Answering court, FERC affirms support for Nexus project, gas export volumes

Washington — The US Federal Energy Regulatory Commission has released its long-awaited answer to a court ruling on the NEXUS Gas Transmission project, with the commission's lone Democrat agreeing with the majority that export volumes could be used to support findings that a natural gas pipeline project is needed.

Overall vote was 2-1 in support of the commission's finding that the 256-mile, 1.5 Bcf/d project was in the public convenience and necessity, with Commissioner Richard Glick dissenting in part but supporting much of the majority view.

Glick's concurrence on how FERC should weigh export volumes offers a window into the Democrat's outlook at a time when the November election adds unknowns about the commission's future approach.

"I put great weight on Congress's legislative determination that exports of natural gas to free trade countries, including Canada, are consistent with the public interest," Glick said in his partial dissent. "Because Congress has seen fit to deem those exports to be consistent with the public interest, it makes sense that a precedent agreement to facilitate those exports can, at least under certain circumstances, help support a finding of need for a proposed pipeline."

In its ruling Sept. 6, 2019, the DC Circuit Court of Appeals declined to throw out FERC 's certificate authorization of the project but found the commission needed to supply a better explanation of its decision to credit agreements for export toward finding that a pipeline is required for public convenience and necessity, thus allowing the use of eminent domain authority. Landowners in the litigation had questioned whether there had been a proper public use determination as required under the takings clause of the US Constitution.

The project, which began operating in October 2018, ships Appalachian supplies to Midwest markets and on to Canada's Dawn Hub in Ontario.

Order on remand

The commission's order Sept. 3 explained that in approving an interstate gas pipeline, it is appropriate to count the exports toward need under Section 7 of the Natural Gas Act, because Section 3 of the Natural Gas Act states that such exports are in the public interest. It also listed specific benefits that apply regardless of whether domestic or export use is involved, such as adding to supply of reasonably priced gas, augmenting transportation options and creating jobs.

"With respect to the NEXUS project, regardless of where the end-use consumers of the gas transported under the executed service agreements are located, the Nexus project will provide additional capacity to transport gas out of the Appalachian Basin, a prolific producing region that has experienced take-away capacity constraints," FERC's order said. It also noted that the Dawn Hub in Canada, a key delivery point for Nexus, serves as a liquid trading hub integral to both Canadian and US markets and whose storage capacity can be crucial during periods of high demand.

Potential for consensus

In the alternative, the majority found that even when capacity associated with Canadian exports was excluded from the consideration, the project had precedent agreements adequate to demonstrate need. A showing that well over 60% of Nexus deliveries have been within the US validates the conclusion that Nexus can be justified without the foreign deliveries, the majority found.

On the majority's alternative finding, Glick dissented, contending the commission continues a "one-sided view of the record" that ignores critical evidence.

In particular, he said the commission relies on the notion that the project is needed because it will enhance the pipeline grid and ensure access to future domestic energy supplies. "That truism could describe nearly every project that the commission certifies."

Common sense, in his view, requires that FERC at least attempt to assess whether there will at some point be a demand for that capacity, he wrote. "The commission selectively point[ed] to evidence of expected demand only in instances where it backs the commission's [finding of need]." At the same time, FERC refused to consider the evidence suggesting that demand for the additional capacity is unlikely to materialize, he said.

Glick, however, welcomed the commission's look behind precedent agreements as part of the order. If fully developed, such a comprehensive approach to assessing need "could lead to greater consensus on this important aspect of the certification process."

The order was welcomed by the Interstate Gas Association of America.

"We agree with the commission that it is lawful to credit precedent agreements with foreign shippers serving foreign customers toward a finding that an interstate pipeline is required," an INGAA spokesperson said. "As Commissioner Glick noted, 'vibrant cross-border markets for natural gas' benefit US consumers, and indeed it benefits our allies and trading partners in Canada, Mexico and around the world."