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Focus on LNG Siting: A State Perspective

Congress revamps LNG and storage, giving broad new powers to FERC. Why the Feds still must consult with local authorities.

Fortnightly Magazine - November 2005

mandated study on natural-gas supply-demand conditions, the Department of Energy has to consult with the states in the preparation of the report. As with the required FERC actions, the states, while not playing the role of the primary decision-maker, conceivably can have telling influence.

Finally, several of the provisions of the act pertaining to natural gas are compatible with the resolutions passed by the National Association of Regulatory Utility Commissioners (NARUC) during the past two years. These resolutions include those relating to LIHEAP, LNG, energy efficiency, fuel diversity, and domestic gas production. Overall, the act appears to reflect the NARUC position on many of the prominent natural-gas issues, at least as articulated in recent resolutions passed by the organization.

LNG Siting

Section 311 of the act gives FERC exclusive authority to approve a permit for a LNG terminal. As discussed below, FERC is required to consult with state/local representatives on safety and environmental issues. The section, however, constrains these representatives to complete their review of an applicant's request within a specified time period. For example, Section 313 requires all federal and state agencies to comply with the deadlines set by FERC. When failing to comply, the applicant of a facility (such as an interstate pipeline, storage facility, or LNG terminal) under Section 7 of the Natural Gas Act can file an appeal with the U.S. Court of Appeals for the District of Columbia.

The overriding objective of this section of the act is to facilitate the permitting process for LNG terminals with the intent of increasing the availability of LNG in the U.S. natural gas market. According to most analyses, substantial amounts of LNG will need to be imported starting later in this decade to reduce gas prices from their current levels.

By clarifying the jurisdictional division of authority over LNG permitting, it is hoped that judicial appeals will be minimized. A driving force behind section 311 is the weakening of the ability of states and local governments to block the siting of LNG terminals. 4

Most important, the section gives FERC the exclusive authority over the siting of LNG terminals, conditioned on the applicant meeting statutory requirements for various aspects of the proposed terminal. This clarification was partly in response to the judicial appeal by the California Public Utilities Commission of a March 24, 2004, FERC order that asserted its exclusive authority over siting of LNG terminals. The California commission appealed this decision before the U.S. Court of Appeals for the Ninth Circuit. 5

Section 311 explicitly allows for state involvement in the decision-making process. First, FERC must consult with the states over the safety aspect of an LNG terminal. In fact, the section requires FERC to "review and respond specifically" to the safety issues raised by a state agency in an advisory report or some other medium. 6

As clarified by the act, states also will retain their right to refuse a permit to an LNG applicant pursuant to the Coastal Zone Management Act, the Clean Water Act, or the Clean Air Act. States in effect can veto an LNG