© Copyright 2013 by K&L Gates LLP. All rights reserved. U.S. Natural Gas Pipelines: Regulatory and Policy Developments University of Pittsburgh School of Law Energy Law & Policy Institute August 1, 2013 David L. Wochner, Partner Washington, DC

klgates.com 1 Overview  FERC Regulation of Natural Gas  General Agency Overview  FERC Process  Pre-Filing Process  Formal Application  Environmental Review  FERC Decision  Other Issues  Supply Changes  Environmental  Commercial

klgates.com 2 FERC REGULATION OF NATURAL GAS

klgates.com 3 FERC Regulation of Natural Gas  General Agency Overview  FERC Process  Pre-Filing Process  Formal Application  Environmental Review  FERC Decision

klgates.com 4 FERC Basics  Independent (non-political) agency  5 Commissioners  5-year terms  Senate confirmed  3 from President’s political party  2 from the opposition party or Independent

klgates.com 5 FERC Organization

klgates.com 6 FERC General Regulation  FERC regulates:  Transportation and sale of natural gas for resale in interstate commerce  Transportation of oil and products by pipeline in interstate commerce  Transmission and wholesale sale of electricity in interstate commerce  Other matters related to the operation of oil, natural gas, electric, and hydro-projects

klgates.com 7 FERC Regulation of Natural Gas  Natural Gas Pipelines and Storage Facilities  Rates (Pipelines and natural gas storage, not LNG)  Regulates to ensure rates and terms of service are “just and reasonable” and detailed in publicly available “tariffs”  Access  Requires open and non-discriminatory access to interstate natural gas facilities and services  Abandonment  Regulates termination of service and abandonment of interstate facilities  Siting, Construction, Operation  Approves location, construction and operation of facilities for liquefaction, regasification, transportation and storage of interstate natural gas  Environmental  Coordinates requirements relating to natural gas pipeline and LNG projects

klgates.com 8 Natural Gas Act of 1938  Section 3  Import/export of natural gas  LNG facilities  Section 4  Pipeline and storage rate filings  Terms and conditions of service  “Just and reasonable” rates  Section 4A  Market manipulation  Section 5  Complaint oversight  Section 7  Construction and operation of facilities  Section 21  General enforcement  Section 23  Transparency  Reporting requirements  Basis of FERC’s authority to regulate facilities used for the transportation and wholesale sale of natural gas in interstate commerce

klgates.com 9 FERC Regulation of Natural Gas  General Agency Overview  FERC Process  Pre-Filing Process  Formal Application  Environmental Review  FERC Decision

klgates.com 10  To construct a natural gas pipeline, developer must first obtain from FERC a certificate of public convenience and necessity  FERC’s review addresses rate, terms and conditions of service, environmental and safety issues  FERC coordinates with multiple federal, state, and local government agencies who provide input to FERC regarding their respective areas of authority and influence FERC Process

klgates.com 11  Phases to the traditional FERC certification process  Applicant’s planning process  FERC review procedure  Pre-filing process – Optional for natural gas pipelines  Preparation of (draft and) final resource reports  Formal application  Participation of interested parties  Preparation of draft and final environmental impact Statement (“EIS”) or environmental assessment (“EA”) consistent with the National Environmental Policy Act (“NEPA”)  FERC decision  Construction process FERC Process

klgates.com 12 FERC Regulation of Natural Gas  General Agency Overview  FERC Process  Pre-Filing Process  Formal Application  Environmental Review  FERC Decision

klgates.com 13 Pre-Filing Process  Under EPAct 2005, FERC was required to enact rules mandating FERC’s previously voluntary NEPA environmental pre-filing process for LNG facility proposals  FERC’s regulations made pre-filing voluntary for pipelines  However, many new pipelines and expansion now utilize the pre- filing process  Regulations require that pre-filing procedures be initiated a minimum of 6 months prior to filing formal application  FERC’s pre-filing process is an informal review process  No ex parte rules apply so FERC Staff is free to have private, non-public conversations with the project proponent  During the pre-filing process FERC Staff works with the applicant to gather information about the proposed project  Identify and resolve as many potential issues or obstacles in advance of the formal application when ex parte rules do apply

klgates.com 14 Pre-Filing Process Source:

klgates.com 15 FERC Regulation of Natural Gas  General Agency Overview  FERC Process  Pre-Filing Process  Formal Application  Environmental Review  FERC Decision

klgates.com 16 Formal Application Source:

klgates.com 17 Formal Application  Once a party files its formal application, FERC will issue notice of the application and all interested parties may intervene and submit comments  FERC will prepare an EA or a draft/final EIS, which interested parties also may comment on  Detailed filings required, including rate analysis and justification for proposed cost-based rate, a draft tariff, engineering and design information, maps and diagrams, an environmental report, pro forma tariffs and initial rate services, as well as financial and operational information  Even an uncontested application can take between 8-12 months for FERC to review and issue decision  FERC approval process is elaborate and public

klgates.com 18 FERC Regulation of Natural Gas  General Agency Overview  FERC Process  Pre-Filing Process  Formal Application  Environmental Review  FERC Decision

klgates.com 19 Environmental Review  NEPA requires that federal agencies conduct an environmental analysis of proposed federal actions prior to decision-making  Approval or denial of an application to site, construct, or operate an interstate natural gas pipeline is a federal action  FERC conducts comprehensive environmental assessment and coordinates with other agencies and with retained third- party environmental contractor paid for by the applicant  Environmental review is time consuming  Must submit extensive environmental reports, including studies and consultations with federal, regional, state and local agencies

klgates.com 20 Environmental Review  FERC’s environmental review includes  The applicant’s receipt of environmental authorizations from other government bodies  The applicant’s preparation and submission of resource reports  FERC’s preparation of an EA, and/or possibly an EIS

klgates.com 21 Environmental Authorizations from Other Agencies  FERC’s final authorization is conditioned on satisfaction of statutory environmental requirements  Two primary federal environmental laws figure into FERC’s analysis  Clean Air Act  Clean Water Act  Authority to administer these federal laws is delegated to the states in which the proposed activities occur  These are federal laws and are of equal power and authority to FERC’s authority under the Natural Gas Act  If a state environmental agency determines that the proposed activities have not and cannot comply with one of these federal laws, it likely has the authority to stop a project

klgates.com 22 Resource Reports  To implement NEPA, FERC’s regulations require an applicant to submit an Environmental Report that consists of 13 resource reports  The Environmental Report contains the applicant’s analysis of the environmental impact of the proposed activity  The applicant submits draft versions of its resource reports during the pre-filing process  The applicant submits the final version of its resource reports with its formal application  Cooperating federal and state agencies have the opportunity to comment on the draft resource reports

klgates.com 23 ReportDescriptionRequired For 1General project descriptionAll applications 2Water use and qualityAll applications outside area of existing compressors, meters, and regulator stations 3Fish, wildlife, and vegetationAll applications outside improved area of existing compressors, meters, and regulator stations 4Cultural resourcesAll applications 5SocioeconomicsAll applications involving aboveground facilities 6Geological resourcesAll applications outside the boundaries of existing aboveground facilities 7SoilsAll applications involving soil disturbance 8Land use, recreation, and aestheticsAll applications 9Air and noise qualityNew LNG facilities 10AlternativesAll applications 11Reliability and safetyNew and recommissioned LNG facilities 12PCB contaminationRemoval or abandonment of PCB pipe 13Engineering and design materialNew and recommissioned LNG facilities Resource Reports

klgates.com 24 EIS v. EA  EAs serve three main purposes  To briefly provide sufficient evidence and analysis for determining whether to prepare an EIS  To aid FERC’s compliance with NEPA when no EIS is necessary  To facilitate preparation of an EIS when one is necessary  EAs are concise documents and must include a brief discussion of the proposal, alternatives, the environmental impacts of the proposal and alternatives, and a list of the agencies and persons consulted  EAs conclude either with a finding of no significant impact (“FONSI”) or a finding that an EIS is required 40 CFR §

klgates.com 25 EIS v. EA  By contrast, an EIS is a more robust and comprehensive document  The process for preparing an EIS is proscriptive  Publish notice of intent to prepare an EIS in the Federal Register (public notice)  Scoping  Prepare and circulate draft EIS  Receive comments from interested parties on draft EIS  Issue final EIS  Prepare and issue CPCN that adopts and sometimes modifies the environmental conclusions and alternatives and mitigation measures recommended in the final EIS

klgates.com 26 FERC Regulation of Natural Gas  General Agency Overview  FERC Process  Pre-Filing Process  Formal Application  Environmental Review  FERC Decision

klgates.com 27 FERC Decision Source:

klgates.com 28 FERC Decision  No deadline for FERC to issue a decision on a new pipeline certificate project  If FERC approves a project, its order will contain a number of environmental mitigation measures  Once FERC issues a decision, the applicant and parties who intervened in the proceeding can file a request for rehearing within 30 days  FERC is then required under the NGA to answer that request within 30 days or the request is deemed denied  FERC may issue a tolling order  If FERC rejects a party’s request for rehearing, the party may file an appeal of the decision in U.S. federal appeals court within 60 days  If the project developer has satisfied all of the measures in FERC’s order, it will be able to continue construction of the project throughout any appeals process

klgates.com 29 CURRENT ISSUES

klgates.com 30 Current Issues – Supply Changes  U.S. domestic gas picture has changed  Massive new technically and economically recoverable shale gas resources  Surplus has quelled concerns of many elected officials about adequacy of supply  Support of domestic natural gas production and use from White House … kind of  Repeated statements by President Obama recognizing economic and environmental benefits of natural gas  Growth in manufacturing and petrochemical sectors  Increased use as a transportation fuel  As a result, substantial increase in natural gas pipeline infrastructure

klgates.com 31 Current Issues – Environmental  Keystone XL is a line in the sand for the U.S. environmental movement  Movement has now shifted to hydraulic fracturing and LNG exports – Sierra Club is leading the opposition  Quantifiable shift from previous position in first half of last decade  Opposition is rooted in concerns over increased shale gas production and hydraulic fracturing  Asserts that FERC and DOE should look at the environmental impacts of hydraulic fracturing since allowing exports necessarily will result in additional shale gas production  Argues that the environmental reviews are inadequate and do not satisfy NEPA  Indirect effects  Reasonably foreseeable

klgates.com 32 Current Issues – Environmental  April 2012 Sierra Club letter to White House Council on Environmental Quality (CEQ) asserting the alleged harms of natural gas production and use in generation  “Unconventionally sourced LNG is the very dirtiest form of a dirty fuel.”  EPA regional inquiries in FERC pipeline certificate proceedings related to upstream production  Methane emissions from natural gas pipelines  Questions about adequacy of technology  Questions about pipelines’ ability to recover costs

klgates.com 33 Current Issues – Commercial  Conversion of existing natural gas pipelines to transport oil and oil products  Existing customer protections  Substantial new pipeline capacity in previously less- served regions provide utilities and large industrials opportunities for new gas supply  Become an “anchor shipper”

klgates.com 34 QUESTIONS?

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