November 2014, Vol. 241, No. 11


Changes At Federal Pipeline Regulatory Agencies

One top federal pipeline regulator left her job and a prominent state regulator is coming to Washington to fill a second high-profile pipeline job. Cynthia Quarterman left as administrator of the Pipeline and Hazardous Materials Safety Administration (PHMSA) Oct. 3. No replacement has been named. Meanwhile, the White House nominated Colette Honorable as a commissioner at the Federal Energy Regulatory Commission (FERC). When confirmed, which is likely, she would probably be appointed chairman. Honorable is chair of the Public Service Commission in Arkansas.

The PHMSA job is probably the more important one to the pipeline industry, given its responsibility for approving safety regulations and levying enforcement fines. FERC has been very quiet on pipeline issues during the Obama administration.

Heading PHMSA at the moment is Timothy Butters, the deputy administrator. He is the former assistant chief of operations for the City of Fairfax fire department in northern Virginia. While Quarterman had significant oil and gas experience before PHMSA, Butters has none.

Butters’ lack of pipeline experience may hamper the agency as it works to complete mandates of various kinds included in the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. The law included 42 congressional mandates of PHMSA, some of which the agency has completed, others are in various states of progress, and delay. Aside from those mandates, PHMSA is considering a separate request from the Interstate Natural Gas Association of America (INGAA) to alter some aspects of the gas transmission integrity management rule finalized in 2003. PHMSA has been considering this request for a couple of yearswith no final decision in sight.

Another key issue looming is regulation of gathering lines in shale areas. A Government Accountability Office (GAO) report in August criticized PHMSA for dragging its feet on regulating unregulated gathering lines. These have become much bigger safety concerns because of the fast-increasing mileage associated with their use in shale areas, and the fact that their diameters are much wider than in the past, rivaling, in some instances, the diameters used in interstate pipelines.

PHMSA released an advanced notice of proposed rulemaking in 2011 asking whether it should consider establishing new, risk-based safety requirements for large-diameter, high-pressure gas gathering pipelines in rural locations, among other potential changes to gathering pipeline regulations. But the agency has never taken another step to move forward with that rulemaking. The GAO explained that PHMSA said its proposed rule was being considered at the White House Office of Management and Budget. The implication was that the White House was holding up progress.

Quarterman’s departure is unlikely to speed PHMSA action or improve the agency’s leverage with the OMB. A new administrator may not be in place anytime soon given the administration’s slowness in filling many top regulatory positions, the willingness of Senate Republicans to stand in the way of some confirmations after a nominee is finally named and the potential for the GOP to take control of the Senate after the fall elections. Moreover, the position of PHMSA administrator (or any other similar position at other regulatory agencies) will have little allure with the administration having less than two years to run.

The administration has had considerable trouble replacing former FERC chair Jon Wellinghoff who departed in November 2013. President Obama nominated Norman Binz, a Colorado regulator, to replace him, but Binz ran into significant Senate opposition owing to his strong stand on behalf of renewable energy, which was taken by some to make him an opponent of coal. He withdrew his nomination. Honorable apparently brings none of that baggage. Sen. Mark Pryor (D-AR) had been pushing her for a FERC vacancy. She was an assistant attorney general when Pryor served as Arkansas attorney general from 1999-2004.

The Senate Energy and Natural Resources Committee was to hold confirmation hearings on Honorable in September. They were postponed after the death of her husband. It is possible the hearings will be rescheduled for the lame duck session after the elections. In any case, Honorable’s nomination seems uncontroversial. One pipeline industry official calls her “fair and balanced.” He adds, “This is not Ron Binz.”
Nor is Sen. Lisa Murkowski (R-AK), ranking Republican on the Energy and Natural Resources Committee, likely to object to the appointment. “Sen. Murkowski has no major issues at the moment,” says Robert Dillon, Murkowski’s press secretary.

Environmentalists Still Trying To Delay Cove Point Liquefaction
FERC approved the first East Coast LNG export project at the end of September. Approval of the Dominion Cove Point facility came with 79 environmental conditions.

Environmental groups who opposed Cove Point are attempting to either delay Cove Point construction or even kill the project. Groups such as the Sierra Club and a couple of Maryland river groups filed an objection with FERC arguing that Dominion’s implementation plan – i.e. how it plans to comply with FERC’s environmental conditions – filed Oct. 2, was inadequate in several ways. FERC’s approval of that plan would allow Dominion to start initial site preparation for Cove Point. The environmental groups pleaded with FERC to reject the implementation plan and refuse to issue a “Notice to Proceed.”
Dominion already has Department of Energy (DOE) approval to export LNG to countries with a free trade agreement (FTA) with the U.S. The DOE conditionally approved non-FTA exports from the Dominion Cove Point LNG export facility in 2013.A final approval awaits further consideration of geopolitical, economic and other factors, including environmental impact. For countries lacking an FTA, the Natural Gas Act directs the DOE to grant export authorizations unless it finds the proposed exports “will not be consistent with the public interest.”

A DOE spokeswoman couldn’t say how long it would take her agency to provide final approval to the Cove Point project for non-FTA exports. She didn’t think it would take “ages and ages.” Final approval is much more likely than not.

Approval of LNG export facilities built to send gas to countries without an FTA with the U.S. has been controversial in recent years. It is more so these days as concern about getting natural gas to Eastern European neighbors of Russia, such as Ukraine, becomes a front-burner issue. U.S. manufacturers have opposed non-FTA exports, fearing supply shortfalls in the U.S. will drive up prices.

FERC’s authorization will enable Dominion Cove Point to liquefy and export up to 5.75 million metric tons of gas each year via ships that would dock at its existing offshore pier. Dominion Cove Point proposes to complete construction so the export terminal may start service in June 2017. FERC has approved four liquefaction facilities. Cove Point is the first on the East Coast.

Earlier in 2014, FERC approved the Cameron LNG liquefaction project. Cameron is a subsidiary of Sempra Energy. It is expected to be ready in 2018 with a capacity of approximately 1.7 billion cubic feet per day. The DOE green-lighted LNG exports to non-FTA countries from Cameron on Sept. 10, 2014.

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