United States: FERC Issues Presidential Permit And NGA Section 3 Authorization To Comanche Trail For San Elizario Crossing Project

On May 19, 2016, FERC granted Comanche Trail Pipeline, LLC's ("Comanche Trail") request for a Presidential Permit and authorization pursuant to section 3 of the Natural Gas Act ("NGA") and Part 153 of the Commission's regulations to construct and operate a border-crossing facility to export natural gas to, and import natural gas from, Mexico (the "San Elizario Crossing Project"). In doing so, FERC rejected claims that it should assert jurisdiction over Comanche Trail's intrastate pipeline upstream from the San Elizario Crossing Project, holding that section 3 of the NGA confers FERC jurisdiction over only a small segment of the facilities close to the border.

On May 29, 2015, Comanche Trail filed an application requesting a Presidential Permit and authorization to site, construct, and operate the San Elizario Crossing Project, a border-crossing facility consisting of 1,086 feet of 42-inch diameter pipeline extending from a point near San Elizario in El Paso County, Texas into Mexico with a design capacity of approximately 1.1 billion cubic feet per day. In the application, Comanche Trail stated that the principal use of the border-crossing pipeline will be to transport exported domestic gas for use as fuel in electric generation plants and industrial facilities in Mexico. Comanche Trail also stated in its application that it contemplates owning, constructing, and operating approximately 195 miles of intrastate pipeline, subject to the jurisdiction of the Railroad Commission of Texas, that will transport gas from the Waha Hub in Pecos County, Texas to the proposed border-crossing facility. In addition, Comanche Trail stated that the intrastate pipeline may later interconnect with interstate pipelines. On January 4, 2016, FERC Staff published an Environmental Assessment ("EA") for the San Elizario Crossing Project.

In response to the application, commenters argued that approval of the San Elizario Crossing Project was not in the public interest because Comanche Trail's construction of the non-jurisdictional upstream pipeline facilities will result in harm to the environment and gas exports are detrimental to domestic energy markets. Commenters further contended that Comanche Trail failed to show a need for the project because the combined capacity of its facilities and two other proposed projects to export gas would exceed the needs of the indicated customer, the Comisión Federal de Electricidad. Additionally, commenters argued that the 195 miles of upstream facilities were improperly classified as an intrastate pipeline because those facilities will be used primarily to export gas to Mexico and because Comanche Trail plans eventually to use the facilities to transport gas produced in states other than Texas for export to Mexico.

With respect to the EA, commenters requested that FERC assume federal jurisdiction over Comanche Trail's planned 195-mile-long intrastate pipeline. Commenters also contended that the San Elizario Crossing Project, the Trans-Pecos Presidio Border Crossing Project, and the Roadrunner Crossing Project are part of a larger project to export gas to Mexico and that separate environmental review of these facilities constitutes impermissible segmentation. Accordingly, commenters argued that FERC should prepare an environmental impact statement ("EIS") to evaluate the San Elizario Crossing Project and Comanche Trail's planned intrastate pipeline in conjunction with the Trans-Pecos project and its connected non-jurisdictional intrastate pipeline and the Roadrunner project and its connected non-jurisdictional intrastate pipeline.

In its order, FERC found that the border-crossing facilities are needed to export gas being produced in the United States for sale to expanding energy and industrial markets in Mexico, and that construction of the San Elizario Crossing Project will promote national economic policy by stimulating trade between the United States and Mexico, in accordance with a gas import/export arrangement authorized by the Department of Energy. FERC also stated that the claims by commenters that the capacity of the San Elizario Crossing Project, along with the capacity of the Trans-Pecos and Roadrunner projects, exceeds the Comisión Federal de Electricidad's demand are outside the scope of FERC's public interest determination under NGA section 3(a), although FERC also noted that the multiple projects might allow the Comisón Federal de Electricidad to serve diverse segments of its market. Moreover, FERC found that the construction and operation of the border-crossing facility will have minimal impact on landowners. Thus, FERC found that approval of the San Elizario Crossing Project was not inconsistent with the public interest and issued Comanche Trail an NGA section 3 authorization to site, construct, operate, and maintain the border-crossing facility and a Presidential Permit, subject to environmental conditions.

Addressing commenters' jurisdictional arguments, FERC held that the 195 miles of upstream pipeline are non-jurisdictional because the NGA provides separate treatment of interstate commerce and foreign commerce and because, when a company constructs a pipeline to import or export natural gas, only a small segment close to the border is deemed to be the import or export facility under section 3 of the NGA, and thus FERC only has jurisdiction over the upstream facilities if they transport interstate gas. According to FERC, Comanche Trail's intrastate pipeline will be located entirely in Texas, and when it begins service all of the transportation volumes it receives will be from Texas gas production or Texas intrastate facilities. Furthermore, FERC held that an expectation that Comanche Trail may use the upstream facilities for interstate transportation service at some point in the future does not confer NGA section 7 jurisdiction over the facilities. Accordingly, FERC determined that it did not have jurisdiction over the 195 miles of intrastate pipeline connecting to the border-crossing project, and that the intrastate pipeline was instead subject to regulation by the Railroad Commission of Texas.

Regarding the environmental analysis, FERC found that FERC Staff did not engage in impermissible segmentation in the EA by focusing on the impacts of the jurisdictional border-crossing facilities, because the National Environmental Policy Act ("NEPA") only requires review for federal action rather than action associated with non-jurisdictional facilities. FERC also found that the San Elizario Crossing Project and the Trans-Pecos and Roadrunner Projects are not connected actions under NEPA because the projects have no functional or financial interdependence. With respect to the cumulative action analysis, FERC Staff concluded in the EA that the appropriate region of influence should be limited to the areas within a one-mile radius from any point along the 1,086-foot-long border-crossing facility, including one mile of the intrastate pipeline immediately upstream from its interconnection with the border-crossing facility. FERC ultimately concluded that the San Elizario Crossing Project, the Trans-Pecos project, and the Roadrunner project are not cumulative actions requiring joint review in a single environmental document. Further, FERC found that given the limited scope of each of the three border-crossing projects and the projects' disparate geography or timing, a single EA for all projects was neither required nor appropriate. Finally, reiterating that its environmental review must be limited to the jurisdictional border-crossing facilities, FERC concluded that the approval of the 1,086-foot-long project will not result in a significant adverse effect on the environment and thus did not warrant an EIS.

A copy of the order is available here.

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