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Commission Watch

CPUC questioned historic oversight authority.
Fortnightly Magazine - June 2004

for the D.C. Circuit in 1 clarified Congress's intent and the exclusive federal role in regulating foreign commerce involving the import of natural gas and the facilities needed to support this commerce. The court held that Section 3 of the NGA provides FERC with "plenary and elastic" authority to regulate LNG import facilities. The Sound Energy Solutions Declaratory Order was not a change in FERC policy, nor did it take any regulatory authority away from the states. It simply affirmed and clarified the existing jurisdiction of the commission.

The commission also pointed out that most of the CPUC's arguments already had been dealt with in 2001, when the commission rejected Dynegy LNG Production Terminal's request that FERC disclaim jurisdiction over LNG terminals on similar grounds. 2 Then, as now, the commission explained that the Energy Policy Act of 1992 was passed in order to facilitate the import and export of the commodity, and that the provisions of Section 3(a) of the NGA, which contain FERC's authority to regulate LNG import terminals, were not changed by the 1992 Act.

According to FERC, the jurisdictional character of the downstream facilities, i.e., whether the interconnecting pipelines are interstate or intrastate systems, is irrelevant to this analysis, as is the ultimate destination of the gas. The important fact is that Congress set aside LNG import terminals for exclusive federal regulation.

Finally, FERC acknowledged the CPUC's concern with safety and siting of the proposed LNG terminal but rejected the contention that the CPUC would be the appropriate agency to enforce the safety and siting rules. Noting the interagency agreement among DOT's Research and Special Programs Administration (RSPA), the Coast Guard, and the commission, FERC pointed out that it is the lead agency in conducting National Environmental Policy Act (NEPA) review and is responsible for preparing the environmental analysis of new project proposals. Among its other responsibilities, FERC reviews in detail the plant design and engineering, the operating procedures, and the various active and passive safety systems for proposed projects. The commission also requires systematic evaluation of the soils and seismic conditions of the site, as well as the potential environmental impact of any air, water, or noise emissions from the plant. Additionally, FERC applies the federal siting criteria for exclusion zones around the terminal site and reviews potential marine hazards of LNG vessel traffic in close cooperation with the Coast Guard and RSPA.

FERC also noted that this regulatory scheme serves an important public policy goal: the nation's need for a uniform national policy for LNG imports. Thus FERC recognized that the CPUC protest was a threat not only to the SES terminal, but to the development of all new LNG import terminals and the expansion of existing projects nationwide.

Looking Ahead

The Sound Energy Solutions Declaratory Order is one of two FERC decisions that are vital for development of new and expanded LNG terminal capacity in the United States. In 2002, the commission issued a groundbreaking order in , 3 in which it decided to apply light-handed regulation to LNG import terminals by no longer requiring