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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

delays in responding to the changed policies embedded in the act, will preclude any overnight "miracles" for the tight natural-gas market. Consumers therefore can expect high, volatile gas prices for the upcoming heating season and for the next few years.

Even in the long term, EPACT may not relieve the tightness in the natural-gas market. However, the act is expected to create downward pressure on natural-gas prices by spurring additional natural gas supplies and lowering the domestic demand for natural gas ().

Individual provisions of the act likely only will incrementally improve future supply-demand conditions in the natural gas market, but taken together, they could have a sizable effect on price and could produce significant benefits to gas consumers in the long run.

Multi-Front Attack

EPACT reflects the view that, given the uncertainty over the effects of individual provisions on future gas prices, it is best to approach the gas-price problem by attacking it from several fronts. Since many of the actions induced by the act can be considered substitutes in achieving more moderate future gas prices, it is conceivable that a portion of them will have only marginal effects. 1

Another possible scenario makes lower gas prices less desirable if they stem from costly actions that outweigh the economic benefits. For example, financial incentives for encouraging additional energy efficiency may result in initiatives that fail to pass a cost/benefit test.

Arguably, the most controversial natural-gas provision—especially from the costal states' perspective—pertains to the siting of LNG terminals. Specifically, the act clarifies the exclusive authority of the Federal Energy Regulatory Commission (FERC) to site LNG facilities. As discussed later, the states still would maintain a crucial role in the permitting process, especially as it relates to safety and environmental matters. The LNG siting provision is a response to a perceived NIMBY (Not-in-My-Backyard) syndrome that allegedly has blocked or delayed the development of new energy facilities. 2 A major concern of states and local entities centers on how much weight FERC will assign in examining input into the certification process.

Sections of the act affecting natural gas with the most interest to states are as follows: (1) LNG siting (for coastal states); (2) pipeline certification; (3) pricing of wholesale storage services; (4) repeal of PUHCA (affecting both the electricity and natural gas sectors); (5) energy efficiency; (6) LIHEAP authorizations; and (7) fuel diversity in electric generation. 3 For most of these sections, the primary objective is to moderate future natural gas prices.

State Input and Federal Initiatives

Relative to the electricity subtitle, the act imposes few mandatory requirements on state public utility commissions (PUCs) in taking actions directly affecting the natural-gas sector. On the other hand, the act requires FERC to enact a number of regulations and undertake other actions in complying with various sections of the act. States will have ample opportunities to articulate their positions in FERC proceedings to enact regulations and other initiatives.

In the matter of studies required by the act, the lead federal agencies are, in most cases, required to confer with the states. For example, in the