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Opponents pile onto Puerto Rico LNG project as FERC plans action

The Federal Energy Regulatory Commission could soon decide whether it has jurisdiction over a natural gas import terminal that is already in service at the Port of San Juan in Puerto Rico, amid mounting calls by project opponents to halt the facility.

FERC issued a rare show-cause order to project sponsor New Fortress Energy Inc. in 2020, demanding that the developer explain why it did not seek agency approval before building the facility. A three-member majority of FERC commissioners batted down a proposed order in January that would have disclaimed the commission's jurisdiction over the import terminal, leaving the fate of the project undecided (CP20-466).

Democrat Richard Glick, who has since been named FERC's chairman and now sets its agenda, has made it clear that he believes that the developer must apply for commission authorization under Section 3 of the Natural Gas Act, which gives FERC authority over LNG terminals. Glick's inclusion of the case on the agenda for agency's monthly open meeting March 18 could suggest FERC is about to assert that authority, analysts at ClearView Energy Partners said in a March 11 note to clients.

If FERC makes that assertion, it could trigger a permitting process that entails a sometimes lengthy environmental review, which opponents have argued must be done for the Puerto Rico facility. If FERC finds that the developer violated the Natural Gas Act, the commission could also move to shut down the facility temporarily or for good.

Environmental groups move to shut terminal

The Sierra Club on Feb. 26 submitted more than 15,000 comments to FERC from its members and supporters, with thousands of commenters calling for FERC to shut down the facility. The environmental law firm Earthjustice also weighed in with several local environmental organizations March 10, pressing FERC to "enforce the Natural Gas Act."

The Earthjustice motion pointed to an investigation by Puerto Rican lawmakers into the project's environmental and community impacts. It said FERC can "demonstrate its commitment to environmental justice by closely reviewing the results of the Puerto Rico Legislature's investigation, taking jurisdiction over the New Fortress LNG Terminal, requiring a full environmental impact statement, and scheduling public hearings."

"Just in terms of a dry legal question, we think we're absolutely right that this does fall under FERC's jurisdiction under the Natural Gas Act," Earthjustice attorney Raghu Murthy, who authored the filing, said in an interview.

"But the passion in our filings — the impetus for us taking the time to do this and for these communities to come together and oppose this — is the environmental justice issue there, and the environmental and social impacts of the facility," Murthy said. "FERC has a process in place through [the National Environmental Policy Act] to do a really comprehensive, coordinated review of all the impacts. That's what we want done here."

Earthjustice also wanted FERC to pursue a preliminary injunction shutting the facility down.

Developer says project did not need FERC approval

New Fortress has made a series of legal and technical arguments to FERC for why the facility does not meet the test for what the regulator considers to be a terminal under its jurisdiction. The developer has also claimed that FERC staff had taken the position that the facility did not need agency approval.

New Fortress did not respond to a request for comment March 12.

A FERC spokesperson declined to comment on the matter while a final decision is pending. FERC did not make public the draft order commissioners voted down 3-2 on Jan. 19, but the result of the failed vote was to leave the jurisdictional battle in limbo.

The stakes are also high for an important customer of the receiving terminal, the island's Puerto Rico Electric Power Authority, or PREPA. The terminal feeds a combined-cycle power plant that belongs to the government-owned power company.

PREPA signed a contract in March 2019 with New Fortress subsidiary NFEnergía Llc for the conversion of two power generation units from running on diesel to natural gas supplied by the import facility in an estimated $1.5 billion deal. New Fortress said in regulatory filings that it expects to supply the units, which have a combined capacity of about 440 MW, with an amount of gas equivalent to about 860,000 gallons of LNG per day, or about 70,000 MMBtu per day.

PREPA and New Fortress have told FERC that actions to disrupt the facilities' operations would be a severe setback for Puerto Rico's energy consumers and the island's power grid.

Glick and fellow Democratic Commissioner Allison Clements expressed outright disapproval of the proposed New Fortress order in January and said the terminal clearly falls under FERC's authority. Glick added that New Fortress would not necessarily be required to shut down the facility during permitting proceedings.

The swing vote in January was Republican Commissioner Neil Chatterjee, who said the draft order raised "interesting jurisdictional questions" that it did not adequately address. The outcome of the upcoming vote March 18 appears to depend on Chatterjee's views about how the latest order handles those jurisdictional issues, the ClearView analysts said.

"We are inclined to think that FERC may move to assert jurisdiction, potentially on a 3:2 vote," the analysts said.