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Liquefied Natural Gas (LNG): Jurisdiction Conflicts in Siting Approval

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Publication Date: September 2004

Publisher(s): Library of Congress. Congressional Research Service

Series: RL32575

Topic: Energy (Natural gas industry)

Abstract:

Growing demand for natural gas and perceived limitations on domestic supply have increased U.S. interest in the importation of liquefied natural gas (LNG) as a supplement to more traditional natural gas sources. Importation of LNG requires import terminals to transfer LNG from tanker ships to the nation's pipeline system for distribution to its ultimate users. Because LNG is potentially hazardous, siting of these import terminals has become a contentious issue.

For some time, the Federal Energy Regulatory Commission (FERC) has exercised primary jurisdiction over onshore LNG terminals, although other federal, state, and local agencies have played significant roles as well. The California Public Utilities Commission (CPUC), among others, has advanced several arguments contending that FERC's jurisdiction over LNG import facilities under section 3 of the Natural Gas Act (NGA) has been removed by the Energy Policy Act of 1992 (EPAct) and has recently filed suit with the U.S. Court of Appeals for the District of Columbia Circuit. In relevant part, the EPAct amendments designate LNG imports as "first sales," deem LNG imports consistent with the public interest, and direct that applications to import LNG be approved without modification. These amendments potentially impact the statutory bases for FERC jurisdiction.

The designation of LNG imports as "first sales" does serve to remove those imports from at least some NGA regulation, but it would seem a permissible interpretation of the statute to conclude that facilities used to complete first sales are not also exempted from regulation. Similarly, the CPUC argument that the ban on modifying LNG import applications removes Commission jurisdiction finds some support in case law, although, arguably, the statute is ambiguous and subject to FERC's interpretation. Should the Commission retain jurisdiction, it appears that FERC would generally have the authority to preempt conflicting state and local regulation. FERC has voiced its intention to accommodate state and local standards and to include state and local authorities to the furthest extent practicable. In addition, FERC has expressly confirmed that state regulation enacted pursuant to federal law, such as the Coastal Zone Management Act, is beyond agency preemption.

Several pieces of legislation address LNG-related issues, including H.R. 6, H.R. 4503, S. 2095, H.R. 4520, and S. 1637. Recently introduced legislation, H.R. 4413, would essentially codify FERC's interpretation of its jurisdiction, although it would add several new authorities, including FERC authority to set an enforceable schedule for the completion of all necessary agency actions. This report will provide an overview of the current federal regulatory scheme, examine the legal arguments surrounding LNG facility siting jurisdiction, and describe the provisions of relevant pending legislation. It will be updated as necessary.