April 2015, Vol. 70, No.4
Washington Watch
FERC Proposal Would Allow Pipelines To Use ‘Trackers’
Major gas producers are opposing an initiative by the Federal Energy Regulatory Commission (FERC) to allow interstate gas transmission companies to use what are called “trackers” to raise revenue for infrastructure projects which respond to federal environmental and safety requirements.
These trackers would be surcharges the pipelines would charge customers and would be negotiated with customers, but outside regular Section 4 rate cases.
Producers such as Anadarko Energy Services Company, Apache Corporation, BP Energy Company, Chevron U.S.A. Inc. and others have banded together to oppose the FERC initiative. In comments they filed on Feb. 28, they said: “Delinking capital investments from rate base, and allowing risk-free recovery of the costs of capital investments, will result in an unjust and unreasonable windfall to pipelines.”
They argued that allowing pipelines to use trackers would undercut the entire Section 4 rate making process. “No party has demonstrated why a Section 4 rate case does not provide an adequate opportunity for a pipeline to recover prudently incurred costs,” the comments said. “In fact, pipelines are so ready to relegate Section 4 rate cases to the ‘dustbins’ of history that they even oppose the requirement that a Section 4 rate case be required to be filed as a condition to establish a tracker in the first instance.”
The gas companies were joined in their opposition, not surprisingly, by the Natural Gas Supply Association. It argued that the FERC should not move forward with a “tracker” until the Pipeline and Hazardous Materials Safety Administration (PHMSA) and the Environmental Protection Agency (EPA) finalized rules which might force the pipelines to make the kinds of investments that a tracker aims to facilitate. PHMSA is considering new pipeline safety requirements. The EPA recently announced it would release some sort of methane emissions reduction initiative sometime soon. “In short, the commission should not issue a policy in a vacuum,” says Patricia W. Jagtiani, senior vice president, Natural Gas Supply Association.
However, environmentalists have become what some might consider strange bedfellows to the pipelines. Groups such as the Environmental Defense Fund and the Natural Resources Defense Council believe trackers will allow pipelines to better afford to fix compressor leaks, resulting in fewer methane emissions. “At its core, the proposed policy provides a productive tool with appropriate standards that can facilitate modernization of pipeline infrastructure to reduce safety risks and adverse environmental impacts caused by excessive and preventable leakage and emissions of methane,” says N. Jonathan Peress, Air Policy director, Natural Gas, Environmental Defense Fund.
The tracker FERC is proposing will be useful to some companies, less so to others, and of varying utility even within companies. Take Boardwalk Pipeline Partners for example. It owns three interstate pipelines: Gulf Crossing Pipeline Company, Gulf South Pipeline Company and Texas Gas Transmission. Gulf Crossing is a new single barrel pipeline which commenced service in 2009. “The proposed PHMSA regulations will have limited impact on this pipeline given its age, how it was constructed and the fact it can run in-line inspection tools or smart pigs,” explains Michael E. McMahon, senior vice president and general counsel, Boardwalk. “However, the vast majority of Gulf South’s older, smaller diameter pipelines are incapable of running in-line inspection tools without substantial facility modification or replacement. The proposed PHMSA rules will have the greatest impact on those Gulf South pipelines constructed prior to the 1950s.”
INGAA Wants Changes To EPA Proposed Facility Blowdown Reporting
The Interstate Natural Gas Association of America (INGAA) wants the EPA to make some changes in its proposed requirement that interstate and intrastate pipelines measure emissions from pipeline blowdowns. This is a proposed expansion of an existing greenhouse gas (GHG) reporting rule which already cover compressors and other equipment. The new requirement would apply to “facilities,” meaning the stretch of pipeline which begins after it leaves a compressor and before it reaches the next compressor. Pipelines do blowdowns for required maintenance and repair, some of it required by safety regulations published by the Pipeline and Hazardous Materials Safety Administration.
The prospective EPA requirement stems from a petition submitted in 2013 by a group of non-governmental organizations (NGOs) asking the agency to expand GHG reporting by pipelines, natural gas producers and other sectors in the oil and gas industry. Pipeline blowdowns was one of the emission sources the petition cited.
INGAA says it understands the need to collect blowdown data but has concerns with the proposed requirements for tracking and reporting blowdowns.
The EPA is proposing that reporters would use one of two methods to calculate or measure emissions from pipeline blowdown events. One method allows a reporter to calculate emissions based on the volume of the pipeline segment between isolation valves that is blown down and the pressure and temperature of the gas within the pipeline. According to the EPA, this method uses information that should be readily available to the reporter (e.g., pipeline length, diameter and operating pressure) and so should not be overly burdensome. The second method allows the reporter to measure the emissions from the blowdown using a flow meter on the blow down vent stack. In both methods, the reporter would calculate both methane and carbon dioxide (CO2) emissions from the volume of natural gas vented using either default gas composition or engineering estimates of composition. In addition to the total annual emissions of methane and CO2, natural gas transmission pipeline reporters would also report the methane and CO2 emissions and location of each blowdown event.
EPA estimates that there are only 72 occurrences per respondent per year. INGAA asserts that there are approximately 57,700 blowdowns per year (including those from de minimis facilities, i.e. the ancillary facilities the INGAA does not think should be subject to the new requirement. This figure is based on 183 reporters using the EPA definition of facility. If the de minimis facilities are excluded as proposed by INGAA, there will be approximately 3,100 blowdowns for the 183 companies. INGAA contends that the annual cost estimate for recording the blowdown information for the 183 companies is $888,580 per year, total for all 183, (including the de minimis facilities) and $47,900 per year if the de minimis facilities are not included.
Tighter Ozone Standard Would Affect Many Reciprocating Engines
The new ozone air emission standard the Environmental Protection Agency is considering could force interstate pipelines to upgrade some compressors and reciprocating engines to reduce nitrogen oxide emissions. The EPA proposed last December to reduce its National Ambient Air Quality Standard (NAAQS) for ozone from 0.075 parts per million to between 0.065 – 0.070 ppm. Members of the energy industry participated in three national hearings the EPA held in late January and early February. The comment deadline ends on March 17, after which the agency will presumably move with haste on finalizing what has been a long-delayed regulatory action.
The interstate pipeline industry has some concerns about the proposed rule. Some of those concerns have been voiced for years, according to Teresa Pugh: “If the EPA lowers the standard to the lowest level it is considering the pollution control devices we would have to use are undefined. We don’t know what the control technology would be,” she explains. The EPA rule, when finalized, will most affect nitrogen oxide emissions from reciprocating engines most significantly.
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