Angela J. Durbin, Striking a Delicate Balance: Developing a New Rationale for Preemption While Protecting the Public's Role in Siting Liquified Natural Gas Terminals

• Jurisdiction: United States,Federal
• Publication year: 2006
• Citation: Vol. 56 No. 2

STRIKING A DELICATE BALANCE: DEVELOPING A NEW RATIONALE FOR PREEMPTION WHILE PROTECTING THE PUBLIC'S ROLE IN SITING LIQUIFIED NATURAL GAS TERMINALS

INTRODUCTION

Chairman Joseph T. Kelliher of the Federal Energy Regulatory Commission (FERC) has stated that the Energy Policy Act of 2005 (the "Act") is "one of the most important changes in the laws [FERC] administer[s] in [the past seventy] years."¹Previous versions of the Act had been introduced in Congress since 2003.²The final version was signed by President Bush on August 8, 2005, after having passed the House of Representatives by a vote of

275 to 156³and the Senate by a vote of 74 to 26.⁴

Section 311 of the Act grants FERC the "exclusive authority to approve or deny an application for the siting, construction, expansion or operation of [a Liquefied Natural Gas] terminal."⁵Section 313 of the Act designates FERC as the "lead agency for the purposes of coordinating all applicable Federal authorizations [necessary to site Liquified Natural Gas Terminals] and for the purposes of complying with the National Environmental Policy Act of 1969,"⁶and further grants judicial review of all federal authorizations to the U.S. Courts of Appeals.⁷Although Chairman Kelliher has maintained that these portions of the Act merely "clarify" FERC's jurisdiction to site Liquified Natural Gas (LNG) Terminals,⁸opponents of sections 311 and 313 of the Act have argued that they "signal[] a departure from current law whereby states and localities play[ed] a significant role in siting" these facilities.⁹

Natural gas consists primarily of methane.¹⁰This gas can be "supercooled" to -260 degrees, which decreases its volume to 1/600th of its volume as a gas, making it easier to transport and store.¹¹After conversion into liquid form, the natural gas can be transported in tankers from countries that export natural gas¹²and then converted back into gaseous form for use in the U.S. energy market. However, "specially designed terminals" must receive and process the LNG, which involves converting it back into gas.¹³These LNG terminals are then linked to pipelines that transport the gas across the United States. Four of these terminals have already been built in U.S. cities: Everett, Massachusetts; Cove Point, Maryland; Elba Island, Georgia; and Lake Charles, Louisiana.¹⁴

Congress's grant of exclusive jurisdiction to FERC preempts the authority of state agencies-principally public utility commissions, which previously were viewed as the primary authorities responsible for siting LNG terminals.¹⁵

Congress's regulation in this area impinges on states' traditional authority under the police power to regulate in areas of public health, safety and welfare, land use planning, and utility planning.¹⁶Although Congress has the right to regulate in these areas, courts have developed a presumption against

Congress's preemption of state or local law in areas of traditional state concern.¹⁷Furthermore, when Congress regulates in an area of traditional state concern, it most often does so because states have not regulated sufficiently or there is a need for uniform regulation.¹⁸

These rationales only partially support Congress's preemption of states' authority to site LNG terminals. Therefore, this Comment argues that the grant of exclusive jurisdiction over the siting of LNG terminals to FERC represents a departure from the traditional rationales that support the reallocation of power to the state governments and away from the federal government in areas of traditional state concern. However, this Comment suggests that an alternate rationale exists for the passage of section 311: the effective ban on siting LNG terminals that has developed through regulatory fragmentation and state and local opposition to these projects. Although Congress's grant of exclusive jurisdiction to FERC was justified by this functional ban, this Comment notes that the transfer of power that Congress has effected has the potential to decrease the effectiveness of public participation in the LNG terminal siting process.

This Comment generally discusses the new role granted FERC under the Energy Policy Act of 2005 in siting LNG terminals and analyzes Congress's rationale for granting that role. Part I reviews the regulatory framework that applied to siting LNG terminals prior to the Act's passage. Part II presents the relevant provisions of the Act, including the reasons for and goals of sections

311 and 313's passage, the arguments presented by the opposition as to why FERC should not have been granted exclusive jurisdiction in this realm, and a description of the Act's resultant provisions. Part III discusses the rationales that have guided Congress's judgments on how to allocate power between the federal government and state and local governments in the past, including a discussion of the preemption doctrine, which traditionally has been Congress's main tool for overriding state law. Part IV compares Congress's decision to act here with the traditional preemption rationales, and it concludes that none of these rationales fully support Congress's actions with respect to LNG siting.

Finally, Part V analyzes the risks of and rationales for Congress's passage of sections 311 and 313. Specifically, the numerous and diverse regulating bodies that have traditionally been involved in siting LNG terminals have bogged down the process to such an extent that projects that are necessary for the security of the U.S. energy supply are not being constructed. However, although Congress, with the passage of sections 311 and 313, created a solution to the effective ban imposed on LNG terminals, it also created a risk of less effective public participation in the siting process. This Comment concludes that FERC should take great care to maintain a high level of public interaction prior to making any siting decisions.

I. REGULATORY FRAMEWORK PRIOR TO THE ACT

To better understand the current regulatory framework that applies to siting LNG terminals under the Act, it is instructive to review the regulatory framework that the Act displaced. Prior to the Act's passage, FERC did not have the exclusive authority to site LNG terminals. Rather, a complicated, fragmented regulatory scheme applied to LNG terminals. The Natural Gas Act's (NGA) policy provision, which was not altered by the Act, states that the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest, and . . . Federal regulation in matters relating to the transportation of natural gas and the sale thereof in interstate and foreign commerce is necessary in the public interest.¹⁹

However, the NGA as originally passed went on to reserve the regulation of "transportation or sale of natural gas or . . . the local distribution of natural gas or [of] . . . the facilities used for such distribution" to states.²⁰Thus, Congress envisioned "a system of dual state and federal regulation."²¹Under the NGA, prior to the Act's passage, FERC had exclusive jurisdiction to transport and sell natural gas across state lines and to regulate natural gas companies that transport or sell natural gas.²²FERC also had the jurisdiction to authorize exportation and importation of LNG to the United States.²³

Pursuant to section 717(b) of the NGA, states retained all other authority regarding the regulation of LNG terminals, specifically including the authority to site the terminals.²⁴For example, in California, the California Public Utilities Commission (CPUC) was "charged by statute with the responsibility for regulating natural gas corporations," which included "the authority 'to require every public utility to construct, maintain, and operate its . . . premises in a manner so as to promote and safeguard the health and safety of its employees, passengers, customers and the public.'"²⁵Prior to the Act's passage, each Californian public utility (which included LNG terminals) was required to obtain a Certificate of Public Convenience and Necessity from the CPUC as part of the siting process.²⁶

In addition to the federal and state public utility permits, an applicant desiring to site an LNG terminal was also subject to approval by several other federal and state regulatory agencies, each of which applied its own timetable and requirements.²⁷These included approvals from the relevant state agency under the Coastal Zone Management Act (CZMA),²⁸the Clean Water Act (CWA),²⁹the Clean Air Act (CAA),³⁰and section 404 of the CWA for dredge- and-fill activities.³¹The splintered process that applied to siting LNG terminals created lengthy delays and often resulted in several layers of bureaucracy reviewing the same information in a string of regulatory approvals.

For example, FERC's power to certify the importation of LNG to the United States and the transportation of natural gas across state lines was conditioned on the consistency determination required to be made by the state under the CZMA.³²Prior to the Act's passage, the state agency responsible for CZMA consistency determinations potentially had six months to make its decision regarding a proposed LNG terminal,³³thereby delaying FERC's certification for those six months. Furthermore, the U.S. Army Corps of

Engineers (USACE), which remains responsible for issuing section 404 CWA dredge-and-fill permits for LNG terminals,³⁴also had to wait for the consistency determination under the CZMA, delaying their decision for six months.³⁵USACE also had to wait for certification from the relevant state's water quality certification under section 401 of the CWA.³⁶

The interaction of these permit requirements resulted in long delays in the approval of the siting of LNG terminals.³⁷In some states, different agencies historically have been responsible for the necessary approvals under the CWA, CAA, and CZMA,³⁸and, often, several administrative appeals could occur in different jurisdictions. The requirements that some permits not...