CA vs. FERC Jurisdictional Battle Threat to LNG Development

Intelligence Press

The "biggest threat" to the development of new liquefied natural gas (LNG) import terminals in the United States is the California regulators' challenge to FERC's jurisdiction in this area, said FERC Commissioner Joseph Kelliher in New Orleans Thursday.

If the California Public Utilities Commission wins its court challenge to FERC's claim of "exclusive jurisdiction" over the siting of LNG import facilities, the fallout from the decision "will extend far beyond [the proposed] Long Beach" terminal that is at the center of the court dispute, he said during the keynote speech given at NGI's 19th annual GasMart conference.

Kelliher believes an adverse court ruling would have broad implications for all LNG projects. "If we lose in California, we lose in [the entire] United States," he told a crowd of energy executives.

He noted there would be "very little chance" that the planned LNG terminal project in Long Beach, CA, would be authorized if the Commission loses its court battle, and other projects will be delayed. The Long Beach project was proposed by Sound Energy Solutions, a U.S. subsidiary of Japan's Mitsubishi Corp.

But Kelliher thinks that Congress would step in and overturn any court ruling that gives states the jurisdictional authority over LNG siting. Capitol Hill last year "signaled a clear desire to overturn" an adverse court decision on the LNG issue in appropriations language, which expressed the sense of Congress that the jurisdiction over LNG facilities should rest with the Federal Energy Regulatory Commission.

This is an "unfortunate and totally unnecessary dispute" over jurisdiction, Kelliher said. FERC contends that it has jurisdiction under Section 3 of the Natural Gas Act (NGA) and by the authority of the energy secretary over the siting, construction and operation of the import terminal proposed by Sound Energy.

He believes the case, which currently is pending the U.S. Court of Appeals for the District of Columbia Circuit, is "predestined to go all the way to a final decision." Kelliher said it would be months before a ruling is handed down.

As for omnibus energy legislation Kelliher, who has a strong Capitol Hill background, said "I hope this will be the last year in the saga" to pass an energy bill, but "I wouldn't count on it."

He wants Congress, as part of an energy bill, to clarify the Commission's exclusive authority to license LNG import facilities, resolving the ongoing battle once and for all. Kelliher also said he would like Congress to grant FERC authority over offshore gathering.

The commissioner further noted that the agency is examining a number of options to encourage storage development in the country. He declined to say which options he and FERC favored, or when the Commission intends to issue policy changes with respect to storage.

Some of the options under consideration include awarding market-based rates to independent storage developers to encourage investment, allowing higher rates of returns for storage developers (20% rather than 15%), permitting higher rates for short-term storage services, allowing market-based rates for storage facilities located near market centers, and adjusting the Commission's current test for determining market power.

Separately, he noted that the Commission does not favor mandatory price reporting by natural gas traders, or the formation of a data hub that would collect prices, volume and transactional information from traders and disseminate it to the market.

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