New construction, pricing power, safety, environmental impacts, and other aspects of pipeline operation are all highly regulated.
Federal Energy Regulatory Commission (FERC)
The Federal Energy Regulatory Commission (FERC) regulates many aspects of interstate gas transmission pipeline operations, including approval, permitting and siting for new pipeline facilities (largely an assessment of the public need for a project versus its landowner and environmental impacts), as well as transmission rates that pipelines are permitted to charge for interstate shipments.
The Natural Gas Act of 1938 empowers the FERC with plenary authority to conduct the review of a proposed interstate natural gas pipeline, coordinate environmental and land user permitting with other federal and state agencies, and determine with a proposed pipeline meets the “public convenience and necessity.” As part of approving a pipeline application, FERC can specify the conditions under which the pipeline can be constructed, including the route used. For more information on the pipeline approval and construction process, please refer to the following link.
Once an interstate natural gas pipeline is built, the FERC has the authority to ensure that pipeline rates are “just and reasonable.” These rates include operating and maintenance expenses and an allowed return on investment set as a percentage of the capital invested in facilities used to serve customers. Pipelines must go through a lengthy, public process whenever they request rate increases, regardless of the supply/demand balance in the underlying commodity. The FERC sets rates on a pipeline-by-pipeline basis, and approves for each pipeline what amounts to a maximum allowable rate, or a rate cap. However, pipelines customers can and often do demand discounts from these maximum rates, with the net outcome being that many pipeline customers pay less than the maximum rate a pipeline has been given permission to charge by the FERC.
Other Laws and Regulations
Several other laws and regulations impact the construction and operation of interstate natural gas pipelines. These include: