FERC Denies the Applications for Certificate and Section 3 Authorization Pertaining to the Pacific Connector Pipeline and Jordan Cove LNG Terminal

In an order issued March 11, 2016, FERC denied the application of Pacific Connector Gas Pipeline, LP (“Pacific Connector”) for an NGA Section 7 certificate that would have authorized the construction and operation of a 232-mile-long, 36-inch-diameter interstate pipeline in Oregon terminating at the proposed Jordan Cove LNG Terminal. FERC held that Pacific Connector had presented little or no evidence of need for the proposed pipeline, and that its generalized allegations of need did not outweigh the potential adverse impact on landowners and communities. With respect to the Jordan Cove LNG Terminal, FERC noted that while its Certificate Policy Statement does not specifically apply to facilities authorized to be constructed to export natural gas or LNG under NGA section 3, FERC is still required to conclude that authorization of such facilities will not be inconsistent with the public interest. Because the proposed Pacific Connector Pipeline was the sole proposed source of natural gas for the Jordan Cove LNG Terminal, and FERC had just denied the application relating to it, FERC also denied Jordan Cove Energy Project, L.P.’s (“Jordan Cove’s”) NGA Section 3 application, holding that “without a pipeline connecting it to a source of gas” the project “provide[d] no benefit to the public to counterbalance any of” the impacts associated with its proposed construction.

Jordan Cove submitted its NGA Section 3 application on May 21, 2013, seeking authorization to construct and operate an LNG export terminal and associated facilities on the North Spit of Coos Bay in Oregon. Pacific Connector submitted its NGA Section 7 application on June 6, 2013, seeking authorization to construct and operate a 232-mile-long interstate pipeline from interconnects in Oregon with pipelines operated by Ruby Pipeline LLC and Gas Transmission Northwest LLC to the Jordan Cove LNG Terminal. The pipeline project was designed to deliver up to 1.06 Bcf/d of natural gas to the Jordan Cove LNG Terminal for liquefaction and export.

On May 7, 2014, FERC staff sent Pacific Connector a data request asking the current status of (1) Jordan Cove’s negotiations for liquefaction contracts and (2) Pacific Connector’s actions to conduct an open season and enter into precedent agreements for pipeline capacity. Pacific Connector responded on May 15, 2014, stating that Jordan Cove had entered into non-binding Heads of Agreements with various Asian companies for liquefaction and transportation capacity, and that such Heads of Agreements generally provided for precedent agreements to be executed with Pacific Connector by October 2014, upon which Pacific Connector would conduct an open season in the October-November 2014 timeframe.

On December 5, 2014, FERC staff sent a follow-up data request. Pacific Connector responded on December 10, 2014, stating that Jordan Cove was still negotiating under the non-binding Heads of Agreements, the terms of which had been extended by parties into early 2015, and that the Heads of Agreements generally provided for pipeline precedent agreements to be executed in the first or second quarters of 2015 by those shippers choosing to make binding commitments.

On May 20, 2015, FERC staff sent a third data request. In this request, FERC staff stated that while the Commission no longer requires an applicant to present contracts for any specific percentage of proposed new capacity, contracts or precedent agreements always serve as important evidence of project demand. Pacific Connector responded on June 1, 2015, stating that it would not hold an open season in the second quarter of 2015, but would do so upon the execution of pipeline precedent agreements for at least 90 percent of the pipeline’s design capacity, which it anticipated would occur prior to the end of 2015. Pacific Connector also observed that the U.S. Department of Energy (“DOE”) had authorized Jordan Cove’s export of LNG to free trade agreement and non-free trade agreement nations, as consistent with the public interest. Pacific Connector concluded that, because the Pacific Connector Pipeline is an integral component of the Jordan Cove LNG Terminal, the pipeline’s “public benefits encompass all the public benefits of the Jordan Cove Terminal.”

Finally, on October 14, 2015, FERC staff sent a fourth data request seeking updates. Pacific Connector responded on November 4, 2015, stating that negotiations between Jordan Cove, Pacific Connector and prospective customers are “active and ongoing,” and that it “remains confident that these customers will enter into binding long-term [agreements]” with Jordan Cove and Pacific Connector. Pacific Connector affirmed that it would obtain executed service agreements prior to commencing construction, but did not provide an estimated date for finalizing agreements. Pacific Connector did provide information indicating that it had obtained easements for 5 percent and 3 percent, respectively, of its necessary permanent and construction rights of way.

On December 10, 2015, a representative of six intervening landowners who would be directly impacted by the pipeline filed a letter requesting that the Commission deny authorization of the pipeline given “that it does not have a single confirmed customer and has only obtained 4.7 [percent] of the right-of-way easement acreage and 2.8 [percent] of the construction easement acreage.” The letter noted that if FERC authorized the pipeline, Pacific Connector could use the power of eminent domain over approximately 630 landowners, and requested that FERC weigh these impacts against Pacific Connector’s failure to execute a single contract for transportation capacity. Various intervenors also requested a full evidentiary hearing to determine the pipeline project’s impacts and whether its construction would be in the public interest.

In its March 11, 2016 order, the Commission found that Pacific Connector met the threshold requirement of there being no subsidization from existing pipeline customers, because it was a new pipeline and had no existing customers. With respect to the next step – analysis of the pipeline project’s impact on (i) existing customers and services, (ii) competing existing pipelines, and (iii) landowners and surrounding communities, it met (i) because, again, it had no existing customers or services, and met (ii) because it would not replace firm transportation service on any other pipelines in the market.

With respect to the impact on landowners and surrounding communities, FERC found that while 41 percent of the pipeline was adjacent to existing powerlines, roads and other pipelines, 59 percent would be constructed within newly created right-of-way through forest, agricultural land and rangeland. FERC noted that the focus under its Certificate Policy Statement is on the project’s impact on the relevant interests balanced against the project’s benefits. “This is a proportional approach, where the amount of evidence required to establish need will depend on the potential adverse effects of the proposed project.” Where sponsors of a new company proposing to serve a new market were able to acquire all necessary rights of way by negotiation, “such a project would not need any additional indicators of need . . . since landowners would not be subject to eminent domain proceedings.”

FERC found that in this case the proposed pipeline would impact 157.3 miles of privately-owned lands, held by approximately 630 landowners (54 of whom had intervened), who raised claims of negative economic impacts. Pacific Connector had “presented little or no evidence of need ….” It had not “entered into any precedent agreements ….” The Commission rejected the argument that it “rely on DOE’s finding that authorization of the commodity export is consistent with the public interest as sufficient to support a finding by the Commission that the Pacific Connector pipeline is required by the public convenience and necessity ….” The Commission noted that while it could bar construction from commencing under a certificate until executed contracts existed, the issuance of a certificate would allow Pacific Connector to proceed with eminent domain proceedings “in what we find to be the absence of a demonstrated need for the pipeline.” FERC concluded that “the generalized allegations of need proffered” did not “outweigh the potential for adverse impact on landowners and communities.”

Having denied the pipeline application, FERC concluded with respect to the Jordan Cove LNG Terminal project that “without a pipeline connecting it to a source of gas to be liquefied and exported, the proposed [project] can provide no benefit to the public to counterbalance any of the impacts which would be associated with its construction.” The Commission also observed that it “has not previously authorized LNG export terminal facilities without a known transportation source of natural gas” and concluded that, in these circumstances, “authorizing [the terminal’s] construction would be inconsistent with the public interest.”

A copy of the order is available here.