Interstate Natural Gas Pipeline Research Articles

Regional Planning for Just and Reasonable Rates

Natural gas—a fuel used for electricity generation, heating, and transportation—plays an outsized role in the U.S. economy. Under the Natural Gas Act, the Federal Energy Regulatory Commission (FERC or the Commission) is responsible for overseeing the orderly development of interstate natural gas pipelines, which facilitate the transmission of natural gas throughout the country. Before a developer can construct or expand an interstate pipeline, it must apply to FERC for authoriza-tion; FERC can approve the pipeline only if it finds that it is required by the “public convenience and necessity.” Although FERC should consid-er a range of factors to determine whether a pipeline will serve the public interest, in practice, it looks primarily to the existence of prece-dent agreements, i.e., contracts between a developer and its customers for the purchase of pipeline capacity. If a developer can demonstrate that there is a party willing to pay to use its pipeline, FERC rarely asks questions and almost always finds “public” need. In this way, the natu-ral gas transmission network has developed through a system of ad hoc decisionmaking organized around the needs of private companies that earn a hefty return on their capital investments.
 This pipeline-by-pipeline approach to natural gas transmission build-out leads to the construction of unnecessary, underused pipe-lines, which in turn increases ratepayer costs and decreases consumer welfare. Climate change further increases the risk that pipelines will become obsolete as cities and states move toward electrification. Fur-thermore, the gas transmission planning process—or lack thereof—stands in stark contrast to electric transmission planning, an activity that FERC also regulates but that is conducted by centralized entities on a regional scale. This contrast is especially confounding consider-ing that electric transmission is regulated under the Federal Power Act, a sister law to the Natural Gas Act with similar statutory require-ments.
 Relying on economic theory, legal history, and policy analysis, we make the case for FERC’s adoption of regional gas transmission plan-ning. We begin by describing the status quo and articulating why FERC’s current process is economically inefficient. In doing so, we draw parallels between gas and electric transmission planning and de-scribe how FERC treats the two activities inconsistently. We then ex-plain why, under two provisions of the Natural Gas Act, FERC possesses both the legal authority and obligation to require regional planning. Finally, we envision how FERC might conduct gas transmission plan-ning going forward, encouraging FERC to account for increasing elec-trification efforts and to plan for gas and electric transmission in tan-dem.

Navigating Federal and State HDD Guidelines for Interstate Natural Gas Pipeline Crossings

Navigating Federal and State HDD Guidelines for Interstate Natural Gas Pipeline Crossings

Improving US Energy Security: Granting FERC Siting Authority over Interstate High Voltage Electric Transmission

The Biden Administration and the US Congress are giving serious consideration to granting the Federal Energy Regulatory Commission (FERC) the authority to site high voltage (HV) interstate electric transmission lines. FERC already has authority under the Natural Gas Act (NGA) to regulate the siting of and rates charged by interstate natural gas pipelines and storage facilities. Proponents of giving FERC such additional authority point to the extensive buildout of the natural gas pipeline system. These proponents believe that FERC could do the same with interstate HV electric transmission.

US Interstate Natural Gas Pipelines: Supreme Court Decision Reveals a Constitutional High‐Wire Act

On June 29th, 2021 the US Supreme Court confirmed by the narrowest of margins what for more than 80 years was always assumed to be true for US interstate natural gas pipelines, by the industry and economists such as myself. We assumed that the 1938 Natural Gas Act (NGA), through its Section 7(c) certification process, gave pipeline companies possessing a Federal Energy Regulatory Commission (FERC) “certificate of public convenience and necessity” the ability to invoke eminent domain throughout the United States. Such eminent domain authority stems from the US Constitution's Commerce Clause, which permits interstate gas pipelines to pursue court action if they cannot negotiate acceptable terms of transfer with private and public landowners in the states and localities they transit, to establish a fair value for “taken” land for a route authorized by the FERC.

The Controversy over Energy Takings: A Tale of Pipelines and Eminent Domain

This article examines the controversy over the exercise of eminent by private enterprise to acquire property for oil and natural gas pipelines. Although opposition to pipelines is largely driven by broad environmental concerns to curb reliance on fossil fuels, this article focuses on whether energy takings by non-governmental entities satisfy the “public use” requirement in state condemnation statutes or as a constitutional norm. It traces the history of eminent domain in the United States from the mill acts of the eighteenth century, emphasizing that legislators frequently delegated eminent domain power to canals, turnpikes and railroads in order to improve transportation. Courts regularly sustained these laws as effectuating a “public use.” In other words, “public use” was never confined to public ownership. In the late nineteenth century courts readily upheld legislation conferring eminent domain authority on private pipeline companies, comparing pipelines to other modes of transportation. With the Natural Gas Act of 1938 Congress asserted federal authority over the transportation of natural gas, and in 1947 granted federal eminent domain authority for interstate natural gas pipelines. Oil pipelines, on the other hand, continue to rely on a patchwork of state laws to exercise eminent domain power. For decades after World War II the acquisition of land for pipelines was not particularly controversial. With new technology, however, oil and gas production soared as did the need for expanded pipeline infrastructure. Critics now maintained that taking for pipelines were not for “public use,” and therefore failed to satisfy state eminent domain statutes or were unconstitutional. This article notes the erosion of the “public use” norm as a meaningful restraint on eminent domain, especially at the federal level. It then considers the checkered pattern of recent state legislative actions and judicial decisions, arguing that most state courts are likely to uphold the use of eminent domain for pipelines. It also points out that the same legal arguments used against pipeline construction are being employed to challenge new electric power transmission lines. The article concludes by questioning whether affected landowners and environmental advocates have much in common with respect to the rights of property owners and predicting that any alliance will prove fleeting and tactical.

Interstate Gas Pipelines and Greenhouse Gas Emissions: Bridging the Gap in FERC Certificate Proceedings

Every discussion regarding new interstate natural gas pipeline development now stumbles over the question of whether to attribute carbon dioxide emission levels from activities at either end of a pipeline (i.e., the production or burning of natural gas) to the existence of the pipeline connection between those two functions. From the 1920s until the late 1990s or early 2000s, the question of whether to build new facilities either to provide natural gas to previously unserved markets or to increase supply capacity to existing locations, focused on either the sufficiency of supply (in the 1960s and early 1970s) or demand (related to price) through almost 2010. The benefits of natural gas, primarily for heating, cooking, electric production, or other manufacturing purposes, were almost presumed. As the public increasingly perceived climate change triggered by human CO2 emissions as a problem, natural gas was viewed approvingly as a “bridge fuel” from coal, oil, and other fossil fuels to noncombustion renewable technologies because the CO2 emissions associated with the use of natural gas were almost half of those from other fossil fuel sources.

The future of natural gas infrastructure development in the United states

Changes in the natural gas market have spawned the need for pipeline infrastructure planning. Previous studies have analyzed natural gas infrastructure development largely independent of the interactions of the natural gas sector with the broader economy. However, natural gas infrastructure development is strongly influenced by broader domestic and international socioeconomic conditions. We couple a global Human-Earth system model with state-level detail in the United States (GCAM-USA) that provides the broader socioeconomic context for natural gas supply and demand with a natural gas infrastructure investment model (NANGAM) to examine inter-state natural gas pipeline infrastructure development in the U.S. under a range of socioeconomic scenarios. Here we show that existing pipeline infrastructure in the U.S. is insufficient to satisfy the increasing demand for natural gas and investments in pipeline capacity will be required. However, the geographic distribution of investments within the U.S. is heterogeneous and depends on the capacity of existing infrastructure as well as the magnitude of increase in demand. Our results also illustrate the risks of under-utilization of pipeline capacity, in particular, under a scenario characterized by long-term systemic transitions toward a low-carbon economy. More broadly, our study highlights the value of integrated approaches to facilitate informed decision-making.

Natural Gas Pipeline Regulation in the United States: Past, Present, and Future

This monograph provides a detailed overview of federallevel regulation of the U.S. interstate natural gas pipeline industry. To develop a more complete understanding of the current regulatory environment, we place contemporary rules and regulations into their proper historical context by first reviewing the evolution of gas pipeline regulation over the course of the 20th Century. We then discuss the market restructuring process that culminated in 1992 with FERC Order No. 636, review the economic and policy research that studied its effects on pipeline operations (and on the U.S. natural gas market writ large), and examine the current regulations and industry structure that have since emerged. Finally, we explore possibilities for the future of regulation in the gas pipeline industry, offering some predictions regarding the likely direction of regulatory changes, paying particular attention to the possibility of incentive-based regulation in natural gas transmission.

Reconstituting the Federalism Battle in Energy Transportation

This article explores the growing federalism tensions in efforts to expand the nation’s energy transportation infrastructure — the electric transmission lines, natural gas pipelines, natural gas import and export terminals and related infrastructure that power the U.S. electricity and transportation systems. It uses two illustrations — one involving an interstate electric transmission line (subject to state jurisdiction) and one involving and an interstate natural gas pipeline (subject to federal jurisdiction) — to highlight how the clear jurisdictional lines between federal and state authority over these projects created decades ago is no longer adequate for today’s energy needs. We believe that many of the recent efforts by states and federal agencies to re-draw these jurisdictional battle lines in the context of particular projects have been counterproductive. They have they encouraged interest groups to entrench their respective positions in favor of state or federal regulatory power. They also have thwarted comprehensive and efficient energy planning, and have stood in the way of greater integration of new technologies and more diverse energy resources. Ultimately, we conclude that federal regulators — which have historically been much more attuned to federal and national energy needs in making project siting decisions — must be more proactive in addressing state interests and concerns associated with multi-state energy transport projects in cases where federal siting authority trumps that of the states. Likewise, for projects where the states possess primary regulatory authority that acts as a potential veto point over projects that promote federal and regional energy needs, a more significant federal role in evaluating those federal and regional needs is warranted.

Gas Pipeline Failure Caused by In-Service Welding

In the research presented in this paper, a failure analysis had been carried out to identify causes of an incident, which had taken place after an operation to repair a leak in an interstate natural gas pipeline. In this operation, a partial encirclement reinforcement (patch) was welded to the carrier pipe according to an available hot taping procedure, while gas was flowing in the pipeline. The failure analysis commenced with preliminary steps of information gathering of background data regarding the repair operation and then several samples were extracted for macroscopic and microscopic metallurgical examinations. In addition to fractographic analyses of fracture surfaces, pipe material was examined because the pipeline had been in service for prolonged period and there was not any official material information available. The analyses disclose that hydrogen-assisted cracking, wrong design of branch connection, paint coating, and pipeline operating conditions were major factors contributing to the failure. The work undertaken also included development and recommendation of a repair procedure to avoid similar failures in the future.

Guidelines for clockspeed acceleration in the US natural gas transmission industry

This study presents the clockspeed analysis of a peer group comprising six major integrated US energy companies with substantial US interstate natural gas pipeline business activities: El Paso, Williams, NiSource, Kinder Morgan, MidAmerican and CMS Energy. For this peer group, the three clockspeed accelerators have been benchmarked at both corporate level and gas transmission business level, using time-series analysis and cross-sectional analysis over a 6-year period (2002–2007). The results are visualized in so-called clockspeed radargraphs. Overall corporate clockspeed winners – over the performance period studied – are: Williams, El Paso and Kinder Morgan; MidAmerican is a close follower. Corporate clockspeed laggards are: CMS Energy and NiSource. The peer group ranking for the natural gas transmission business segment shows similar clockspeed winners, but with different ranking in the following order: Kinder Morgan, MidAmerican and El Paso; Williams is a close follower. Clockspeed laggards for the natural gas transmission segments coincide with the corporate clockspeed laggards of the peer group: CMS Energy and NiSource (over the performance period studied); laggards of the past may become clockspeed leaders of the future if adjustments are made. Practical recommendations are formulated for achieving competitive clockspeed optimization in the US gas transmission industry as a whole. Recommendations for clockspeed acceleration at individual companies are also given. Although the US natural gas market is subject to specific regulations and its own geographical dynamics, this study also provides hints for improving the competitive clockspeed performance of gas transmission companies elsewhere, in other world regions.

Federal Pipeline Rate Making: Alternative Approaches of the United States Federal Energy Regulatory Commission

This article provides an overview of the alternative rate making methodologies adopted by the United States Federal Energy Regulatory Commission (FERC) in itsregulation of transportation rates for oil and natural gas pipelines. In 1997, authority over rate making for interstate oil and natural gas pipelines was transferred to the newly created FERC. This article describes the history of interstate pipeline rate making and the transfer of rate making authority to the FERC.The author looks at the innovative pipeline rate making methodologies implemented by the FERC in its regulation of transportation rates for both oil andnatural gas pipelines. The article describes the adoption by FERC of market based rates and a generally applicable indexed rate cap methodology for oil pipelinerate setting. In respect of natural gas pipelines, the legislative requirements and practical realities associated with cost-of-service rate making by FERC aredescribed and FERC’s policies permitting selective discounting, shipper-specific negotiated rates, and market based rates for natural gas pipelines arereviewed.The Commission’s adoption of the alternative rate making methodologies has taken the emphasis off of general rate case litigation as a means of establishingjust and reasonable rates for interstate oil and natural gas pipelines and related facilities. The alternative rate making methodologies also represent a significantdeparture from cost-of-service rate making, with increasing focus on rate flexibility and competition as a means of generating efficiencies for customers of interstate oil and natural gas pipelines.

Interpreting concentration indices in the secondary market for natural gas transportation: The implication of pipeline residual rights

In 1992, the U.S. Federal Energy Regulatory Commission created a secondary market for natural gas transportation whereby shippers holding firm transportation capacity on interstate natural gas pipelines can compete with the pipeline in the provision of transportation services. However, if a shipper does not use some of its contracted firm transportation capacity, the pipeline can resell that capacity as interruptible transportation. That is, the pipeline has residual rights with respect to firm transportation capacity contracted for by shippers. We demonstrate that these residual rights can have a significant effect on the competitiveness of the secondary market for natural gas transportation. A consequence of these residual rights is that the secondary market for natural gas transportation may be considerably more competitive than indicated by measures of concentration like the widely used Herfindahl–Hirschman Index.

Settling Utility Rate Cases: An Alternative Ratemaking Procedure

The U.S. Federal Energy Regulatory Commission (FERC) has long relied on settlement procedures to resolve its cases, and since the mid-1980s many state regulatory commissions have also adopted this utility ratemaking procedure. This paper examines the settlement practice at FERC to show that the flexibility of the settlement process could lead to settlement outcomes that Pareto dominate the litigation outcome. Negotiated settlements improve welfare because the players can make tradeoffs across the issues during the settlement negotiations. Rate moratorium, for example, arises endogenously as a settlement provision in about half of the major interstate natural gas pipeline rate cases.

The Financial and Operational Impacts of FERC Order 636 on the Interstate Natural Gas Pipeline Industry

The Federal Energy Regulatory Commission's Order 636 fundamentally altered the regulatory and operational environment of the natural gas industry in 1992, as the culmination of several directives aimed at relaxing regulation and fostering competition. We hypothesize that gas pipeline firms subsequently changed their operational and financial behavior in ways consistent with reduced balkanization, increased competition, and reduced expense preference behavior. Our results indicate that these firms have become more homogeneous financially but less so operationally. We find evidence that the marginal profitability of various pipeline activities has responded more to financial market conditions than to the regulatory environment.

Regulation, efficiency, and Granger causality

This paper examines whether financial performance Granger causes productive efficiency. Improvements in current period financial performance provide firms with funds to initiate changes that can enhance future period efficiency and profits. Returns to equity and the rate base are used as measures of financial performance. Data Envelopment Analysis is used to compute regulated Farrell measures of cost, technical, and allocative efficiency. The data sample is a panel of 20 US interstate natural gas pipeline companies from 1977 to 1987. Results indicate that improvements in financial performance (productive efficiency) did not statistically contribute to enhancing productive efficiency (financial performance).

Federal Siting Authority for Interstate Electric Transmission Lines: Transmission Capacity Cannot Grow If New Lines Cannot Be Built

Congress should establish federal siting authority for interstate electricity transmission lines in a manner akin to authority held by the Federal Energy Regulatory Commission for interstate natural gas pipelines.

Treatment of Wastewater Effluent from a Natural Gas Compressor Station

Florida Gas Transmission Company (FGTC), an Enron/Sonat affiliate, owns and operates a major interstate natural gas pipeline system that extends from South Texas to South Florida. At various locations along the pipeline are located compressor stations that boost the pressure of the natural gas flowing through the pipelines. As part of their normal operation, these stations generate small amounts of oily effluent as a result of cooling water blow-down, engine/parts wash-down, lube-oil-contaminated wastewater and rainwater from containment areas. In early 1997, economic considerations led FGTC to pursue alternative technologies to replace portions of the traditional treatment system. This paper reviews a trial effort undertaken by Wetland Sciences, Inc. to evaluate the technical feasibility of utilizing constructed wetlands to treat wastewater generated by the natural gas compressor station. The ultimate goal being the application of this technology to FGTC's other compressor stations.

The Impact of Regulation on Technical Change

This paper examines the impact of regulation on a firm's choice of innovations and on the rate of technical change. Using a 1977‐1987 panel of 20 U.S. interstate natural gas pipeline companies, I find that regulation led firms to adopt a technology that augmented (i) noncapital more than capital and (ii) noncapital more than the technology the standard (unregulated) firm would have adopted. I also find that, while technical regress occurred over the sample period, regulation led to a small decline in the rate of technical change and a small increase in production cost on average.

Treatment of wastewater effluent from a natural gas compressor station

Florida Gas Transmission Company (FGTC), an Enron/Sonat affiliate, owns and operates a major interstate natural gas pipeline system that extends from South Texas to South Florida. At various locations along the pipeline are located compressor stations that boost the pressure of the natural gas flowing through the pipelines. As part of their normal operation, these stations generate small amounts of oily effluent as a result of cooling water blow-down, engine/parts wash-down, lube-oil-contaminated wastewater and rainwater from containment areas. In early 1997, economic considerations led FGTC to pursue alternative technologies to replace portions of the traditional treatment system. This paper reviews a trial effort undertaken by Wetland Sciences, Inc. to evaluate the technical feasibility of utilizing constructed wetlands to treat wastewater generated by the natural gas compressor station. The ultimate goal being the application of this technology to FGTC's other compressor stations.