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The Federal Energy Regulatory Commission:
A Very Brief Introduction to Regulation of
the Application and Approval Process for
Interstate Natural Gas Pipeline Construction
By
©Kurt L. Krieger
Steptoe & Johnson PLLC
Kurt.krieger@steptoe-johnson.com
304-353-8124
I. The Federal Energy Regulatory Commission
Few outside of the energy industry recognize the name of the Federal Energy Regulatory
Commission (“FERC”) and its significant role in regulating several important energy segments.
The FERC is an independent agency under the United States Department of Energy located in
Washington, D.C., that regulates the interstate transmission of electricity, natural gas, and oil.
FERC’s (and predecessor Federal Power Commission’s) roots are in the Federal Power Act of
19351 and Natural Gas Act of 1938 (“NGA”)2 -- the later being an act of Congress that defines
FERC’s jurisdiction over the transportation and/or sale for resale of natural gas in interstate
commerce, but excludes the local distribution of gas, gathering and production. The FERC also
reviews proposals to build or abandon liquefied natural gas (“LNG”) import/export terminals and
certain hydropower projects. Unlike its role and jurisdiction over the electric and oil segments,
FERC has the exclusive jurisdiction and authority to review and approve the siting and
construction of interstate natural gas pipelines; a summary of which is the primary purpose of
this brief article.
1
16 U.S.C. §§ 791, et seq.
2
15 U.S.C. §§ 717, et seq.
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FERC is composed of five commissioners who are appointed by the President with the
advice and consent of the United States Senate. Commissioners serve five-year terms and have
an equal vote. No more than three commissioners may belong to the same political party. The
President’s appointments are an important factor in the shaping and administration of national
energy policy. FERC’s decisions are not subject to review by the President or Congress, but
rather by the United States Courts of Appeals.
FERC has broad enforcement and penalty/disgorgement authority, and the penalties for
non-compliance with FERC’s rules and regulations have substantially increased since and
because of Enron. The Energy Policy Act of 2005 (“EPAct 2005”)3 increased FERC’s civil
penalty authority from a few thousand dollars per day to $1,000,000 per day, per violation for
any violation of the NGA and other federal statutes that FERC administers.
II. The Scope of FERC Regulation
The FERC is active in both the big picture, high visibility areas of energy regulation, and
in technical and narrowly focused areas. The FERC:
3

regulates the transmission and wholesale sale of natural gas for interstate
commerce;

approves the siting and abandonment of interstate natural gas pipelines and storage
facilities;

oversees environmental matters related to interstate natural gas pipeline and
hydroelectric projects and other matters;

regulates the transmission and wholesale sale of electricity in interstate commerce;

reviews certain mergers and acquisitions and corporate transactions by electric
companies;

regulates the transportation of oil by pipeline in interstate commerce;
Pub. L. No. 109-58, 119 Stat. 594 (2005).
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
approves the siting of electric transmission projects under very limited
circumstances;

ensures the safe operation and reliability of proposed and operating LNG
import/export terminals;

licenses and inspects private, municipal and state hydroelectric projects;

protects the reliability of the high-voltage interstate transmission system through
mandatory reliability standards;

monitors and investigates energy markets;

enforces its regulatory requirements through imposition of civil penalties and other
means; and

administers accounting and financial reporting regulations and the conduct of
regulated companies.
While the list above is extensive and broad in scope, there are many aspects of the energy
industry that are not FERC regulated. FERC is not involved in the:

regulation of retail electricity and natural gas sales to consumers;

approval of the physical construction of electric generation facilities;

regulation of activities of the municipal power systems, federal power marketing
agencies like the Tennessee Valley Authority and most rural electric cooperatives;

regulation of nuclear power plants;

oversight for the construction of oil pipelines;

abandonment of service as related to oil facilities;

mergers and acquisitions as related to natural gas and oil companies;

responsibility for pipeline safety; and

reliability problems related to failures of local distribution facilities.
Responsibility for these areas is spread among various other federal and state agencies.
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III. FERC Regulation of Interstate Natural Gas Pipelines
Interstate natural gas pipelines are comprehensively regulated by the FERC.
Each
interstate pipeline must have a FERC-approved “tariff” which contains the pipeline’s approved
services, rates to be charged, and the terms and conditions under which service will be rendered.
The rates charged may be cost-based reflecting the cost of building and operating the
infrastructure necessary to render the service (and paid for by all pipeline customers via rates),
cost-based but incremental (and paid for only by those for whom the expansion project is built
and will benefit most from the additional service), or market-based reflecting market demand for
the service (and paid for by only those customers of the pipeline using the new or additional
service).
Each interstate pipeline applies for and receives a blanket construction/abandonment
certificate from FERC that authorizes the pipeline to construct less complex facility projects
without an extensive advance review process at FERC.4 The construction/abandonment blanket
certificate offers two authorization mechanisms both of which require advance written
notification of construction activity to the landowner similar to but less detailed than that which
is described later in this article for more complex projects. The “automatic” authorization within
the blanket certificate authorizes the pipeline to construct and/or abandon facilities within certain
cost and project purpose limitations without seeking any advance permission from FERC.5 For
projects that exceed that cost limit and/or which do not fit the project purpose limitations for the
automatic authorization, the second mechanism requires the pipeline company to file a miniapplication with the FERC. Like the automatic authorization mechanism, this mechanism has
limitations but the cost limits are significantly higher and the purpose limitations much less
4
18 C.F.R. §§157.201-157.216.
5
18 C.F.R. §§157.208(a) and 157.216(a).
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strict.
Known as the “prior notice” mechanism, the pipeline receives approval from FERC by
silence if no one objects to the project within a certain time period after the FERC issues a notice
to the public that the pipeline has filed the mini-application.6
Regardless of which mechanism within a pipeline’s blanket construction/abandonment
certificate is used, the pipeline must avoid “segmenting” a project into smaller pieces in order to
squeeze the project in under the “per project” cost limits set forth in the blanket certificate
project cost regulations. Similarly, the pipeline must take seriously the cost estimating process to
insure that any project is, in fact, built under the applicable cost limit. Cost limits are adjusted
upward annually.
For
projects
that
do
not
fit
either
mechanism
within
the
blanket
construction/abandonment certificate, the pipeline must seek a project specific certificate from
the FERC under Section 7 of the NGA. That process requires a detailed application covering a
variety of topics.7 The application must include a narrative describing the project and contain
exhibits covering:

Corporate structure and related details of the applicant.

Maps and project facts including location, length and size of pipelines and
compressor stations and connections with other entities.

Environmental information (broadly defined). Preparation of the environmental
exhibits will bring the applicant into contact with a variety of major federal laws and
programs including the National Environmental Policy Act, National Historic
Preservation Act, Clean Water Act, Clean Air Act, Coastal Zone Management Act,
Wild and Scenic Rivers Act, National Wilderness Act, National Parks and Recreation
Act and more. The required information must be presented to the FERC as part of the
application but set forth in 13 separate “Resource Reports” covering:
o detailed project description with photo based alignment sheets,
topographic maps, methods to be used for construction and/or
6
18 C.F.R. §§157.205, 157.208(b) and 157.216(b).
7
18 C.F.R. §§157.6-157.22.
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abandonment activities and a complete listing of all other authorizations
required for the project and the status of the pipeline company’s efforts to
obtain those authorizations;
o water use and quality;
o fish, wildlife and vegetation;
o cultural and historic resources;
o socioeconomics;
o geological resources;
o soils;
o land use, recreation and aesthetics;
o air and noise quality;
o alternatives to the pipeline company’s siting proposals;
o reliability and safety;
o PCB contamination;
o engineering and design;
o flow diagrams showing a variety of pipeline operational dynamics
including pressure, capabilities/capacity under various scenarios, pressure,
pipe wall thickness, etc.;
o gas supply data where relevant;
o market data showing commercial support for the project including
executed precedent agreements with project customers;
o federal authorizations (other than from the FERC) required for the project;
o cost of the facilities to be constructed;
o financing;
o construction, operation and management agreements;
o revenue (expenses and income);
o depreciation;
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o tariff (the rates to be charged to project customers) with appropriate
support;
o acquisition information (if any facilities are being acquired rather than
constructed) including acquisition contracts and accounting entries; and
o abandonment information (if any facilities are being abandoned) including
any relevant contracts, flow diagrams showing the impact on the pipeline
company’s capabilities after the abandonment, impact on customers
served by the facilities to be abandoned, effect on existing tariffs,
accounting entries and location of the facilities to be abandoned.
At the time of application filing, the pipeline company must trigger a landowner
notification process in which all affected landowners (defined by FERC regulations) and
interested government entities receive a formal packet of information, including information
about how to become a party in the FERC review process and how to fight or comment on the
project if desired. Once filed, the application will be the subject of a “Notice of Application”
published by the FERC in the Federal Register.
The landowner notification process is one of several facets of a larger undertaking
referred to as “stakeholder outreach” in which the applicant must educate landowners, agencies
and public officials about the project and the FERC review process. Outreach is an extremely
important and well-organized process.
The primary purpose of outreach, in addition to
education, is to provide a forum in which as many landowner, environmental, and local
government concerns as possible can be resolved by the pipeline working directly with the
stakeholders.
All parts of the application are dissected by subject area specialists within the FERC.
The review of the environmental exhibits will divert onto its own track with the FERC staff
issuing notices to the public for site visits and scoping meetings held near the project sites to
assist the FERC staff in determining the scope of its environmental review process.
For
proposed interstate natural gas pipeline projects, FERC is the lead agency under the National
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Environmental Policy Act (“NEPA”).8 In accordance with NEPA, FERC staff must prepare
either an Environmental Assessment (“EA”) or an Environmental Impact Statement (“EIS”). A
public comment period may be provided for an EA and is always provided for a Draft EIS,
which will ultimately be converted into a Final EIS.
Because the environmental review of a project is the time drag on the FERC’s processing
of an application for the construction of interstate natural gas pipeline facilities, a pipeline
company is permitted (but not required) to initiate the environmental review process six to eight
months before the application itself is filed. So-called “pre-filing” has become the preferred
approach at the FERC and requires that the pipeline submit the same environmental information
detailed above that would have been submitted at a later time when the application is filed. The
pre-filing process also assumes that the pipeline company will attempt to resolve issues raised by
landowners, environmental/conservation groups, agencies, and public officials in order that
disputed environmental issues which must be resolved by the FERC will be minimized.
The FERC review process culminates in the issuance of an order (otherwise referred to as
a “certificate of public convenience and necessity”) by the FERC that grants, with or without
project modification, or denies the requested authorization for the project. The order may
mandate certain changes to the project (not just the physical project, but in areas such as how
rates are calculated or accounting entries made) and has extensive construction-related
conditions attached to it that will govern when and how construction, restoration and post
construction compliance proceed. If the order issued by the FERC is acceptable to the pipeline,
construction (very broadly defined) cannot begin until certain pre-construction conditions are
met as dictated by the order approving the project.
8
42 U.S.C. §§ 4331, et seq.
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The entire process, including the pipeline company’s planning activities and public
outreach efforts (that start long before the application is filed with the FERC), takes 9-14 months
for a simple project (of which FERC review takes five to six months), 20-25 months for a
moderately complex project (of which FERC review takes six to eight months) and 34 to 40
months for a complex project (of which FERC review takes 10 months minimum, and longer if
public opposition is particularly vocal and/or certain hot button issues are raised by the project
proposal).
Among the most significant grants provided to the pipeline company in an order
approving a project is the power of eminent domain as set forth in the NGA. This power is
conveyed by the NGA via the certificate order to permit the pipeline company to acquire land
rights which are necessary for the approved project but not obtainable by voluntary acquisition
means. FERC prefers pipelines keep eminent domain use to a minimum even though the NGA
itself has no such limiting theme. Without it, it would be difficult if not impossible for interstate
natural gas pipelines to build, replace and expand pipeline and storage facilities in today’s
congested areas, and even in areas where there is opposition to energy infrastructure
construction.
Any party, including the pipeline company, who is dissatisfied with the order may ask the
FERC to reconsider the order within 30 days. There is no time deadline for FERC to act on
those requests. Ultimately, after FERC has issued its final rulings, parties can seek review in the
United States Courts of Appeals for either the D.C. Circuit or in the federal circuit in which the
pipeline company is located or has its principal place of business. Such a petition for review
must be filed within 60 days of the issuance of the final FERC order. There is no time deadline
for a federal circuit court to act on a petition for review of orders from the FERC.
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