Transcontinental (105) El Paso (Piecance Expansion) (300)

FERC Office of Energy Projects 129 Major Pipeline Projects On The Horizon (MMcf/d) July BCF/D Total 3,640 Miles Maritimes Phase IV (400) Blue Atlantic (El Paso) (1,000) Transcontinental (150) Northwinds Pipeline (NFG) (500) Freedom Trail (Tennessee) (150) Coronado (500) Sun Devil Project(Transwestern) (500) Piceance to Cheyenne (KM Interstate) (500) Advantage Southern (KM Interstate) (330) Silver Canyon Project (KM Interstate) (750) KM West Texas (KM Interstate) (300) Wheatland Expansion (KM Interstate) (80) Western Frontier (So. Star)(540) Kern River Expansion (500) TransColorado (750) Panhandle Eastern (500) Bison Pipeline (Northern Border) (240) Trailblazer (100) Petal (500)

FERC Office of Energy Projects 30 PL Certificate Policy New Certificate Policy Statement issued on September 15, Clarification of Certificate Policy Statement issued on February 9, Further clarification issued on July 26, 2000.

FERC Office of Energy Projects 31 Certificate Policy Problems The reliance on percentage of capacity under long-term contracts to show demand. The pricing of new facilities.

FERC Office of Energy Projects 32 Policy Drawback: Reliance on Contracts The amount of contracted capacity is not a proxy for all public benefits. Requirement for long-term contracts contrasts with industry’s move to short- term contracts with marketers. Loss of customer choice reduces efficiency. Contracts don’t offer adequate justification to landowners.

FERC Office of Energy Projects 33 Policy Drawback: Pricing of New Facilities Rolled-in pricing bias leads to: –Subsidization by existing customers –Overbuilding of facilities –Aggravate adverse environmental impacts –Distortion of competition between pipelines

FERC Office of Energy Projects 34 n Foster Competition n Consider Captive Customers n Avoid Unnecessary Physical Impacts n Achieve Optimal Amount of Facilities n Encourage Complete Record n Expedite Review Time Goals PL Certificate Policy

FERC Office of Energy Projects 35 PL Certificate Policy Apply Threshold Test –Subsidization  Incremental Rates –No Subsidization  Rolled-in Treatment –System improvements for existing customers  Rolled-in Treatment

FERC Office of Energy Projects 36 PL Certificate Policy Develop Record – Adverse Impacts on Existing Customers and Pipelines Landowners Communities – Specific Benefits – Need and Market – Condemnation Impact

FERC Office of Energy Projects 37 Adverse Impacts Needs and Benefits Record n Balance Benefits and Impacts n Complete Traditional Environmental Process PL Certificate Policy

FERC Office of Energy Projects 38 Opportunities for Public Involvement The FERC Process: Issue Notice of the Application Project Sponsor Sends Landowner Notification Package Issue Notice of Intent to Prepare the NEPA Document (i.e., scoping) Hold Scoping Meetings Public Input: File an Intervention; register for e-subscription Contact the project sponsor w/questions, concerns; contact FERC Send letters expressing concerns about environmental impact Attend scoping meetings

FERC Office of Energy Projects 39 Opportunities for Public Involvement The FERC Process: Issue Notice of Availability of the DEIS Hold Public Meetings on DEIS Issue a Commission Order Public Input: File comments on the adequacy of DEIS Attend public meetings to give comments on DEIS Interveners can file a request for Rehearing of a Commission Order

FERC Office of Energy Projects 40 Comments and Protests

FERC Office of Energy Projects 41 Traditional vs. Pre-Filing Process Announce Open Season Announce Open Season Develop Study Corridor Develop Study Corridor Conduct Scoping Conduct Scoping Review Draft Resource Reports & Prepare DEIS Issue Draft EIS Issue Draft EIS File At FERC Issue Order Issue Order File At FERC Prepare Resource Reports Prepare Resource Reports Issue Final EIS Issue Final EIS (months) Traditional - Applicant Traditional - FERC Pre-Filing - Applicant Pre-Filing - FERC

FERC Office of Energy Projects 42 Benefits of Pre-Filing More interactive NEPA process, no shortcuts Earlier, more direct involvement by FERC, other agencies, landowners Goal of “no surprises” Time savings realized only if we are working together with stakeholders FERC staff is an advocate of the Process, not the Project!

FERC Office of Energy Projects 43 PROPOSED PIPELINE LOOPING An Example: Kern River Expansion X PROPOSED COMPRESSOR STATION 716 miles of pipeline looping through CA, NV, UT, WY 3 New Compressors $1.2 Billion MMcf/day of additional capacity –Doubles Kern River’s capacity from MMcf/day to 1.7 Bcf/day

FERC Office of Energy Projects 44 Kern River Expansion Environmental Highlights Environmentally Acceptable –New pipe parallels initial right-of-way. –Mitigation measures minimize potential impacts. First Major Project to utilize NEPA Pre-Filing –Order issued less than 1 year from initial filing date - Final EIS completed in June 2002 which was 11 months from filing date. –In comparison, FEIS and certificate for Gulfstream required 16 months from initial filing date; Kern River’s initial greenfield project required 30 months for the FEIS. –Interagency cooperation contributed to meeting Federal and state environmental requirements.

FERC Office of Energy Projects 45 Issues/Initiatives Timely Business DecisionsPreliminary Determinations (1988) Staff ResourcesEnvironmental Third-Party Contractors (1994 and 1998) Staff Accountability/IncentiveGPRA Compliance (1999) Policy GuidelinesCertificate Policy Statement (1999) Effective RegulationsCertificate Rule (1999) Issue Initiative

FERC Office of Energy Projects 46 Issues/Initiatives Due Process and Reroutes Landowner Notification Rule (1999) Administrative Procedures Ex Parte Communication Rule (1999) EIS Process Concurrent Order and EIS (2000) Staff Resources OEP = Gas/Hydro Synergy (2000) Staff AccessibilityOutreach (2000) Rehearing Timing30-Day Deadline (2001) Issue Initiative

FERC Office of Energy Projects 47 Interagency Agreements IA for Environmental Review of Natural Gas Pipelines –Signed May 2002 –Working Group Established –FERC chairs working group –Each participating agency developed internal agency guidance –Group working on survey to get feedback on implementation experiences/success

FERC Office of Energy Projects 48 Interagency Agreements IA for LNG Safety and Security –Signed January 2004 by FERC, USCG, DOT –Defines roles and responsibilities –Establishes FERC as lead for NEPA review –Stresses coordination, seamless review –Coordination continues from initial review through construction and operation –Includes terminal facilities and ships

FERC Office of Energy Projects 49 FERC Infrastructure Conferences Five Conferences Held – Seattle – New York City – Orlando – Chicago – Denver Purpose – Bring together experts to discuss infrastructure issues in region

FERC Office of Energy Projects 50 Topics Addressed Adequacy of Existing Infrastructure Necessary Additions of Infrastructure Barriers to Expansion Environmental and Landowner Concerns