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Rehearing Requests Question FERC’s Order Approving Jordan Cove

The ball is back in FERC' court. Credit: wp paarz

Last week, Niskanen Center and Sierra Club filed a joint rehearing request on behalf of landowners, the Klamath Tribes, and several other organizations and individuals, including Rogue Climate, Pacific Coast Federation of Fisherman’s Associations, and the League of Women Voters.

A rehearing request is a procedural action in which an intervenor asks FERC to reconsider a decision. In this case, the filers argue that Jordan Cove is not in the public interest because of significant adverse effects to public health and safety, Tribal resources, private property rights, the environment, and the climate.

They are asking FERC to withdraw its approval of the Jordan Cove Energy Project and reconsider its analysis of the project’s impacts and benefits.

Several Tribes also filed separate rehearing requests, as did several Oregon state agencies and the Natural Resources Defense Council (NRDC).

Many of the arguments presented in these documents are quite compelling. I thought it would be worthwhile to look into a few of them more deeply, especially the ones that have to do with landowners along the pipeline route.

Public convenience and necessity

As the Niskanen filing points out, FERC cannot approve a pipeline under Section 7 of the Natural Gas Act without engaging in “a robust inquiry into whether the pipeline is required by the public convenience and necessity.”

Both the coalition and the State of Oregon argue that the Pacific Connector Pipeline does not meet this standard.

In their filing, the State outlines FERC’s three-step formula for making this determination. First, the applicant has to be able to fund and operate the project. Second, the economic benefits must outweigh the adverse impacts. Third, FERC must consider the environmental impacts.

If the combined weight of the adverse economic effects and environmental impacts of the project outweigh the economic benefits, the application must be denied.

In 2016, as I’m sure many of you remember, FERC denied Jordan Cove precisely because the Commission determined that the benefits did not outweigh the adverse impacts.

This time around, according to the state, FERC never should have gotten beyond Step 2. This is because the supposed economic benefits rest on the fact of “precedent agreements” between the LNG terminal and the Pacific Connector pipeline—both owned by Pembina.

In other words, the fact that Pembina has agreed to purchase and supply gas to its own LNG terminal is not sufficient proof of market support, which is a proxy for economic benefits.

Many who have submitted comments to FERC over the years have pointed out that Pembina/Jordan Cove has never been able to demonstrate market demand in the form of buyers for the LNG. In fact, FERC cited this lack of contracts when it denied the project in 2016.

During the last round leading up to that 2016 denial, FERC repeatedly asked Jordan Cove (which was owned by Canadian company Veresen at the time) for evidence of market demand. Jordan Cove had no contracts in hand and never held what’s called an “open season.”

As the State points out, at that time, FERC’s assessment of “project need” was “based on the lack of agreements between the applicant and prospective customers for the gas.”

Here’s where it gets interesting.

After the 2016 denial, Jordan Cove filed a rehearing request of its own. In that 30-day period following, Pacific Connector quickly produced three precedent agreements for 77% of the pipeline’s capacity: one with Macquarie Energy, Veresen’s financial advisor and stockholder; one with Avista Corporation, and one (for the majority of the gas) with Jordan Cove.

In other words, the company made an agreement with itself to purchase natural gas from the pipeline for the LNG terminal.

But here’s the thing. After Vereson produced these precedent agreements, FERC said, Nah, not good enough, and denied the rehearing request.

So what’s changed since then? Nothing, except that the two other customers dropped out. The sole precedent agreement is with Jordan Cove, for 96% of the pipeline capacity.

The company still doesn’t have contracts in hand for the LNG it plans to export.

It would seem FERC has some ‘splaining to do. As the NRDC filing points out, the Commission “made zero reference to Pacific Connector’s repackaging of need during the 2016 rehearing process, and it made zero reference to the fact that Pacific Connector arguably has demonstrated even less need than it did during the 2016 rehearing process because, here, Pacific Connector’s only customer is Jordan Cove.”

Technically FERC can change the way it assesses need, but if they do so, they need to explain that in the Order. They did not.

Public benefits and public use

The filers also take issue with FERC’s conclusion that American natural gas producers will benefit from the project—which was part of the agency’s “public benefit” determination.

One of the points landowners have brought up repeatedly is that much if not all of the gas supplying Jordan Cove will likely be sourced from Canada. And in fact, Pacific Connector has obtained a license from the US Department of Energy to import 1.55 bcfd of natural gas from Canada, which is more than the 1.2 bcfd capacity of the pipeline.

But FERC says that doesn’t necessarily mean all of the gas will come from Canada. They point to a company statement that “Canadian sources of gas will be insufficient to meet the needs of the Jordan Cove LNG terminal” as ample justification for listing benefits to American gas producers as one of the public benefits of the project.

(FERC clearly didn’t do its homework, because Pembina’s application clearly states that the GTN and Ruby pipelines each have the capacity to provide 100% of the project’s gas.)

However, the Commission does not attempt to quantify this benefit, and, as both Niskanen and the State point out, the certificate does not require the project to include American natural gas.

But it could have. The Niskanen filing argues, in a footnote, that “The Commission could easily have conditioned operation on the Project exporting, on an annual basis, 90% U.S. gas. Or 80%. Or 51%. Or any other amount. But it did not, and the actual evidence is that the amount of exported U.S. gas will be 0%."

As it stands, any benefit to American producers is speculative.

FERC sort of covers its butt in the Order, citing language in the Natural Gas Act that proclaims the import and/or export of natural gas between the U.S. and “free trade agreement nations” as “consistent with the public interest.”

The State calls that argument for what it is: lame. What Congress meant, their filing explains, is the import of natural gas that is to be used by American customers and/or the export of gas from American gas producers. That certainly does not describe Jordan Cove.

The State reinforces the point about the intentions of Congress, stating that the language in the Natural Gas Act “…does not support the proposition that acting as a mere carrier of goods that are neither American-produced nor destined to benefit Americans is in the public interest.” [emphasis added]

I don’t know; what do ya’ll think?

The Takings Clause

Finally, let’s look at the Takings Clause. This is a clause in the Fifth Amendment which states that private property cannot be taken for public use without just compensation.

A lot hangs in that phrase, “public use.”

In the Order, FERC does not explain how a private pipeline selling gas to foreign shippers serving foreign customers serves a “public use.” Instead, FERC argues that the “public convenience and necessity” test (which, as pointed out above, is itself dubious) is equivalent to public use, and that no separate determination needs to be made.

The State points out that the D.C. Circuit Court found this explanation inadequate in a similar case, and that in fact “FERC needed to explain why a pipeline certificate predicated on precedent agreements for export did not violate the Takings Clause.”

We certainly think impacted landowners deserve that explanation.

Niskanen argues that FERC’s issuance of a conditional permit—in other words, authorizing the project on the assumption that it will eventually acquire all of the necessary permits--violates the Takings Clause. There can be no public benefit or public use if the project can’t even be legally built, and there’s no assurance that Jordan Cove/Pembina will ever acquire all of those permits.

If they do not succeed, but proceed with the condemnation process, the company “will have taken the property of hundreds of landowners for no purpose whatsoever…” Niskanen point out that courts have refused to allow exercise of eminent domain in similar situations where there was no legal certainty that the project for which property was taken could actually be built.

One final thought on the Takings Clause. FERC argues in its Order that conditioned certificates do not violate the Fifth Amendment because “Pacific Connector will be required to compensate landowners for any property rights it acquires.”

Niskanen argues that FERC has missed the point. The taking of private land through eminent domain violates the Fifth Amendment when there is no public benefit, regardless of what is done to the land after it is taken and regardless of how much landowners are compensated.

More waiting

These points were just a few of many well-consider arguments brought up in these rehearing requests.

But will FERC consider them?

The Commission has indicated that they will make their decision (on whether to accept or deny the rehearing requests) within 30 days and will not delay the decision by “tolling” the order—a practice that has kept landowners from filing appeals, even as companies are allowed to proceed.

The whole issue of tolling orders is very much in the news right now. Look for a blog post on the topic next week.

In the meantime, we wait.

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