Item C-2: Commissioner James Danly Dissent Regarding New Fortress Energy LLC

Commissioner James Danly Statement
March 18, 2021
Docket No. CP20-466-000
Order: C-2

I dissent from today’s order because it finds that the LNG handling facility owned and operated by New Fortress Energy LLC (New Fortress Energy) is subject to the Commission’s jurisdiction under Natural Gas Act (NGA) section 3.[1]  Accordingly, the majority directs New Fortress Energy to file an application, pursuant to NGA section 3, for authorization to operate the facility.  I dissent because, in my view, the Commission should have fully applied its precedent and declined to exercise jurisdiction in this case.  Instead, I would have found that LNG facilities are only “LNG terminals” if they are connected to a natural gas pipeline that transports imported or exported natural gas to or from an interstate or intrastate gas transmission system.  Because New Fortress Energy is not connected to a “pipeline,” it fails this test and should have been found non-jurisdictional.

I acknowledge that the language of NGA section 3 is poorly drafted.  Section 3(e)(1) states that “[t]he Commission shall have the exclusive authority to approve or deny an application for the siting, construction, expansion, or operation of an LNG terminal.”[2]  The Energy Policy Act of 2005 (EPAct 2005) amended the NGA to add section 2(11) to define “LNG terminal” to

[i]nclude[] all natural gas facilities located onshore or in State waters that are used to receive, unload, load, store, transport, gasify, liquefy, or process natural gas that is imported to the United States from a foreign country, exported to a foreign country from the United States, or transported in interstate commerce by waterborne vessel, but does not include—

(A) waterborne vessels used to deliver natural gas to or from any such facility; or

(B) any pipeline or storage facility subject to the jurisdiction of the Commission under section 717f of this title.[3]

This text is ambiguous and broad.  Although LNG facilities are typically marine terminals that take receipt of LNG by ship for storage and processing, by its plain terms the statute could be read to encompass any facility that takes receipt of LNG from a foreign country or handles natural gas that is destined for export.  Under a strict reading, the statute could be interpreted to subject to the Commission’s jurisdiction a rail yard in downtown Topeka that takes shipments of LNG in ISO containers shipped by rail from Canada and holds them for a period of time before sending them elsewhere by rail.  This is because our hypothetical rail yard meets every requirement of the statute’s definition—it would be 1) a “facility” that; 2) is “onshore”; 3) “stores” the LNG that has been 4) imported from “a foreign country” and is itself 5) neither a waterborne vessel nor a section 7 pipeline.  I doubt the statutory text was ever intended to be so broadly interpreted and doubt even more that any majority of commissioners charged with implementing the statute from the time of its enactment would have found that jurisdiction should have been exercised over our rail yard in Topeka.[4]

Given that the definition of “LNG terminal” is so broad as to encompass virtually every “facility” that encounters LNG (aside from section 7 pipelines and marine vessels, of course), the Commission imposed rational limits on what would be deemed an LNG terminal for the exercise of its jurisdiction in Shell.[5]  In Shell, the Commission recited the history of its jurisdiction over LNG facilities before the EPAct 2005 amendments, including that it had declined to exercise jurisdiction over LNG facilities that did “not have pipelines connecting the facility with either the interstate or an intrastate grid.”[6]  It further found that “the Commission has only asserted NGA jurisdiction under either section 3 or 7 over natural gas pipeline and storage facilities, including LNG facilities, that receive and/or send out gas by pipeline.”[7]  It also explained that although the added section 2(11) “sets forth a very broad definition of ‘LNG Terminal’ . . . it does not seek to redefine the term ‘natural gas facilities’ as commonly understood for purposes of Commission jurisdiction.”[8]  In support, it cited to the Commission’s issuances, to the implications of the statute’s broad language, and even to two Congressional Research Service reports that were “consistent” with the Commission’s conclusion that a pipeline connecting the LNG facility to the natural gas grid had been required in order to exercise jurisdiction.[9]  I agree with this precedent insofar as it establishes some limitation on the Commission’s jurisdiction.

The issue in this case boils down to a single question:  whether New Fortress Energy transports natural gas by “pipeline.”  In my opinion, it does not.  New Fortress Energy’s facility includes short segments of internal plant piping that moves LNG and regasified LNG within the facility.  These flows terminate at the facility’s fence line where the gas directly enters the adjacent San Juan Power Plant to be burned.[10]  This is a pipe, not a “pipeline.”[11] 

More importantly, the imported LNG is never transported on the interstate or intrastate system because, prior to its delivery for ultimate end-use, the regasified LNG does not exit the import facility via pipeline.  The immediate, co-located use of the gas means that none of the analytical concerns raised in Shell are implicated here.  Therefore, finding that the New Fortress Energy LNG facility is non-jurisdictional would be consistent with the NGA and the Commission’s findings in Shell. 

Although today’s decision purports to rely on Shell, it finds New Fortress Energy’s LNG facility to be jurisdictional based on the majority’s interpretation of that case to mean that an LNG facility is a jurisdictional LNG terminal if it is connected to “any type of piping.”[12]  Because New Fortress Energy’s facility “is connected to an adjacent power plant via a 10-inch-diameter pipeline,” the majority finds the facility to be jurisdictional.[13] 

I disagree with the majority’s interpretation.  Shell did not establish a bright line that merely required connection to “any type of piping.”  Nor did Shell or any other relevant Commission precedent employ that formulation.  In fact, Shell cautioned against such literal reading of NGA section 2(11), stating such an interpretation “would cause otherwise NGA-exempt gathering, intrastate pipeline, processing, and local distribution facilities to be jurisdictional under section 3 as LNG terminal facilities if they transport gas that was imported or gas that will be exported.”[14]  Shell explained that it was the connection to (and the effect on) the interstate or intrastate natural gas transportation system that undergirded its decision.  The majority does not explain how New Fortress Energy’s facility is connected to the interstate or intrastate transportation system or why that consideration is no longer relevant.  The Commission does offer some reasoning when it declines to consider “whether a connected pipeline is engaged in transportation (as opposed to some other function)” because “such a formulation could lead to the result that the Commission’s jurisdiction would not attach to a large-scale LNG export terminal that receives natural gas directly from nearby production and gathering facilities or an import facility directly connected to a large local distribution company.”[15]  Even assuming this is an adequate rationale, it is not in accordance with the NGA.  NGA section 2(11) defines LNG terminal as including facilities that “are used to receive, unload, load, store, transport, gasify, liquefy, or process” imported or exported natural gas.[16]

The majority’s determination that Shell remains good law and its finding that any pipe, of any size and length, serving any purpose, can be deemed a “pipeline,” is at best inconsistent and at worst renders Shell a nullity, reversing a decade of precedent without actually doing the litigants the courtesy of coming out and saying so.  Failure to explain departure from policy is an obvious violation of the APA.[17]  It is beyond cavil that an agency must explain its departure from prior precedent and “may not . . . depart from a prior policy sub silentio or simply disregard rules that are still on the books.”[18]

If the Commission does not want to apply the finding in Shell, it should either explicitly reverse that position or find that New Fortress Energy is non-jurisdictional.  Though I offer a word of warning should the majority decide to do so on rehearing:  it would be well-advised to establish some alternate limiting principle because, as flawed as they may view Shell’s requirement that jurisdiction requires the facility to be connected to a pipeline on the gas transportation system, if no other limit is established, they will put us right back where the Commission was when it decided Shell:  everything from gathering facilities to LDCs to hypothetical Topeka rail yards will be subject to our jurisdiction.

This abrupt reversal of policy is bad governance.[19]  Nearly a decade has passed since Shell.  During that time, the LNG business has thrived.  A great deal of capital has been sought and deployed in reliance on the Commission’s issuances.  Reversing course on a matter of such consequence in a one-off adjudication is doubtless the Commission’s prerogative under the APA.  Whether the Commission can employ such a maneuver is different from whether it should.  As a matter of governance, when in doubt, and when not compulsory, I would always disclaim jurisdiction.  Prudence counsels the most limited possible exercise of our authority to accomplish the objectives assigned to us by Congress.  To do otherwise is to insert ourselves into decision making that is best left to others and in some cases, as here, to create obstacles to the development of the very industries we are charged with encouraging and overseeing.[20]

And in this case, what is the urgency?  What remedy does the Commission have in mind?  For New Fortress Energy to cease operating?  Surely not.  To do so would all but ensure that Puerto Rico has yet another reliability crisis.  But we will require an NGA section 3 application, the contents of which we cannot anticipate, and then roll the dice and see if New Fortress Energy can be allowed to remain in operation.  I question the wisdom of this course of action.

If we are going to make this drastic change, we should do it by rulemaking or a policy statement.  I acknowledge that I did not vote for Shell in the first instance and may not have were I on the Commission at the time.  But given that Shell is the state of the law, rather than nominally preserving it while rendering it ineffectual, we should limit the statute’s broad jurisdictional language by imposing different limitations through a generic proceeding that allows for notice and comment.  Good governance (and fairness) demand it.

For these reasons, I respectfully dissent.