On March 24, 2004, the Federal Energy Regulatory Commission (the FERC or the Commission) issued a declaratory order in response to an application by a firm called Sound Energy Solutions (SES). The order asserted exclusive jurisdiction over the siting, construction, and operation of a proposed liquefied natural gas (LNG) importation terminal in the Port of Long Beach, California.1 This controversial decision marked the first occasion in which the Commission claimed exclusive jurisdiction over aspects of a proposed LNG project that did not involve the sale for resale or transportation of LNG in interstate commerce.
This article analyzes the legal bases for the FERC's exercise of jurisdiction over LNG importation facilities. In the ongoing debate over where the jurisdictional lines should be drawn between the states and the federal government in this area of regulation, it examines how Commerce Clause jurisprudence factors into the analysis.
The siting, construction, and operation of LNG import terminals that engage in wholly intrastate activities have an effect on interstate commerce. However, the Natural Gas Act (NGA) and prevailing case precedent do not provide for federal jurisdiction over natural gas import terminals on this basis. Given the increasing demand for natural gas in the United States and industry forecasts projecting an important future role for LNG in meeting this demand, it is incumbent upon Congress to enact legislation providing for such jurisdiction to allow for uniform regulation in this area of national concern.
This article is organized into six parts. A brief introduction to this article begins in Part I, above. Part II describes what LNG is and why its import matters to state and federal policy-makers. Part III traces the steps taken by the FERC in broadening the scope of its jurisdiction over LNG import projects, beginning with the Natural Gas Act of 1938 through the Commission's recent pronouncement in the Sound Energy Solutions case. In Part IV, the Commerce Clause is studied in the context of both traditional Commerce Clause cases and "negative" or "dormant" Commerce Clause cases. Part V demonstrates the siting, construction, and operation of LNG import terminals that have an effect on interstate commerce. It pulls together the Commerce Clause jurisprudence with the laws at issue in the Sound Energy Solutions debate, including the NGA and the California Public Utilities Code. Conclusions are set out in Part VI.
This article does not take a position on the central issues currently litigated in the Sound Energy Solutions case, issues which at press time were on appeal before the United States Court of Appeals for the Ninth Circuit. In its order denying applications for rehearing of the March 24 order, the Commission stated that the disputed issues were: "(1) how to distinguish foreign," interstate, and intrastate commerce from one another, "and the jurisdictional implications thereof; (2) the scope of section 3 and section 7 jurisdiction over LNG import terminals; and (3) whether the Commission may impose terms and conditions in connection with LNG imports."2 To place this article in context, a survey of the law in those areas is included.
The author believes that SES's proposed facilities, though involving purely intrastate commerce, ought to be subject to the interstate commerce jurisdiction under the NGA on the ground that they would affect interstate commerce. The Commission held that because no interstate commerce would be involved in the Sound Energy Solutions case, its NGA jurisdiction over interstate commerce under section 7 does not apply. Instead, it found that SES's proposed facilities are subject to the Commission's NGA section 3 foreign commerce jurisdiction.3 As noted, the focus of the article is whether the Congress may confer on the Commission jurisdiction to regulate the siting, construction, and operation of intrastate LNG import facilities on the ground that such intrastate activities have an effect on interstate commerce. …