FERC: RCA has in-state gas jurisdiction

Staff response says if in-state line only for in-state use, state would regulate; commission would have to decide if gas exported

Kristen Nelson

Petroleum News

If Alaska North Slope natural gas was transported in an in-state gas pipeline and sold for use entirely within Alaska, no FERC authorization would be needed for construction and operation of the line, Federal Energy Regulatory Commission staff said in a recent analysis.

But the commission would have to consider the circumstances in scenarios where some of the gas was exported to foreign markets as liquefied natural gas, or where some was exported as LNG and some sold into Lower 48 markets.

That was the response from FERC staff to a request for regulatory clarification on the three scenarios from Bob Swenson, Alaska’s in-state natural gas pipeline project manager.

In a March 15 cover letter accompanying the staff analysis, FERC Chairman Jon Wellinghoff told Swenson that while the analysis by FERC staff “represents staff’s best judgment, based on the scenarios presented” in Swenson’s letter, and in an earlier letter by former project manager Harry Noah, “if and when the Commission itself is asked to rule formally on these or similar issues, the Commissioners will have to reach their own decisions on the matters presented to them.”

In a Jan. 28 letter, Swenson said that while the interstate gas pipeline is a top priority of the Parnell administration, “We want to make sure that Alaskans do not fall short in meeting their needs for natural gas,” and asked for confirmation and clarification of circumstances under which “FERC, as opposed to the Regulatory Commission of Alaska, would have jurisdiction.”

It is important for the state in evaluating alternatives to understand whether FERC or RCA would have jurisdiction, Swenson said, and described two possible routes from the North Slope to Cook Inlet, each paralleling the Dalton Highway, with one route following the Parks Highway and the other the Richardson and Glenn highways.

“In either case, the pipeline would commence at the outlet of a conditioning plant and end at or near tidewater in Cook Inlet where it would interconnect with an existing RCA-regulated intrastate pipeline in the Anchorage area,” he said.

Three scenarios

In a second scenario, some of the North Slope gas would be sold to and consumed by end users in Alaska, but some, potentially a majority of the gas, would be sold and transported to the Kenai liquefied natural gas facility where it would be liquefied for export to foreign markets.

Swenson said FERC determined in 1987 that Yukon Pacific’s proposed in-state pipeline to feed a proposed LNG terminal at Valdez for foreign export would not be subject to commission jurisdiction. While the Natural Gas Act was amended in 2005, Swenson said, the logic of the 1987 decision “would still appear to apply to the scenarios we describe here” because they would not involve the construction of a new LNG facility and the in-state pipeline would not be directly connected to the existing LNG facility.

FERC staff said the Yukon Pacific situation was “somewhat, but not entirely, similar.”

In Yukon Pacific’s Trans-Alaska Gas System proposal, all of the gas would have been liquefied for export “exclusively into foreign commerce.” FERC declined to regulate TAGS, the staff analysis said, “reasoning that the project would have no economic consequences to U.S. ratepayers” and FERC’s environmental review process associated with the LNG plant would provide the commission “ample opportunity to consider the environmental and safety aspects of the pipeline.”

Energy Policy Act of 2005

The staff analysis said that were FERC to consider a project like the Yukon Pacific proposal today, it would have to consider whether the 800-mile-long pipeline would fit into the definition of natural gas facilities “used to … transport … natural gas … exported from the United States.”

“That same question is raised by the circumstances presented in Scenario 2,” FERC staff said.

Scenario 2 does not involve construction of a new or expanded LNG facility and the proposed in-state gas pipeline would not directly connect to the LNG plant, but would connect with existing gas pipelines that in turn connect to the terminal, the analysis said.

The circumstances are also different because the impetus for the line would be to provide gas for in-state use.

And similar to the Yukon Pacific situation, “it appears that such a project would have no economic consequences for any U.S. ratepayers outside of the State of Alaska.”

FERC staff concluded that the commission would need to consider these issues “in deciding whether it would be required to assert jurisdiction over the proposed pipeline.”

Scenario 3

“The fact that some of the gas in Scenario 3 might be transported in interstate commerce … could result in the proposed in-state pipeline becoming fully subject to the Commission’s NGA jurisdiction,” FERC staff said, citing a U.S. Supreme Court determination that FERC jurisdiction over interstate transmission of natural gas “does not begin at the point at which gas first crosses a state line; rather, it begins at upstream points wherever NGA gathering ends.” However, FERC staff said, the commission might exercise limited jurisdiction over the interstate gas service in Scenario 3, but not over the facility itself, based on provisions in the Natural Gas Policy Act of 1978, a section of which “provides that an intrastate pipeline can transport gas in interstate commerce without its facilities and intrastate services becoming subject to the Commission’s NGA jurisdiction.”

NGPA provides that the purposes of the section of the Natural Gas Act which sets out FERC’s jurisdiction over transportation of gas in interstate commerce do not apply to transportation in interstate commerce if that transportation is authorized by FERC under the NGPA.

The staff analysis said FERC “has held that the NGPA’s definition of ‘intrastate pipeline’ excludes newly constructed pipelines, since prior to operation they could not qualify as ‘engaged in’ transportation,” and “have never found that a company can qualify as an intrastate pipeline without having first established the intrastate character of existing operations in the state where the pipeline is located.”

However, FERC staff said, the commission “has also never ruled on how long an intrastate pipeline must have been in operation as such in order to shield its status as an intrastate pipeline while also offering interstate services under section 311 of the NGPA.” And the commission has never ruled that once an intrastate pipeline begins offering interstate service under section 311 of the NGPA that “its continued intrastate pipeline status depends on its continuing to provide some specified level or percentage of intrastate service.”

“Nevertheless, the Commission might have reason to question the jurisdictional nature of a new pipeline company that purportedly commenced service as an intrastate pipeline, only to undertake the provision of a substantial amount of service in interstate commerce shortly thereafter under section 311 of the NGPA.”