Patrick Crow
Washington Editor
The Federal Energy Regulatory Commission is coming under increasing pressure to streamline its certification process for new gas pipeline projects.
FERC is trying to speed permitting on its own yet gets defensive when industry and congressmen complain about delays.
The problem is mainly with major pipeline projects. A House of Representatives subcommittee recently estimated it took FERC an average of 693 days to process contested major certificate applications that it eventually approved in 1990.
U.S. companies have proposed gas pipeline projects for 1990 and beyond totaling 13,005 miles (OGJ, Sept. 3, p. 21).
FERC delays have drawn more fire because of increased pipeline competition for markets and heightened concerns over energy security stemming from the Persian Gulf crisis.
Industry officials contend that expediting permitting of gas lines would have a dramatic effect on gas supply/demand in the years ahead.
The Department of Energy recently took a hard look at FERC's permitting procedures and with FERC identified 37 interstate gas pipeline projects that might be expedited in the national interest. FERC later said nine of those soon would get permits to move a total of 1.2 bcfd.
INITIATIVES
FERC is moving on its own to speed permitting under Sec. 311 of the Natural Gas Policy Act.
In the long term, DOE is considering options for faster FERC permitting as part of its National Energy Strategy, due for completion in December and release in early 1991.
One option is that gas pipelines be allowed to build new capacity without obtaining FERC certificates. DOE estimates such a move could increase U.S. gas use by as much as 41 tcf during 1991-2030.
DOE also is mulling whether to designate FERC as the sole federal agency to prepare the environmental impact statement whenever pipeline construction triggers the National Environmental Policy Act (NEPA).
Committees in both houses of Congress are focusing on delays in FERC's permitting process.
Rep. Mike Synar (D-Okla.), chairman of the energy subcommittee of the House government operations committee, held 2 days of hearings in October on the speed of FERC permitting.
He plans three or four more hearings early next year on that and related FERC issues. A staffer said, "We really want to get our hands dirty on this. We don't know anyone who thinks FERC is operating efficiently. You can get permits faster out of the Environmental Protection Agency than FERC."
Although the subcommittee cannot write legislation, its members can introduce bills for consideration in other committees. The subcommittee also has persuaded the General Accounting Office to investigate FERC's Sec. 311 permitting.
Even 16 Republicans on the House energy and commerce committee plan to push an omnibus energy bill next session which among other things would direct FERC to issue regulations within a year to expedite the process by which it considers pipeline certificate applications under Sec. 7 of the Natural Gas Act.
And it would require FERC report to Congress on ways it could reform FERC rules to facilitate increased gas deliverability.
COMPLAINTS
At his recent hearings, Synar noted, "FERC's activities frequently involve arcane regulatory concepts and complex economic principles. Its procedures are, at best, trying. Nevertheless, the commission's policies and decisions have significant economic implications for the companies and industries it regulates, and for consumers across the nation. Yet it has not been subjected to the level of congressional scrutiny which is warranted.
"I have been appalled by the number of major FERC decisions overturned or remanded by the courts in the last few years. I am concerned that the long delays we see in getting pipeline construction certificates approved will jeopardize our ability to meet new energy and environmental demands across the nation."
Rep. Billy Tauzin (D-La.) agreed, saying, "The deregulatory policies of the 1980s have left us with some real problems, such as the regulatory bottlenecks that remain at FERC.
"The process we have dictated for FERC to approve pipeline permits is simply too cumbersome, open to delay, and open to challenge. We are going to have to look seriously at legislating and reorganizing the FERC process to speed gas to market.
"FERC's expansive jurisdiction and constrained resources have created an environment which has frequently proven disconcerting to many in the energy industry. The length of time FERC takes in considering needed projects is simply unacceptable."
RECORD DEFENDED
FERC Chairman Martin Allday told the House hearings, "Ever since I walked into FERC, I've been urging the staff to find ways to expedite the process by which the commission reviews all matters."
Allday maintained FERC generally has acted on applications in a reasonable time period.
"The commission's completions of certificate applications in fiscal 1990 represents a 15% increase over the level completed in fiscal 1989 and a 24% increase over fiscal 1988.
"Moreover, the average processing time to complete certificates is 15% less than it was in fiscal 1988. Similarly, the number of certificate cases pending at the end of fiscal 1990 is the lowest it has ever been since the commission has tracked certificate cases.
"While we seek to move as quickly as possible, we cannot and will not shortchange complying with the due process requirements and environmental laws passed by the Congress.
"That's not to say that I believe the numerous layers of environmental review are always necessary. But as long as they're on the books, we will strive to follow both the letter and spirit of the law."
Allday maintained industry deserves much of the blame. "Applications are often incomplete when filed, and FERC is bound to evaluate the issues raised by protestors."
FERC Commissioner Jerry Langdon thinks Congress should legislatively "rebalance environmental and energy goals." He said a considerable part of the delay is simply due to the fact some challenges to certificates are filed "merely for the purpose of hindering a competitor."
William S. Scherman, FERC general counsel, said, "There clearly is a prevalent view, I think incorrect, that the commission's certificate process is too cumbersome. It's always ironic to me when people say that.
"I defy anybody to name a major pipeline certificate case, and I guarantee I can go to the record in that case and find one party saying the commission is acting too fast, I can find another party saying the commission's process is too slow, I can find another party saying the commission's process violates NEPA, and I can find another party saying the commission is requiring too much environmental review."
CERTIFICATE CHANGES
In August FERC proposed a rulemaking that would facilitate pipeline construction projects built under Sec. 311 blanket certificates. It recently denied industry requests for a rehearing of those interim rules.
The federal Circuit Court of Appeals in Washington, D.C., had required a narrower definition of Sec. 311 "on behalf of" transactions, requiring the "on behalf of" entity to either have physical custody of and transport the gas at some point or to hold title to the gas at some point for a purpose.
FERC said if there is a dispute as to whether a particular transaction qualifies under the new definition of "on behalf of," the gas will continue to be transported until it resolves the matter.
The interim rule also allows a pipeline to apply for a certificate authorizing it to undertake a number of construction activities without applying for a separate certificate for each project.
If project costs are less than $5.8 million, the line can proceed with construction without additional FERC authorization. If they are less than $16 million, the pipeline must file prior notice, but in the absence of formal protests, it may proceed without additional FERC authorization.
The second program allows a pipeline to obtain a blanket certificate to perform transportation services without applying for a separate certificate to cover the transaction.
The lines must calculate rates for these transportation services based on specific principles, must provide service on an open access basis, must file prior notice of individual transactions with the commission, and must file certain reports.
And FERC has an optional certificate program that allows a pipeline to apply for authority to perform a new sales or transportation service and/or build facilities associated with the new service-if the pipeline assumes the full risk that the facilities might lose money.
Also, FERC recently proposed changes in its certificate programs, mandating applications be complete upon filing, outlining a new accelerated blanket program for projects costing less than $50 million, announcing plans to split the consideration of environmental and nonenvironmental aspects of an application, announcing it is raising the ceiling for blanket certificates from $16 to $25 million, codifying environmental reviews to speed applications, and setting generic standards for the mitigation of construction-related environmental damages.
Allday expects FERC to consider a final rule incorporating those changes in February.
PHASING APPLICATIONS
FERC also has begun phasing applications, splitting the environmental and nonenvironmental aspects of certification to help speed decisions.
Both reviews will proceed simultaneously. The first step involves the staff analyzing all nonenvironmental issues such as market need, rates, gas supply, and related economic matters. Then the staff makes a recommendation.
The second step requires a staff review of environmental issues that may be affected by pipeline construction. After that, the commission issues a final order on the certificate.
Previously, the commission sometimes would withhold findings on nonenvironmental issues until the environmental evaluation was completed, which often has taken 2 years alone.
Allday said the new approach lets "the company get conditional approval for a basic proposal before all the detailed environmental work had been done. This will help streamline our procedures so that we can concentrate work on proposals that are viable. And it will help those wanting to build to line up financing and make other arrangements.
"It may turn out that we will need to consider some minor statutory modifications in order to expedite the certificate review process sufficiently in order to meet future energy and environmental needs.
"We currently are discussing this possibility with DOE. At this juncture, we are not in a position to discuss whether or how such modification might take place."
INDUSTRY WANTS CHANGE
Gas industry officials are pressing hard for change in FERC permitting procedures.
Nicholas Bush, president of the Natural Gas Supply Association, said, "It will be enormously helpful if Congress would review the numerous environmental laws that are applicable to pipeline certification. Despite their laudable and in many instances very necessary goals, the multiple environmental statutes that impact applications for pipeline construction cause significant administrative delay.
"Many of these laws were passed with little regard to the cumulative regulatory burden that they produced. Surely it should be possible to streamline the environmental review process without doing large damage to the intent of these laws and regulations."
Bush noted FERC has not asked Congress to change the statutory requirements but should.
"The commission's formal hearing process is too time consuming, cumbersome, and expensive. NGSA fully endorses increased use of 'paper hearings' which the commission pioneered and used successfully. NGSA also supports the commission's use of 'technical conferences' to solicit industry views and speed the rulemaking process.
"Unfortunately, the industry is responsible for much of the increased delay in the regulatory process. This is an industry that has a very difficult time shedding past behavior-behavior that almost always results in litigation rather than cooperation.
"And there are enough opportunities to exercise due process in even the simplest commission action, that substantial delay is almost inevitable."
NGSA said, "A number of the 'problems' with the commission's procedures are the result of responding to numerous legislative requirements with which the commission must comply.
"Despite their laudable goals, statutes such as NEPA, the Administrative Procedure Act, and the Sunshine Act often impose multiple requirements that can cause considerable administrative delay in order to achieve high levels of input to controversial topics. As a consequence, timeliness and efficiency are often compromised in assuring that diverse interests are given an opportunity to be heard and participate."
Aside from NEPA, when considering pipeline certificate applications, FERC also must comply with the National Historic Preservation Act, Endangered Species Act of 1973, Clean Air Act, Clean Water Act, Coastal Zone Management Act of 1972, Wilderness Act, National Parks and Recreation Act of 1978, Wild and Scenic Rivers Act, and Toxic Substances Control Act.
311 OBJECTIONS
Daniel Collins, vice president of Coastal Corp., testified for the American Gas Association. He said proposed changes to Sec. 311 have "caused some project sponsors to delay construction and/or to file under slower but 'regulatorily' safer provisions for construction under Sec. 7 of the Natural Gas Act.
"In our view, the Sec. 311 program has been extraordinarily successful and should not be altered. There are several successful, environmentally compatible pipeline projects that have been completed or that are even now nearing completion that we could use as examples of Sec. 311 construction."
John Daly, chairman of the Interstate Natural Gas Association of America, agreed. He said the rulemaking would give FERC, for the first time, environmental review over routine pipeline replacement and repair projects proposed under Sec. 311.
"We are especially concerned about the requirement that FERC be notified at least 30 days before work begins. Approximately 700 miles of pipe are replaced or abandoned each year by the pipeline industry, and this essential work must be done on a timely basis. We fear that the prior notice procedure will result in roadblocks that prevent these necessary changes.
"Moreover, many of the regulations contained in the proposed rulemaking are duplicative of and sometimes inconsistent with the environmental regulations of other agencies. For example, the proposed rulemaking would ban all use of herbicides, even those which have been specifically approved for use by the EPA, to maintain rights of way."
OTHER CONCERNS
Daly said, "Despite efforts in recent years to inject more competition into the pipeline industry, Ingaa members subject to FERC jurisdiction must file with the commission for rate changes and the authority to render service and build facilities, as well as abandon facilities or service.
"They also are subject to detailed reporting requirements. Our industry, in short, can be accurately described today as being market driven but still heavily regulated."
Ingaa said FERC must comply with a number of laws, but still has unnecessary delays in its own environmental review process.
"Under its current procedures, the commission frequently takes 1-3 years to complete environmental review of major projects, and many months for minor projects such as new sales point meter stations. That is not the way to respond to the heed to displace foreign oil and expand the use of environmentally superior natural gas.
"The environmental process employed by the commission in conjunction with its responsibility to issue pipeline certificates must be streamlined in order to expedite the certificate process while still fulfilling NEPA's substantive goals."
Ingaa said FERC should expand the list of projects that it grants categorical exclusions from environmental reviews, such as rearrangements of facilities and additional sales taps, and cut the amount of nonessential environmental information companies must file regarding them.
And it said, "Instead of using standardized forms that require a plethora of environmental data unrelated to a particular project, the data requested should be tailored to individual proposals."
DECISIONS COMING
Although all parties seem to agree FERC processes should be speeded, they also agree that doesn't guarantee action.
Donald Santa, a Senate energy committee attorney, said lawmakers are giving some attention to the need for expedited approval of energy projects.
"Clearly we're going to see some legislation in that area" in the next Congress, he said.
Other congressional staff members think that Congress will wait for the administration's recommendations in the National Energy Strategy before pushing for any legislation.
Meanwhile, FERC will seek modest changes on its own. Allday recently told an Ingaa meeting, "I don't know anyone who isn't frustrated by the length of time it's taking to get pipelines in the ground. Now more than ever, it's just plain irresponsible if we don't find a way to get the pipelines to serve the country.
"Some delays can't be avoided.
"We just can't shortchange the environmental issues, for instance. But we can improve a lot of things."
Copyright 1990 Oil & Gas Journal. All Rights Reserved.