© Copyright 2013 by K&L Gates LLP. All rights reserved.

U.S. Natural Gas Pipelines: Regulatory and Policy Developments

University of Pittsburgh School of LawEnergy Law & Policy InstituteAugust 1, 2013

David L. Wochner, PartnerWashington, DCDavid.Wochner@klgates.com

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Overview FERC Regulation of Natural Gas

General Agency Overview FERC Process Pre-Filing Process Formal Application Environmental Review FERC Decision

Other Issues Supply Changes Environmental Commercial

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FERC REGULATION OF NATURAL GAS

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FERC Regulation of Natural Gas General Agency Overview FERC Process Pre-Filing Process Formal Application Environmental Review FERC Decision

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FERC Basics

Independent (non-political) agency 5 Commissioners

5-year terms Senate confirmed

3 from President’s political party 2 from the opposition party or Independent

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FERC Organization

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FERC General Regulation

FERC regulates: Transportation and sale of natural gas for resale in

interstate commerce Transportation of oil and products by pipeline in

interstate commerce Transmission and wholesale sale of electricity in

interstate commerce Other matters related to the operation of oil, natural

gas, electric, and hydro-projects

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FERC Regulation of Natural Gas Natural Gas Pipelines and Storage Facilities

Rates (Pipelines and natural gas storage, not LNG) Regulates to ensure rates and terms of service are “just and reasonable” and

detailed in publicly available “tariffs”

Access Requires open and non-discriminatory access to interstate natural gas

facilities and services

Abandonment Regulates termination of service and abandonment of interstate facilities

Siting, Construction, Operation Approves location, construction and operation of facilities for liquefaction,

regasification, transportation and storage of interstate natural gas

Environmental Coordinates requirements relating to natural gas pipeline and LNG projects

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Natural Gas Act of 1938

Section 3 Import/export of natural gas LNG facilities

Section 4 Pipeline and storage rate

filings Terms and conditions of

service “Just and reasonable” rates

Section 4A Market manipulation

Section 5 Complaint oversight

Section 7 Construction and operation

of facilities Section 21

General enforcement Section 23

Transparency Reporting requirements

Basis of FERC’s authority to regulate facilities used for the transportation and wholesale sale of natural gas in interstate commerce

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FERC Regulation of Natural Gas General Agency Overview FERC Process Pre-Filing Process Formal Application Environmental Review FERC Decision

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To construct a natural gas pipeline, developer must first obtain from FERC a certificate of public convenience and necessity

FERC’s review addresses rate, terms and conditions of service, environmental and safety issues

FERC coordinates with multiple federal, state, and local government agencies who provide input to FERC regarding their respective areas of authority and influence

FERC Process

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Phases to the traditional FERC certification process Applicant’s planning process FERC review procedure

Pre-filing process – Optional for natural gas pipelines Preparation of (draft and) final resource reports Formal application

Participation of interested parties Preparation of draft and final environmental impact

Statement (“EIS”) or environmental assessment (“EA”) consistent with the National Environmental Policy Act (“NEPA”)

FERC decision Construction process

FERC Process

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FERC Regulation of Natural Gas General Agency Overview FERC Process Pre-Filing Process Formal Application Environmental Review FERC Decision

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Pre-Filing Process Under EPAct 2005, FERC was required to enact rules mandating FERC’s previously voluntary NEPA environmental

pre-filing process for LNG facility proposals FERC’s regulations made pre-filing voluntary for pipelines However, many new pipelines and expansion now utilize the pre-filing process

Regulations require that pre-filing procedures be initiated a minimum of 6 months prior to filing formal application FERC’s pre-filing process is an informal review process No ex parte rules apply so FERC Staff is free to have private, non-public conversations with the project proponent

During the pre-filing process FERC Staff works with the applicant to gather information about the proposed project Identify and resolve as many potential issues or obstacles in advance of the formal application when ex parte rules do apply

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Pre-Filing Process

Source: http://www.ferc.gov

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FERC Regulation of Natural Gas General Agency Overview FERC Process Pre-Filing Process Formal Application Environmental Review FERC Decision

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Formal Application

Source: http://www.ferc.gov

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Formal Application Once a party files its formal application, FERC will issue

notice of the application and all interested parties may intervene and submit comments

FERC will prepare an EA or a draft/final EIS, which interested parties also may comment on

Detailed filings required, including rate analysis and justification for proposed cost-based rate, a draft tariff, engineering and design information, maps and diagrams, an environmental report, pro forma tariffs and initial rate services, as well as financial and operational information

Even an uncontested application can take between 8-12 months for FERC to review and issue decision

FERC approval process is elaborate and public

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FERC Regulation of Natural Gas General Agency Overview FERC Process Pre-Filing Process Formal Application Environmental Review FERC Decision

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Environmental Review NEPA requires that federal agencies conduct an environmental analysis of proposed federal actions prior to

decision-making Approval or denial of an application to site, construct, or operate an interstate natural gas pipeline is a federal action FERC conducts comprehensive environmental assessment and coordinates with other agencies and with retained

third-party environmental contractor paid for by the applicant Environmental review is time consuming Must submit extensive environmental reports, including studies and consultations with federal, regional, state and

local agencies

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Environmental Review FERC’s environmental review includes

The applicant’s receipt of environmental authorizations from other government bodies

The applicant’s preparation and submission of resource reports FERC’s preparation of an EA, and/or possibly an EIS

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Environmental Authorizations from Other Agencies FERC’s final authorization is conditioned on satisfaction of statutory environmental requirements

Two primary federal environmental laws figure into FERC’s analysis Clean Air Act Clean Water Act

Authority to administer these federal laws is delegated to the states in which the proposed activities occur

These are federal laws and are of equal power and authority to FERC’s authority under the Natural Gas Act

If a state environmental agency determines that the proposed activities have not and cannot comply with one of these federal laws, it likely has the authority to stop a project

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Resource Reports To implement NEPA, FERC’s regulations require an applicant to submit an Environmental Report

that consists of 13 resource reports The Environmental Report contains the applicant’s analysis of the environmental impact of the proposed

activity

The applicant submits draft versions of its resource reports during the pre-filing process The applicant submits the final version of its resource reports with its formal application

Cooperating federal and state agencies have the opportunity to comment on the draft resource reports

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Report Description Required For

1 General project description All applications

2 Water use and quality All applications outside area of existing compressors, meters, and regulator stations

3 Fish, wildlife, and vegetation All applications outside improved area of existing compressors, meters, and regulator stations

4 Cultural resources All applications

5 Socioeconomics All applications involving aboveground facilities

6 Geological resources All applications outside the boundaries of existing aboveground facilities

7 Soils All applications involving soil disturbance

8 Land use, recreation, and aesthetics All applications

9 Air and noise quality New LNG facilities

10 Alternatives All applications

11 Reliability and safety New and recommissioned LNG facilities

12 PCB contamination Removal or abandonment of PCB pipe

13 Engineering and design material New and recommissioned LNG facilities

Resource Reports

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EIS v. EA EAs serve three main purposes

To briefly provide sufficient evidence and analysis for determining whether to prepare an EIS To aid FERC’s compliance with NEPA when no EIS is necessary To facilitate preparation of an EIS when one is necessary

EAs are concise documents and must include a brief discussion of the proposal, alternatives, the environmental impacts of the proposal and alternatives, and a list of the agencies and persons consulted

EAs conclude either with a finding of no significant impact (“FONSI”) or a finding that an EIS is required

40 CFR § 1508.9

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EIS v. EA By contrast, an EIS is a more robust and

comprehensive document The process for preparing an EIS is proscriptive

Publish notice of intent to prepare an EIS in the Federal Register (public notice)

Scoping Prepare and circulate draft EIS Receive comments from interested parties on draft EIS Issue final EIS Prepare and issue CPCN that adopts and sometimes

modifies the environmental conclusions and alternatives and mitigation measures recommended in the final EIS

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FERC Regulation of Natural Gas General Agency Overview FERC Process Pre-Filing Process Formal Application Environmental Review FERC Decision

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FERC Decision

Source: http://www.ferc.gov

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FERC Decision No deadline for FERC to issue a decision on a new pipeline certificate project

If FERC approves a project, its order will contain a number of environmental mitigation measures

Once FERC issues a decision, the applicant and parties who intervened in the proceeding can file a request for rehearing within 30 days

FERC is then required under the NGA to answer that request within 30 days or the request is deemed denied

FERC may issue a tolling order

If FERC rejects a party’s request for rehearing, the party may file an appeal of the decision in U.S. federal appeals court within 60 days

If the project developer has satisfied all of the measures in FERC’s order, it will be able to continue construction of the project throughout any appeals process

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CURRENT ISSUES

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Current Issues – Supply Changes U.S. domestic gas picture has changed

Massive new technically and economically recoverable shale gas resources

Surplus has quelled concerns of many elected officials about adequacy of supply

Support of domestic natural gas production and use from White House … kind of Repeated statements by President Obama recognizing economic

and environmental benefits of natural gas Growth in manufacturing and petrochemical sectors Increased use as a transportation fuel

As a result, substantial increase in natural gas pipeline infrastructure

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Current Issues – Environmental Keystone XL is a line in the sand for the U.S. environmental

movement Movement has now shifted to hydraulic fracturing and LNG

exports – Sierra Club is leading the opposition Quantifiable shift from previous position in first half of last decade Opposition is rooted in concerns over increased shale gas

production and hydraulic fracturing Asserts that FERC and DOE should look at the environmental

impacts of hydraulic fracturing since allowing exports necessarily will result in additional shale gas production

Argues that the environmental reviews are inadequate and do not satisfy NEPA

Indirect effects Reasonably foreseeable

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Current Issues – Environmental April 2012 Sierra Club letter to White House Council on

Environmental Quality (CEQ) asserting the alleged harms of natural gas production and use in generation “Unconventionally sourced LNG is the very dirtiest form of a dirty

fuel.”

EPA regional inquiries in FERC pipeline certificate proceedings related to upstream production

Methane emissions from natural gas pipelines Questions about adequacy of technology Questions about pipelines’ ability to recover costs

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Current Issues – Commercial Conversion of existing natural gas pipelines to

transport oil and oil products Existing customer protections

Substantial new pipeline capacity in previously less-served regions provide utilities and large industrials opportunities for new gas supply Become an “anchor shipper”

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QUESTIONS?

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