Restructuring the Regulation of Cross-Border Energy Infrastructure: The Impact of H.R. 3301, the North American Energy Infrastructure Act

            Last week, the House Energy & Commerce Committee held a hearing to explore the potential impacts of H.R. 3301, the North American Energy Infrastructure Act, which seeks to restructure the current regulatory framework that governs oil and natural gas pipelines, and electric transmission facilities that cross the borders of the United States into Mexico and Canada.  The proposed legislation would abandon the current framework established through various Presidential Executive Orders for “a more uniform, transparent, and modern process for the construction, connection, operation, and maintenance of oil and natural gas pipelines and electric transmission facilities for the import and export of oil, natural gas, and electricity to and from Canada and Mexico, in pursuit of a more secure and efficient North American energy market.”  The current process requires a Presidential Permit for new cross-border projects and existing projects that have undergone changes in ownership or modifications.  The process proposed by H.R. 3301 would eliminate the need for a Presidential Permit, requiring the Department of Energy (“DOE”), Federal Energy Regulatory Commission (“FERC”), and Department of Commerce to resolve all new and existing cross-border facility requests within 120 days of submission.  According to the background memorandum prepared for the hearing, the U.S. has over 40 cross-border electric transmission lines, 50 operating cross-border natural gas pipelines between the U.S. and Canada (29) and the U.S. and Mexico (21), and 19 operating cross-border oil pipelines between the U.S. and Canada (17) and the U.S. and Mexico (2).  Currently, there are 5 cross-border electric transmission projects, 2 natural gas pipeline projects in Arizona and Texas, and 7 new or existing oil pipelines with Presidential Permit applications pending.  We highlight the key provisions of H.R. 3301 and concerns raised by the affected federal agencies in hearing testimony and statements.

Key Provisions of the Proposed North American Energy Infrastructure Act

            The proposed legislation would create a new procedure for the regulation of cross-border oil and natural gas pipelines, and electric transmission facilities, eliminating the requirement for a Presidential Permit and any subsequent approvals for facilities that have undergone change of ownership or modifications.  Key elements to the proposed legislation include:

• Requests for approval for cross-border facilities must be submitted to the following agencies: for oil pipelines to the Secretary of Commerce, for natural gas pipelines to FERC, and for electric transmission requests to the Secretary of Energy.
• Requests must be approved by the agency within 120 days of being submitted, unless a request is determined not to be in the national security interests of the U.S.
• The approval of cross-border facility requests does not constitute a “major Federal action” for the purposes of the National Environmental Policy Act (“NEPA”).
• Approval for electric transmission facilities is contingent upon compliance with the applicable standards and policies of Electric Reliability Organizations, Regional Transmission Organizations, and Independent System Operators.
• This approval process does not apply to any oil or gas pipelines or electric transmission facilities that: (1) are operating across the national border at the date of enactment; (2) have already received a Presidential Permit; (3) have previously been approved under the new H.R. 3301 process; or (4) have a Majority Memorandum for the application pending on the date of enactment until the application is denied or until July 1, 2016.
• No future approvals are needed under the H.R. 3301 process for modifications or changes of ownership.
• The requirement under section 3(c) of the National Gas Act that DOE approval is needed for the export or import of natural gas to or from the U.S., Canada, or Mexico across the U.S. border is repealed.
• The requirement under section 202(e) of the Federal Power Act that DOE export authorization is needed to transmit electric energy from the U.S. to a foreign country is repealed.

Federal Agency Concerns Regarding H.R. 3301

The hearing testimony and written statements offered by representatives of FERC, DOE, and the Department of Commerce raise various concerns regarding the regulatory framework proposed under H.R. 3301, including the new “national security interest” standard, the inadequacy of the curtailed 120-day timeframe for approval, and the intention to eliminate the cross-border facilities from regulation under NEPA.

FERC:  The concerns raised during the testimony of Jeff C. Wright, Director, Office of Energy Projects, Federal Energy Regulatory Commission include:

• FERC is not in position to make a determination regarding national security interests, as H.R. 3301 would require, and eliminating the Presidential Permit process will not eliminate the need for consultation with the Department of State or Homeland Security. “Currently, the Presidential Permit process solicits the opinions of the Secretaries of State and Defense regarding the import of gas from or export of gas to Canada or Mexico. If there were national security concerns, these concerns would be expressed by the Departments of State and Defense as part of the Presidential Permit process.”
• Even though the cross-border facility approval would not constitute a major federal action under NEPA, the shortened 120-day timeline “would negate the ability of the Commission to consider stakeholder concerns and severely curtail the Commission’s ability to conduct a thorough analysis of a project involving border facilities, resulting in a decision whose sustainability is questionable,” given other requirements for environmental analysis of projects that may involve border facilities.
• The procedure under H.R. 3301 “does not make any explicit provision for procedures such as public notice, public comment, issuance of an order supporting a Commission decision, rehearing, or judicial review in conjunction with the Commission’s consideration of an application,” like the NGA does.
• Repealing the section 202(e) of the Federal Power Act requirement for DOE approval of transmission of electricity to foreign countries “could have an unintended potentially adverse effect on the Commission’s ability to ensure non-discriminatory open access transmission service over the U.S. electric transmission grid.”

See the full testimony of Jeff C. Wright, Director, Office of Energy Projects, Federal Energy Regulatory Commission

Department of Commerce: The statement submitted by Kevin J. Wolf, Assistant Secretary for Export Administration, Bureau of Industry and Security, Department of Commerce stated that while the Department of Commerce is still reviewing the proposed legislation, “the Administration has serious concerns,” including:

• H.R. 3301 represents a “significant change from current policy for the permitting of cross-border projects” and would impair the Executive Branch’s ability to issue “reasoned and responsible decisions.”
• Removing these projects from the purview of NEPA by excluding them from the definition of “major Federal action” under NEPA “will undermine the reasoned consideration of the environmental effects of such projects and impede the opportunity to consider alternatives with less adverse impacts on communities and the environment.”

See, the full statement of Kevin J. Wolf, Assistant Secretary for Export Administration, Bureau of Industry and Security, Department of Commerce.

Department of Energy:  The Department of Energy also is continuing its review of H.R. 3301, but expressed the following “serious concerns” through the written statement of Dr. Michael Knotek, Deputy Under Secretary for Science and Energy:

• The “most notable change” is the new standard of review which would require the Secretary of Energy to approve a project within 120 days unless it is not in the national security interests of the country.  The national security interest standard would (1) “eliminate consideration of criteria currently evaluated that bear on our public interest but not on national security,” (2) “prevent the thorough consideration of complex issues that could have serious safety, environmental, and other ramifications,” (3) burden the Department of Energy “to make an affirmative national security finding,” and (4) change the role of the Defense and State Departments “from concurrence to consultation.”
• The 120-day timeframe is not specified to begin after sufficient information to make a national security interest determination has been received by the DOE.
• Some projects might require review under NEPA notwithstanding the cross-border facility exclusion from the definition of “major Federal action,” and other environmental and conservation statutes might require review that could exceed the 120 day deadline.
• Eliminating the requirement for DOE export authorization of natural gas may not reduce regulatory burden and may reduce the DOE’s “ability to monitor cross-border trade in natural gas and could lessen its ability to enforce other requirements typically imposed as conditions to [such export] authorizations.”

See the full statement of Dr. Michael Knotek, Deputy Under Secretary for Science and Energy.

            Other witnesses at the hearing included: Manhattan Institute; the State of Vermont Department of Environmental Conservation; Canadian Electricity Association; Plains All American Pipeline, L.P, on behalf of the Association of Oil Pipe Lines; Institute for Energy Research; and Blackcreek Environmental Consulting.  The webcast of the hearing and all witness testimony and statements can be found here.