On September 19, 2014, FERC issued a declaratory order holding that it would not have jurisdiction under the Natural Gas Act ("NGA") over the construction or operation of a compressed natural gas ("CNG") facility that Emera CNG, LLC ("Emera") proposed to construct at the Port of Palm Beach, Florida. Emera CNG, LLC, 148 FERC ¶ 61,219 (2014). The interest in developing CNG and liquefied natural gas ("LNG") facilities to support natural gas exports and the development of marine and vehicular fuel markets is keen as various parties seek new markets for abundant supplies of natural gas now being produced in the United States. TheEmera order is the latest in a series of declaratory orders through which the Commission is defining its position on the jurisdictional status of small- and mid-scale CNG and LNG facilities. See Pivotal LNG, Inc., 148 FERC ¶ 61,164 (2014); Shell U.S. Gas & Power, LLC, 148 FERC ¶ 61,163 (2014); Gulf Oil Limited Partnership, 148 FERC ¶ 61,029 (2014).
Emera proposes to construct a CNG compression and truck-loading facility in Riviera Beach, Florida, for the primary purpose of compressing natural gas into containers for export in the form of CNG to the Bahamas. Emera's CNG plant would include facilities to compress gas into International Standards Organization ("ISO") containers. Emera plans to truck the ISO containers a distance of approximately a quarter mile before loading them at the Port of Palm Beach onto roll-on/roll-off ocean-going carriers. In response to Emera's March 20, 2014 petition for declaratory order, the Commission determined that the proposed CNG facility would not be subject to its NGA Section 3 authority over natural gas import and export facilities or its NGA Section 7 authority to regulate interstate transportation and sales of natural gas.
The Commission noted that it has interpreted its Section 3 jurisdiction, consistent with its interpretation of its Section 7 jurisdiction, as limited to the transportation of natural gas by pipeline. It observed that is has only exercised its authority under Section 3 to regulate: (1) pipelines that transport natural gas to or from the United States' international borders; and (2) coastal LNG terminals that are accessible to ocean-going LNG tankers and connected to pipelines that deliver gas to or take gas away from the terminal. Because the Emera facility will not include a pipeline capable of transferring CNG directly into ships, the Commission found that Emera's CNG facility, which would compress natural gas into containers to be transported by trucks before being loaded onto ocean-going vessels, is unlike the border-crossing pipelines and coastal LNG terminals that it traditionally has regulated under Section 3.
The Commission went on to conclude that its Section 7 jurisdiction would not be implicated in the case of the Emera project because all of the CNG will be exported in foreign commerce, not transported by pipeline in interstate commerce. Noting that its jurisdiction over transportation and sales in interstate commerce only applies to gas transported by pipeline, the Commission held that Section 7 would not apply because Emera will compress gas into containers that will be moved by truck (not by pipeline) to a dock where the containers will be loaded on ships. The Commission held that Section 7 jurisdiction will not attach because Emera will receive its gas from a non-jurisdictional Hinshaw pipeline (Peninsula Pipeline Company's Riviera Lateral). Thus, the gas will have left jurisdictional interstate commerce before reaching Emera and will never re-enter interstate commerce (i.e., will not be transported from Florida to another state).
Floridian Natural Gas Storage Co. ("Floridian") protested Emera's petition, claiming that the Commission's assertion of jurisdiction over the Emera CNG facility would be necessary to prevent a regulatory gap that would give Emera an unfair competitive advantage. The Commission has granted Floridian certificate authorization under the NGA to construct storage, liquefaction, revaporization, and LNG truck-loading facilities in Florida. The Commission rejected Floridian's position that Emera's CNG facility should be regulated as an "LNG Terminal" because CNG and LNG are different products. It went on to dismiss Floridian's claim that the possibility of a regulatory gap should lead to the assertion of NGA jurisdiction, declining to create jurisdiction where none exists under the NGA. FERC further noted that Emera's CNG facility will not escape regulation altogether because it will be subject to DOE, EPA and Coast Guard requirements.
Commissioner Bay issued a dissent in which he disagreed with the majority's Section 3 analysis. In his view, the majority's conclusion that the use of trucks, rather than a pipeline to transport CNG the short distance between the CNG facility and waterborne vessels, disregards Congressional intent to regulate imports and exports of natural gas. In his view, "[i]t cannot be that the Commission's jurisdiction turns on this 440-yard truck journey." He would hold that the Emera facility should be regarded as a natural gas export facility regardless of the manner in which the CNG leaves the compression facility.
Commissioner Bay lodged a similar dissent disagreeing with the majority's analysis in the Shell case, where the Commission concluded that a facility receiving LNG imported from Canada via waterborne vessel, truck, and/or train would not be subject to FERC's Section 3 jurisdiction because of the lack of a pipeline connecting it to the international border. Commissioner Bay concluded in Shell that the plain meaning of the statute compels a different result because, in his view, Congress identified the importance of regulating natural gas imports and exports and intended the scope of Section 3 to be broader than Section 7.
Commissioner Bay's dissents may signal a split among the Commissioners which could become more pronounced when the fifth Commissioner is seated or when Commissioner Bay becomes Chairman next April. If Commissioner Bay's interpretation of Section 3 were to become the majority view, FERC could exercise Section 3 jurisdiction over a class of CNG and LNG facilities previously deemed exempt from such regulation.
FERC has considered different types of proposed CNG and LNG facilities in 2014. In each case, the Commission determined that it does not have jurisdiction over such facilities under the NGA. These decisions reduce both the regulatory burden and uncertainty which has inhibited construction of CNG and LNG facilities designed to serve demands for natural gas that cannot be reached by traditional pipelines. This is indeed good news for developers struggling to gain a foothold in this emerging segment of the natural gas industry. But the dissents registered in the Emera and Shell cases suggest that the question of FERC's jurisdiction over small- and mid-scale CNG and LNG facilities may not be one hundred percent settled.