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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

terminal that does not satisfy these statutory requirements, although the act in other ways has made it more difficult for state and localities to block the siting of an LNG terminal.

States, along with the U.S. Coast Guard and local agencies, also will provide advice on the development of an emergency response plan, which, in accordance with the act, is required for construction approval. Finally, states will have the option (which they previously did not have), upon written notice to FERC, of conducting safety inspections of an operating LNG terminal, pursuant to federal regulations and guidelines. States will not, however, have the authority to impose sanctions for alleged safety violations. 7

Under section 311, FERC is required to enact regulations that will implement a pre-filing process (called such because an environmental review of the proposed terminal occurs prior to a formal application to FERC for a certificate of public convenience and necessity) for fulfilling the requirements of the National Environmental Policy Act (NEPA) of 1969. Based on past decisions regarding LNG terminals, FERC's role will be to determine whether a proposed site is environmentally acceptable and safe. An important source of information in deciding this comes from environmental impact statements required by NEPA. 8

Overall, EPACT still allows states to become actively involved in the LNG-permitting process. On the surface this opportunity seems apparent, but it remains to be seen how much weight FERC will assign to the information provided by the states, especially regarding safety issues.

Finally, Section 311 codifies the Hackberry decision reached by FERC in December 2002, which fundamentally deviates from the position that LNG terminals should be treated similarly to "open access" interstate pipelines. 9 The accompanying order stated that FERC would not require regulated cost-based rates or an open-access tariff for a new LNG terminal. The act explicitly prohibits FERC from requiring these conditions in granting approval of an LNG terminal, at least through 2014. Instead, bilateral negotiations will determine the rates, terms, and conditions.

FERC's Initiatives

The act requires FERC to undertake several actions in implementing the different sections. 10 Table 2 lists those activities, along with their deadlines, that will directly affect the natural-gas sector. Of most immediate concern for FERC is the promulgation of regulations, within 60 days after enactment of the act, on the NEPA pre-filing process for LNG terminals. Other required FERC actions have less demanding deadlines.

While FERC has ultimate responsibility for these actions, the states can provide important input to the formal proceedings and other forums within which final action will be taken. Of particular importance to the states will be regulations for the "NEPA pre-filing process" and the new PUHCA provision under the act (which effectively takes responsibility away from the Securities and Exchange Commission and shifts it to FERC).

FERC will be under a tight time schedule for implementing the mandatory actions pursuant to the act. States should consider taking an active role in voicing their views and positions before FERC on these important matters. This may require state public utility commissions to devote additional resources to FERC