NERA Economist Provides Testimony before the FERC Pertaining to the Certification of New Natural Gas Transportation Facilities

The Situation

The Federal Energy Regulatory Commission (the FERC or “the Commission”) issued a Notice of Inquiry (NOI) pertaining to the certification of new natural gas transportation facilities (Docket No. PL18-1-000).

In its NOI, the FERC called for stakeholders, like Interstate Natural Gas Association of America (INGAA), to assess if and how the Commission should adjust its method for determining “economic need,” its considerations of eminent domain landowner interests, and whether it should change its method of evaluating environmental impact in certifying new interstate gas pipelines.

NERA's Role

NERA Managing Director Dr. Jeff D. Makholm, sponsored by INGAA, provided comments to the FERC regarding its elegant regulatory framework, including the Commission’s 1999 Policy Statement, which supports the highly competitive interstate gas transport industry upon which America’s competitive gas industry depends. Much of the litigation surrounding recent gas pipeline certifications (from New York to Florida) has the potential to draw the FERC back into the active management of the US gas industry that the Commission and Congress expended so much effort for the federal government to escape.

Dr. Makholm reexamined the various congressional and FERC initiatives that led up to the 1999 Policy Statement and described how it removed one of the last sources of market uncertainty on the ability of the interstate gas pipeline system to expand in a market-responsive manner without the risk of overbuilding—and, hence, overcoming a last major obstacle to a competitive US interstate gas transportation business. He then documented the results of the competitive US interstate gas transportation sector: a high-technology market for gas that has saved US consumers and businesses many hundreds of billions of dollars compared to developed gas industries in other parts of the world, particularly in the European Union.

The Result

Dr. Makholm found that certification arose as a critical component of interstate gas pipeline regulation to assure financing and creditworthiness of a crucial part of US infrastructure. Moreover, once the FERC successfully implemented open-access, contract carriage regulation for interstate gas pipelines, certification became a critical element of the competitive market for interstate capacity entitlements. Competitive interstate gas transport markets have had a powerful effect on the US economy, lowering the competitive price of gas well below its historic oil-equivalent value, spurring new technology and investments in gas production and use, lowering the competitive price of electricity, and fueling US exports. The US interstate gas transport system is still driven by “downstream” decisions related to the public interest of employing gas in various end uses, including home heating, competitive electricity generation, and petrochemicals. Finally, Dr. Makholm found that expanding the FERC’s role by compelling it to reactivate its earlier role in managing the US interstate gas industry would be counterproductive in terms of achieving the Commission’s key objectives.