Academic journal article Energy Law Journal

Considering the Public Convenience and Necessity in Pipeline Certificate Cases under the Natural Gas Act

Academic journal article Energy Law Journal

Considering the Public Convenience and Necessity in Pipeline Certificate Cases under the Natural Gas Act

Article excerpt

"Those who cannot remember the past are condemned to repeat it. "

- George Santayana1

I. INTRODUCTION

Applications for authorization from the Federal Energy Regulatory Commission (Commission) to construct new gas pipeline infrastructure currently face unprecedented levels of opposition.2 But, the arguments typically raised by opponents are not new. The same objections to pipeline construction have been raised since the early days of the Commission. Landowners do not want a pipeline on their property and they resent pipelines' use of eminent domain to acquire rightsof-way. Environmental groups challenge the adequacy of the Commission's environmental review. Both groups object to reliance on contracts or precedent agreements, especially agreements with company affiliates, as evidence that a project is required by public convenience and necessity.3 Pipelines remain, however, the only method of large-scale transportation of natural gas from supply basins to demand centers.4

In 1999, the Commission issued a statement that revisited its policy for certificating new construction under section 7 of the Natural Gas Act (NGA).5 The 1999 Policy Statement mandates that, before granting certificates, the Commission must first determine that the new pipeline infrastructure is required by the present or future public convenience and necessity.6 The Policy Statement also addressed several major issues raised historically in pipeline certificate cases and provided guidance for their resolution. Among other things, the Policy Statement adopted an economic balancing test that weighs the public benefits of a project against its adverse impacts.7 The Policy Statement continued the Commission's historical reliance on market forces as evidenced by contracts or precedent agreements as indicators of the need for a project.

The reliance on precedent agreements or contracts is disciplined, however, by a pricing policy that puts the risk of unsold or overbuilt project capacity on the sponsor. The Commission thus defined the circumstances that would determine whether a project was required by the public convenience and necessity.

The Policy Statement formally adopted principles that the Commission began implementing over thirty years ago to address changes that occurred as the natural gas industry matured, including the consideration of market forces to identify the need for gas and protection for consumers by allocating risk to project sponsors.8 The Commission's separate environmental review process, guided by the National Environmental Policy Act of 1969 (NEPA), ensures that any environmental impacts are properly disclosed, reduced, and mitigated. These remain effective tools for determining that a proposed pipeline construction project is required by the public convenience and necessity. Indeed, in 2016 the Commission rejected one project for lack of market support,9 and two other pipeline projects proposed to serve New England were cancelled, or put on hold, due to lack of market support.10

Since 1999, the Policy Statement has been used effectively to identify projects that serve the public interest while protecting consumers and other interest groups. The Policy Statement was developed as a result of Commission experience over many decades and in response to changes within the pipeline industry. It has been a long journey. Today, the Commission's approach is under renewed attack. This article reviews some of the many steps of that journey in the hope that they need not be repeated.

II. THE NATURAL GAS ACT

In 1927, the U.S. Supreme Court ruled that the states lacked authority to regulate the interstate transportation or sale for resale of natural gas because regulation of interstate commerce was the province of the federal government.11 Consequently, interstate gas pipelines were entirely unregulated. In 1936, the Federal Trade Commission (FTC) issued an extensive report on the natural gas industry, including, among other things, ineffective regulation of pipeline construction. …

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