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© Gastech 2005

GASTECH 2005

“An Evaluation Of Current LNG Import And Power Plant Permitting Relative To Successful Programs Of The Past”

Robert C. Wyatt, Author

Director of Environmental Affairs WRC International Inc.

Gary J. Napp, Co-Author

Senior Consulting Scientist EnviroMet, LLC

Prepared for Presentation at GasTech

March 15, 2005

© Gastech 2005 Wyatt 2

An Evaluation Of Current LNG Import And Power Plant Permitting Relative To Successful Programs Of The Past

Prior to the current rush of prospective LNG developments along the U.S. coastal states, there had not been a grassroots LNG import terminal and power plant permit program since the EcoElectrica Project in Penuelas, Puerto Rico. In 1998, after 4 years of complex federal and local environmental permitting and public relations, EcoElectrica’s groundbreaking was celebrated in earnest. In total, more than 80 permits had been acquired for two 1,000,000 barrel above ground storage tanks, a 1,750 foot marine LNG import terminal, the 500+ megawatt combined cycle three-fuel power plant, a desalination plant, a 10-cell seawater cooling tower and nearly 8 miles of pipelines. Project closure included a non-recourse financing totaling approximately $700 million. The LNG development world of 2004-2005 greets new proposals with an array of regulations affecting the environment and safety issues associated with LNG imports that are both similar to, and very different from, that encountered by the EcoElectrica team. The terrorism events of September 11, 2001, new incidents of LNG industrial accidents, and greater roles in the permitting game for regulators such as the U.S. Coast Guard and National Marine Fisheries are but a few of the obstacles that are apparently new to the LNG developer world. At the same time, many of the lessons-learned for EcoElectrica could be used more effectively by today’s projects to attain success. This paper comparatively evaluates the development of the EcoElectrica Project with current regulatory scenarios and recent LNG import proposals, offshore and onshore. Issues of special attention include:

• Project Siting and Alternatives Analysis • Satisfying the “Purpose” and Need” Issues of NEPA • Public Education and Management of the Safety Issue • Strategic Decision-making and Negotiation with the FERC, Coast Guard and other Agencies • Fast-track Permitting Concepts and Implementation Programs • The Significance of the Permit Program to Financial Due Diligence

I. INTRODUCTION In May 1994, the newly formed EcoElectrica “development team” held its first comprehensive organizational meeting in San Juan, Puerto Rico. Just 3 days prior to this meeting, the author of this paper, Rob Wyatt, had been handed a “Conceptual Plan” for the project that consisted of about 30 pages of schematic line drawings and brief text outlining the primary components of the project. The hand-over of the thoughts-on-paper plan was accompanied with the simple assignment to “get the permits to build this in 12 months – go to the meeting in San Juan and get started”. The San Juan project kick-off meeting was memorable: seated and standing two rows deep around a conference table in an office borrowed from one of its subcontractors were a host of contracted lawyers representing no less than three firms, a myriad of environmental consultants (at least four firms) and the two 50/50 partners: Enron International (Enron) and Kenetech Energy Systems (KES). It was the first all-together meeting for everyone. The basic situation was this: KES had originally pursued the vision of an LNG import terminal and cogeneration power plant facility in Puerto Rico over the course of a few years, eventually deciding upon the Guayanilla Bay area after some car-hopping around the island and preliminary conditions review (e.g., deep harbor, land availability). The island’s utility, PREPA, had accepted the Kenetech proposal for an IPP project, and Enron had been made part of the team. A Power Purchase Agreement was in the early stages of negotiation and was expected to be completed “within months.” There were a few “Licensing and Permitting” scopes of work that had been presented by the consultants, but there was no set plan of action or jurisdictional decision relative to what government entities would be required to “host” the project. Environmental studies designed to characterize the project’s site conditions and probable impacts had not been fully scoped or initiated in the field. No formal site selection process had occurred. None of the primary project components had been engineered. A 12-month permitting period was definitely not going to happen, in this author’s opinion, under any realistic scenario. At least not for the following project components/reasons:

The world’s two largest above-ground LNG storage tanks (1 million barrels each) – U.S. authorities had not permitted an LNG facility in over 15 years;

A 500+ megawatt combined cycle fuel power plant capable of using three fuels (natural gas, propane, and low sulfur No. 2 fuel oil) – Puerto Rico had not built a new power plant in over 20 years and the last venture in approving a proposed power plant had ended in a public relations debacle pitting the U.S. EPA against the environmental regulatory agencies and the Governor of the Commonwealth.


A 1,750 foot marine LNG import terminal – in a productively rich marine environment of coral, sea grasses, manatees and turtles;

A 4 million gallon per day MSF desalination plant – direly needed in a drought stricken area yes but requiring a contract with the local utility that was adamantly opposed to the technology and perceived costs;

A power plant cooling water system composed of a 10-cell seawater mechanical draft cooling tower – in a jurisdiction that had traditionally relied upon once-through cooling and direct discharge into the local bays;

A 230-kV transmission line route that crossed salt water marshes, mangrove stands, and canals as well as contaminated lands - some of which were known disposal sites formally used by a chemical manufacturing facility; and,

Nearly 8 miles of pipelines for water, LPG and natural gas that traversed environmentally sensitive lands and circuitously wound through industrial properties and local neighborhoods; and,

A finance plan that called for a non-recourse funding of over $700 million dollars. Remarkably and still unique in the recent U.S. history of LNG terminal–power plant developments, the EcoElectrica Project completed its U.S. Final Environmental Impact Statement one month shy of two years and had received approval of all of its primary construction permits in less than 30 months. The twists and turns in the development route were numerous; the ones perhaps most useful in terms of lessons learned for today’s LNG world in the U.S. are reviewed in this paper. II. Project Siting and Alternatives Analysis At the present time, there are only five LNG import terminals in the United States: Everett, Massachusetts; Cove Point, Maryland; Elba Island, Georgia; Lake Charles, Louisiana and EcoElectrica in Puerto Rico. Except for the EcoElectrica terminal, all were built in the 1970’s. Clearly there is a need for new terminal capacity in the United States if what is projected to be a large U.S. natural gas import demand in the future is to be satisfied. And in the last few years, there has indeed been a flurry of new terminal proposals. At last count, there were approximately 32 LNG import terminal identified sites and sites proposed for development permitting in the US. An additional 11 sites in Canada and Mexico were proposed. The U.S. Federal Energy Regulatory Commission (FERC) list of February 7, 2005 includes nine potential terminal sites in the U.S. for the Atlantic northeast, 24 for the Gulf of Mexico coast; and seven for the Pacific west coast (www.ferc.gov/industries/gas/gen-info). There are at least a dozen additional projects in the U.S. that are being considered for development that have not been announced. These 40+ facilities will, of course, not all be built. Assuming geographic parity, most energy analysts foresee that less than 10 new LNG terminals will need to be constructed in the U.S. In mid-June 2004, the U.S. Department of Energy (DOE) Energy Information Administration projected that four new LNG regasification terminals would need to be built on the Atlantic and Gulf coasts from 2007 to 2010 to meet a 54% increase in imported LNG demand projected for that time frame.1 However, the current trend is not toward a geographic parity in the approval of terminal sites along the Atlantic, Pacific and Gulf of Mexico coasts. Of the nine proposals recently approved by FERC and the Coast Guard, all are located in the Gulf coast area. So while Gulf coast sites are making substantial advances in the approval process - east and west coasts sites are struggling against increasingly adverse odds. If the difficulties in siting east and west coast LNG terminal sites continue, in the near term as well as in the long term, significant revisions in the projections of growth for the U.S. natural gas market and import capability are going to be necessary. Why are the proposed east/west coast sites experiencing so much difficulty in gaining the acceptance necessary to achieve construction start? Is it truly just a function of opponents evoking a broad NIMBY (not in my back yard) strategy? Can the prospects for terminal site approval be substantially improved? In the text sections that follow, this paper suggests that the answer is yes, and that part of the solution lies in: A. Recognizing the Purpose and Need for a Meaningful Site Selection Analysis; B. Being Prepared for (or Promoting) a Competitive Consideration of Sites and Alternatives; C. Avoiding or Mitigating the Impacts of FERC’s “Pre-Filing” NEPA Project Review.


A. Recognizing the Purpose and Need for a Meaningful Site Selection Analysis Traditional site selection methods and analyses are time-consuming, technically burdensome and downright anathema to the fast paced mindset of a private industry developer. Not surprisingly perhaps, some of the more detailed and systematic procedural programs for effective site selection are those proffered by state sponsored Siting Councils. Even during the two years of site reviews conducted before choosing the “Preferred” Guayanilla Bay site location for the EcoElectrica Project, a formal approach to the site selection analysis was not implemented. If it had, the site might have been eliminated from consideration – who would want to build an LNG terminal on a 37-acre spit of land formed by the deposit of dredged material with bedrock located more than 150 feet below the ground surface or attempt to construct a multiple fuel power plant nearly adjacent to an existing and aged fuel oil power plant in an area of questionable air quality? More current examples of the rush to find a site and perhaps the foregoing of a detailed site selection review are now readily apparent – how else can one explain the proposal of sites that are egregiously flawed from the outset in environmental and/or regulatory terms? Among such examples are site locations proposed within Federal Harbors, within shallow bays, within primary fishery or recreational resource areas, or at locations that block public egress during an emergency evacuation. Perhaps then, the selection of proposed LNG terminal site locations has not been based solely on environmental conditions. This is understandable - market access, strategic engineering and political considerations play a key role in the analysis. There is also a very strong reliance by developers and their lawyers/consultants during the site selection process on the often quoted policy of FERC licensing that “state and local agencies, through application of state or local laws, may [not] prohibit or unreasonably delay the construction or operation of facilities approved by this Commission.”2 Known commonly as the “public interest” mandate concerning the importation of natural gas into the U.S., the policy has been taken by many to mean that no proposed site development can be prevented solely on the basis of its location. In truth however, whether this is a correct interpretation or not is irrelevant to almost all projects – there is normally a plethora of avenues for state and local agencies (as well as other federal agencies besides FERC) to prohibit a project’s development regardless of it’s proposed locale – and most new project proposals seem to have forgotten or have been misled regarding this elemental fact. The validity of this concern can be illustrated by the EcoElectrica case – as well as many of the current terminal proposals that have been rejected, are on the brink of failure, or facing diminished expectations. The preliminary site identification conducted for EcoElectrica did not recognize that the preferred site was located on land that was problematic relative to its suitability for an LNG tank foundation – but it did highlight the benefit of the land being proximally located to a natural channel with depths exceeding 45 feet. This meant that the construction of a pier of moderate length would totally avoid any need to dredge the channel or a turn-around basin and eliminate the need to fill in areas of the bay for construction/port purposes. This was a critical consideration in the project scheduling and permit expediting plan given the fact that a U.S. Army Corps of Engineers (COE) Dredge and Fill Permit would have required a minimum of three years – if it could be approved at all. As an example, five years into its pursuit of a dredging permit, the Puerto Rico Ports of the Americas transshipment project located 10 miles east of EcoElectrica has yet to acquire its final authorization. In perhaps an interesting case of the “It’s Easier To Amend a Downsized Permit Then It Is To Get a Large Permit First” philosophy (versus just being an example of a site selection process that did not identify a significant project limitation), an LNG terminal approved only 15 months ago and under construction in the Gulf of Mexico has announced its intent to seek a revision of its original permit limitations to gain approval for a larger variety of LNG tankers (draft and length) that would require more dredging and the addition of a turning basin. Atlantic and Northwest coast terminal proposals have had to face (or are about to learn of) another overlooked site evaluation criteria involving the issue of dredging. It is known as the “tidal trap”. In the northern latitude areas that experience tidal fluctuations of 12 to 24 feet, the potential impact on ensuring adequate depths at low tide for LNG ship dockage is obvious. Surprising then are the instances in which sites have been selected where the outgoing tide results in channel water depths insufficient for ship transit during the time period that the ship is docked for LNG unloading (a 12-20 hour process). If the LNG unloading process endpoints are synchronized with the tidal periods of adequate channel and turning basin depth, there is no problem with the site. This assumption is faulty though – a paramount interest at the U.S. Coast Guard, among others, is the ability of the LNG ship to immediately depart the terminal at a moments notice – whether because of an operational emergency or imminently adverse climatic conditions outside the approved Ship Operating Plan. Attempting to permit a site that requires egress in a channel that is subject to an outgoing tidal trap would almost certainly be futile. EcoElectrica also faced a site selection choice that located the proposed power plant squarely in the middle of an air quality regime that was potentially, if not probably, close to being classified as non-attainment for one or more ambient


air quality standards. This significantly less-than-desirable fact, not identified during the preliminary site identification process, had to be overcome as the co-location of the power plant with the LNG terminal was critical to the financing goals. Thus, the project had to commit to accepting severe limitations in its U.S. and Puerto Rico air permits regarding the duration and low-sulfur content in its use of fuel oil (90 day maximum use and 0.04 % sulfur content) if it was to maintain its development and construction schedule. These case examples illustrate two points of strategic siting interest:

♦ Foregoing the complete performance of a traditional site selection process can be extremely risky in both financial and project viability terms. Failure to perform a site selection process that has been tailored to the more diverse and holistic requirements of an LNG terminal can result in a much more significant loss of time and money.

♦ Adverse site conditions must be addressed in a manner that eliminates in full or limits the jurisdictional

purview of governmental entities other than FERC. A fully scoped site selection evaluation for an LNG terminal entails a more holistic review that encompasses more diverse criteria than that typically encountered in the traditional process and methods that are most often used by legal, environmental or planning oriented professionals. The focus of traditional processes and methods primarily emphasizes the isolated review of a limited set of standard exclusionary factors. Thus, the identification and avoidance of endangered species presence and habitat, flood prone and special interest areas (e.g., national forests and parks, wetlands, marine sanctuaries, etc.), contaminated lands or non-attainment air quality regions, large population centers, and shallow water areas is the primary result of a traditional site selection exercise. The list of “traditional” criteria can of course be expanded (see Attachment A), but what is needed most in an LNG siting exercise is a philosophical change to a holistic evaluation process that incorporates operational criteria, public relations issues, engineering “build-arounds”, and opportunities identification relative to the establishment of limited jurisdictional authority. The existence of adverse site conditions must be characterized and evaluated as to the regulatory requirements of governmental entities other than FERC. This must be accomplished as early as is possible in the site selection process to be a meaningful evaluation factor. Alternative or coincident jurisdictional authority can easily minimize or completely void the public policy benefits associated with FERC jurisdiction and its effectiveness in the role of an LNG project’s NEPA lead (also true for offshore projects falling under the primary jurisdiction of the U.S. Coast Guard). The purpose of characterizing non-FERC jurisdictional permit issues that might be presented by the terminal’s location and/or engineering design is to allow a determination of whether or not the jurisdictional purview of governmental entities other than FERC can be eliminated in full or in part. The reasons behind this exercise are two-fold:

1. A FERC authorization to site, construct and operate an LNG import terminal is meaningless without the coincidental approval of federal or state permits that are applicable to specific jurisdictional actions (e.g., Clean Water Act Section 404 and Section 10 Dredge And Fill permits (COE), Clean Air Act Section 40 Prevention of Significant Deterioration (PSD) Air Quality Permit (U.S. Environmental Protection Agency, EPA, or delegated state agency), Clean Water Act Section 402 National Pollutant Discharge Elimination System (NPDES) Permit (EPA or delegated state agency, etc.). Example: EcoElectrica’s siting location within a potential non-attainment area required either (a) severe limitations in its air quality permits in order to avoid certain mandated regulatory requirements, or (b) a 2+ year delay in obtaining its permit while the project tried to demonstrate that full operational flexibility would not impact the potentially degraded air quality in the region. The project could not risk a delay of that magnitude, nor did it wish to enter a highly sophisticated arena of air quality modeling and public discourse. Thus, a decision was made to limit the complexity of the more significant regulatory regime by adjusting operational plans. In so doing, EcoElectrica also reduced the opportunity for opponents to hinder project progress. (For an example of a solely dedicated LNG project component, consider the permit requirements of the COE relative to the siting and construction of the LNG unloading pier).

2. While the public policy protection associated with FERC’s site approval authority can be exercised with little or no opportunity for effective opposition, the same is not true for non-FERC jurisdictional matters (e.g., the COE, NPDES, PSD permits cited above as well as a multitude of other local level permit approvals). For every element of a project’s design that affords a non-FERC agency the opportunity to exercise its jurisdictional authority to issue or deny a permit or an authorization, there exists an opportunity for state(s) or local government(s), the public-at-large and certain non-governmental entities to become legal parties in interest to that same permit. This “In Interest” opportunity for a project opponent is significant given the little opportunity for the same position in a siting decision fully grounded within the jurisdictional purview of the FERC. This fact has already resulted in the failure of several proposed LNG projects


Example: There were several potential sites in Puerto Rico that were government-owned and that would have allowed a significant savings in land purchase costs if they had been selected for use. However, as has been seen in some of the more recent difficulties experienced by site developers, the use of government-owned land would have opened the door for a debate of public policy and whether or not the land held for the public’s benefit should be sold or leased to a private entity. Without a Natural Gas Act Section 7 power of eminent domain, the project would not have been able to control this decision-making process and the potential for public litigation was identified as being very high. As such, the EcoElectrica site selection process clearly identified the use of government-owned lands as a losing proposition.

B. Being Prepared for (or Promoting) a Competitive Consideration of Sites and Alternatives In public hearings held last year for a Gulf of Mexico project, the FERC felt it necessary to emphasize that onshore LNG terminal import proposals must include a meaningful review of alternative sites, including offshore options. The apparent need to remind industry of this is somewhat surprising. Under the long-standing regulations of both the National Environmental Policy Act (NEPA) and the Council on Environmental Quality (CEQ), a public review process for projects with significant environment impact that included an analysis of project “alternatives” has always been mandated. FERC’s Environmental Review documentation program for NEPA compliance requires more than a dozen Resource Reports, and other federal agencies present similarly onerous requirements. Alternatives analysis is also an important part of many non-FERC state environmental approval processes, and is becoming more critical at the local government level as well. The County of Santa Barbara, California, for instance, has prepared its own screening and siting criteria study to map land use areas for gas processing facilities. The original base study listed 10 “exclusionary” screening criteria and 39 “exclusionary” or “avoidance/preference” siting criteria. This study has since been customized for specific regions within the county3. The required alternatives assessment is not limited to site locale. Other project alternatives that are considered “standard” to a NEPA analysis include variations in the scale and purpose of the project (including the “No Action” alternative), its engineering design and use of technology (storage facility type, vaporization systems, safety protocols), and infrastructure (pipeline size and routings, marine shipping constraints). The FERC Office of Energy Projects, in its August 2002 Guidance Manual for Environmental Report Preparation, identifies the minimum types of alternatives analysis that must be provided to comply with its NEPA regulations to avoid rejection of the project’s Section 7 certificate application. Resource Report 10 must:

“describe alternatives that were considered during the identification of the project and compare the environmental impacts … of such alternatives to those of the proposal. It should discuss the systematic procedure employed to arrive at the project, starting with the broadest feasible range of alternatives to the project and narrowing the alternatives to a specific action on a specific site… The description of this systematic procedure should include the decision criteria used, the information weighed, and an explanation of the conclusion at each decision point. The decision criteria must show how environmental benefits and costs, even if not quantifiable, are weighed against economic benefits and costs, and technological and procedural constraints.” (See Attachment B for a more detailed Resource Report 10 requirements listing).

Obviously, every developer hopes that the final outcome of the objective alternatives assessment concerning their preferred/proposed site is stated in each project permitting decision as “The alternatives analysis in the final [EIS/permit] found no reasonable alternatives that would be environmentally preferable to the proposed site.” Note that the word “each” is used in the foregoing sentence. The reason for this is that what is often overlooked in the rush to start the NEPA process, is the fact that non-FERC agencies involved with the approval of post-NEPA permit applications relating to the proposed LNG terminal often have their own requirements for analyzing project alternatives. This is particularly true with the Corps of Engineers. What can a developer do to increase the likelihood of obtaining a positive affirmation of his or her preferred site? There are two principle elements in effecting a positive site evaluation. The first principle is that a dogmatic compliance with the complete regulatory array of environmental, engineering and land use considerations must be accomplished. The second principle involves the satisfaction of non-regulatory considerations, most particularly the perceived exercise of choice in the matter by the public-at-large, non-governmental organizations and governmental agencies other than FERC. Sections IV and V of this paper discuss the opportunities within applicable regulatory frameworks to affect both principles as to a number of issues (e.g., safety concerns, public relations, etc). Of interest in this section is the opportunity to effect a multiple party decision regarding what is or is not a “preferred site”.


In a private developer’s mind, it’s seems reasonable to desire that an open forum decision-making process not be made a part of their project’s approval process – especially if this “public” review could possibly “redefine” their project scope or specific design elements (let alone its location). After all, who else but the developer has spent so much time and capital to define and locate their project in a manner that best optimizes the project’s economics and purpose? It is hardly believable, at least to most developers, that the opposition voiced by a local grandmother or a 23-year old agency bureaucrat, could possibly affect a professional engineering or market decision regarding a project’s design and operational elements or its place of construction. Since this possibility does in fact exist in the U.S., there are certain realities that each project must address to have more than a de-minimis opportunity to reach fruition. • Reality # 1 – A Private Developers World Is Anything But Private in the U.S. The first reality, as noted above, is that the NEPA process requires project developers to publicly share information about alternatives and the analysis used to select project sites and design components. This sharing of information is not just intended to be for the benefit of permitting authorities. It is the prescribed process for a developer (and the government) to ensure that persons in the communities that are or might be affected by the project are provided the information “necessary” to judge the comparative benefits and costs of a project relative to its alternatives, including the No-Action Alternative. For most LNG import terminals, the formal mechanism for distributing project alternatives information is the documentation and comment opportunity provided by the NEPA procedural system of preparing and publicly releasing an Environmental Impact Statement (EIS). Because of its “project-defining” significance, the presentation and interactive processes that accompany this sharing of decision-making data and analyses are critical to a project proponent and must be appropriately managed and scheduled. And this is where “Reality #2” becomes critical to an LNG development. • Reality # 2 – No One Will Sell Your Project Better Than You Before FERC’s 2003 revision of the procedures available to project proponents for the release of information to the public (discussed more fully in Section V of this paper), it was not atypical for a developer to wait until the publication of the project’s Draft EIS to provide all of the information that was used to form the justification basis of the project’s preferred site selection, design and operational elements. Of course, most experienced developers would not consider such a waiting period, knowing full well how hard it is to keep such a large project “quiet” in the interim period of investigation studies/analyses and interagency negotiations that precede a formal EIS publication date. They know that to attempt such a feat would almost certainly lead to enough speculation and misinformation in the community that the project would be dead even before the EIS was published. Instead, development teams prepared their own documents and briefing positions that presented a justifiable basis for the project’s benefits in site location, design, and operational parameters – as well as immediately available briefing statements on how project impacts would be completely avoided or mitigated. The EcoElectrica Project team took this path of “anticipatory preparedness” and, despite considerable anguish amongst the normally secretive developers, sought to attain a new level of public disclosure and interactive planning unheard of in Puerto Rico (and perhaps the rest of the U.S. for that matter). Detailed presentations concerning every facet of LNG project planning were made to small community groups, school children, individual agencies (as well as each of the technical groups within an agency, e.g., air quality, hazardous materials control, alternative energy specialists), local political leaders, and even local environmental activists. The results were astounding even though they had been designed into the program. Environmental activists testifying – in public and for the record – that EcoElectrica’s “open-door” policy was actually a reality and that they appreciated the opportunity to discuss aspects of the project in a meaningful way with the actual proponents. Public hearings for significant permit actions, particularly air quality approvals, that were simply uneventful – even in some instances unattended by anyone other than the authorizing agency and the EcoElectrica team members – because the public “had heard all of the plans before and had made their own decision that the project should be approved”. The public was not the only party satisfied with the process. To say that the FERC, COE and EPA were pleasantly surprised to experience the “ease” of the EcoElectrica public review hearings would be an understatement of substantial proportion.


• Reality # 3 – They Want a Choice and You’d Better Make Sure You’re the Best Choice Some cynics, including a number of governmental officials, would claim that the EcoElectrica permitting process ended up being relatively “easy” because it was simply the best alternative made available to the public. They might even suspect, and rightly so, that this “best choice” factor was in fact part of the project’s carefully designed and managed development program. Within the project itself, there were a number of alternatives and certain alternatives were clearly more beneficial than their counterparts:

♦ One government permitting official suspiciously noted that all of the sites being considered were “dogs” except for the proposed site. In response, the EcoElectrica team presented its island-wide site selection analysis.

♦ Environmental activists wanted a natural gas supply on the island to reduce the utility’s reliance on #6 oil –

but they adamantly opposed another power plant. EcoElectrica presented its economic analysis demonstrating the singular conclusion that the high cost of an LNG terminal could not be justified without the inclusion of the revenues from a new natural gas power plant.

♦ Despite serious concerns from Fish and Wildlife biologists about the potential for coral and seagrass losses

due to the shadow effect of the long pier, the alternative of dredging the sea floor to ensure adequate depth was, in comparison, considered to be horrific.

♦ If natural gas was to chosen as an alternative fuel source on the island, the public wanted safety assurances.

EcoElectrica let them touch LNG, let them see it fail to explode, let them hear from experts from across the world about its long history of safety – all of this before any significant project announcements and prior to significant media coverage. The benefits of this educational program were significantly demonstrated when a propane line exploded in the heart of one of Puerto Rico’s market areas killing 33 people but the EcoElectrica project permitting continued uninterrupted.

In addition to the justifiable alternatives presented within the project itself, there were “competing project” alternatives available to the public and permitting authorities. In fact, more than a dozen new power plant proposals had been put forth to PREPA, with two projects being selected for further consideration – EcoElectrica and the AES coal fired power plant proposal. Whether or not PREPA deliberately set up a competing project scenario, the impact of choosing two potential projects for simultaneous PPA negotiations and permitting effectively established something of an “all-or-nothing” atmosphere because there was a potentially valid question in the public mind as to whether or not two new power plants were needed on the island. The presence of the need issue raised interesting discussions regarding the scope of alternatives actually available to the public and/or the agencies.

♦ Could the public actually choose whether one or both power plants would be approved? ♦ Would the right to choose depend solely on the NEPA issue of “need” or could it be expanded to

include air quality concerns, energy policy relative to alternative fuels and conservation, or other policy issues beyond the scope of a particular agency’s FERC’s jurisdictional authority (e.g., outside FERC’s control).

♦ Would the first project to complete its NEPA evaluation process win the “need” issue by default? ♦ Was the utility attempting to play the odds by presenting two prospective power plant projects –

knowing that two new power plants might not be needed but at least one was needed and the possibility existed that at least one, if not both, of the plants might not pass the permitting and NEPA hurdles?

And lastly, ♦ Were the projects themselves promoting a competitive alternatives selection? If they were – was it

ethical to do so at the expense of their industry cohorts? Looking back on the situation at that time, it’s easy to see the potential for similar questions and issues being raised regarding the current crop of 40+ LNG terminal sites that have now been publicly announced. Given the similarities, what about promoting a broader competitive evaluation among LNG terminal sites?


Technically, the federal policy regarding the importation of natural gas mandates that there is no such question as to need. Thus any number of sites can be developed. Taking that position as a developer presumes of course that all project elements will in fact be contained within the jurisdictional purview of only FERC (or Coast Guard) and confined only to the mandates of the policy. Such a position is not prudent. FERC will not permit a facility that can not demonstrate its own economic viability and potential for environmental compliance. Secondly, the inherent characteristics of an LNG terminal (the construction of a berth or pier, the generation of atmospheric emissions, the need for an off-site natural gas delivery system) will almost always require authorizations from agencies other than FERC. A more prudent position would be that, whether identified early or late in the approval process, there will be sufficient grounds to introduce the possibility of two or more dueling projects via the assessment of alternatives. Communities want to have a choice, even if that choice does not include the option of a “no-action” alternative. Government agencies, and especially politicians, do not like to be cornered into a forced decision with no alternatives. NIMBYism is most effective when practiced on a solitary project or locale – it can be ineffective when played in an entire region or against an entire industry as a whole. Will communities be the first to initiate this competitive review? No, it has already started. Several projects have already begun openly promoting their sites and facility designs as being more viable in terms of environmental and safety considerations then other proposed facilities. Whether or not this self-promotion is effective is yet to be seen. But one thing is certain – the project that is not prepared to justify its existence and comparative value as an alternative will almost certainly be run out of town. III. SATISFYING THE “PURPOSE” AND NEED” ISSUES OF NEPA As briefly noted in previous sections, the regulatory framework surrounding the development of an LNG terminal is somewhat unique relative to other infrastructure/industrial proposals in the United States. This difference is marked by the presumptive “need” for natural gas imports, the origin of which lies in the Natural Gas Act (NGA) of 1938 and the 1992 Energy Policy Act (EPAct). The presumption is important to terminal developers in that it basically shields a proposed gas import facility from questions as to whether or not there is an actual need for the proposed import project. However, this presumption of need, and thus the protection it affords, is under attack in the U.S. and could significantly impact the prospects of future LNG terminal approvals. The NGA opens with this statement: “Federal regulation in matters relating to the transportation of natural gas and the sale thereof in interstate and foreign commerce is necessary in the public interest.” Secondly, Section 3 of the NGA specifically states that the importation of natural gas shall be deemed to “be consistent with the public interest, and applications for such importation…shall be granted without modification or delay.” A Section 3 application approval, performed by the U.S. Department of Energy’s Assistant Secretary for Fossil Energy, is in fact a ministerial action because of this statutory language. The effect of this statutory protection is evident in the FERC’s application of federal jurisdiction over state and local jurisdiction in LNG siting and its subsequent compliance with NEPA. NEPA itself requires a review of a project’s “purpose and need”; a requirement that becomes basically mute for an LNG terminal project. This then results in the loss of one important “hook” for project opponents to delay or completely halt a project as the NEPA requirement to objectively establish a project’s purpose and need serves as the legal anchor from which project opponents could establish a right of interest in the matter and argue (subsequent to having established the legal standing) that a particular project should not be approved for construction/operation (in whole or in part) if its need could not be demonstrated or if it’s purpose was contrary to other more important public interests. In EcoElectrica’s case, the benefit of the presumption that the importation of natural gas was consistent with the public interest cleared the way for a great number of issues. However, because the EcoElectrica project also included elements that were not directly intrinsic to the infrastructure necessary to import natural gas (i.e., a proposed power plant and a desalination plant), the NEPA compliance program still required an evaluation of need and purpose even though FERC was the lead agency for NEPA. Today, LNG import terminal proposals that include elements not directly linked to the import of natural gas are in the same position as EcoElectrica and, as such, must protect their projects from an attack based on purpose and need because FERC jurisdiction alone will not. This consideration is particularly important in projects that have coupled the LNG import facility with a natural gas power plant. Not only do the proponents have to deal with the issues of air quality and cooling water discharge, they must also deal with the question of whether or not the power plant is actually needed – a question that could be very difficult to answer in the affirmative given the current glut of generating capacity in parts of the U.S. following the surge in construction of the same in the late 1990’s and 2000-2003 period. Which brings us to a second factor in the growing possibility that the protections afforded by the NGA regarding purpose and need may be eroded significantly in the near future. The similarities of the current LNG import boom to the natural


gas power plant boom (and subsequent bust) in the last decade has not been lost on industry, government or public observers. It would be hard to miss the similarity given the sheer number of proposals being put forth, all of which have been thrust to the forefront of public debate by the emotional media coverage being given to the safety issues raised by such proposals. Thankfully, it seems that the LNG industry is consistently (and prudently) downplaying the sheer number of proposals by stating that it is also obvious that “only a few will be built”. It is also fortuitous that the very high development and capital costs associated with LNG terminal projects serves to be an effective self-control mechanism. Otherwise, the possibility exists that individual projects might begin to engage in an open public debate as to whether or not another industry member’s project was needed or not. Nothing soothes a NIMBY proponent more than being able to witness the public self-destruction of two or more energy companies attempting to squeeze each other out of the game. Lastly, there is a substantial contest by the State of California of FERC’s exercise of sole jurisdictional power over the siting and approval of LNG facilities. The California Public Utilities Commission (CPUC) has directly assaulted FERC’s exclusivity in a number of matters, especially siting determinations for LNG – an issue which goes directly to the heart of a state’s right to approve or disapprove a proposed LNG facility within its own boundaries. One of the key elements of the CPUC challenge is whether or not a state can enforce it’s own siting requirements and evaluation process on a proposed LNG terminal siting that has only an intrastate purpose. California is not the only state that has its own siting evaluation regulations or similarly, a need to obtain a “certificate of public convenience and necessity.” The legal arguments in the CPUC challenge contain, and will continue to foster, substantial discussion regarding who gets to determine whether a proposed project is truly needed and on what basis is that determination to be made. The CPUC challenge does not stand alone as a rising argument against FERC’s singular authority over the determination of need. Public interest groups, including respected organizations such as the Conservation Law Foundation (CLF) in the northeast U.S., are voicing serious concerns about the manner in which LNG facility siting is conducted. The CLF has a well established record of supporting natural gas as an important transitional fuel source for New England and has specifically stated in the past that its support included the development of LNG import capabilities. It has also, however, strongly come out in favor of requiring a comprehensive regional screening and planning program to site LNG facilities in the northeast, as opposed to what it considers the current mayhem of community-by-community proposals. Others who oppose LNG projects claim that the projections of potential natural gas supply shortages are falsely based and/or that alternative energy sources and renewable fuels, as well as energy conservation programs, can satisfy any future demands. All of these positions go directly to the question of need and purpose for a proposed project. If it becomes necessary to deal directly with these issues in a proposed LNG project’s NEPA compliance or permitting regime, a substantial amount of work and discourse will be necessary as well as a good deal of preparation for probable litigation. IV. PUBLIC EDUCATION AND MANAGEMENT OF THE SAFETY ISSUE Whether it be because of a direct legal interest or simply the potential for influencing the political powers that be, there is no question that public acceptance of a proposed LNG terminal is critical in the U.S. Vociferous and well-organized public opposition has already caused several proposed projects to be canceled. In March 2004, the Fairwinds LNG terminal in Harpswell, Maine and the Samoa Point LNG project in northern California succumbed to local opposition. Both were seriously undermined by community opposition arising early in the site selection process. In Rhode Island, preemptive legislation was introduced to prohibit LNG transport to the Somerset or Fall River terminal sites in Massachusetts via “the Sakonnet River or under the Mount Hope Bridge”. Alternatively, companies proposing to build LNG terminals in the Gulf of Mexico have generally met with less opposition than their competitors proposing New England or California sites. As most are aware of by now, the issue that is most dominant in public debates and media – at this time – is the safety of LNG delivery and storage. The industry story, as we know, has been that:

For years there has been global trade in LNG and the industry has a remarkable marine safety record; The safety record at existing facilities has been exceptional for more than 40 years; More than 35,000 tanker trips have been recorded over a 50+ year period without a major spill or breach of

LNG cargo; and more recently, LNG ships are in fact significantly safer that the ships delivering oil and chemical products.

While this certainly appears to be a stellar and substantial record of safety that is extremely hard to argue against from a technical basis, the perception of the public and a good percentage of the political entities/individuals that have become involved with LNG terminal projects is increasingly adverse to the acceptance of any risk posed by the nearby transit of an LNG ship or siting of a terminal. Why is this growing concern snowballing? What are it’s fundamental elements? The industry needs to address these questions quickly and adroitly if there is going to be a decrease in the uncertainty surrounding the permitting feasibility of current project proposals.


The EcoElectrica experience can be reviewed relative to two elements of the increasing magnitude of concern that is being experienced today. One element is new for everyone and has a vastly broader base than just LNG. The three elements and factors in the rate of growing concern being experienced are this: 1. Education – Lack Of Opportunity, Limited Scope 2. Disclosure – None, Slow, One Sided 3. Fear – Failure to Rationalize, Applicability • Education One of the first measures that EcoElectrica took in its development program was the identification of the local population’s attitudes and knowledge regarding natural gas. This seemed at the time to be a grossly simplistic tasking for the public relations team. It turned out to be an incredibly valuable tool. The project was in fact introducing natural gas to a population that simply had no prior experience with it as a primary energy source. Because of their broad experiences traveling to the mainland states they were aware that it was an energy source broadly relied upon and piped to most of the residences in places like New York and Connecticut. They were even aware of instances in which natural gas pipelines had exploded “under the streets and in the apartments of New York” and in production fields. But they, like a vast majority of the mainland U.S. populace, had no idea what LNG actually was or how it was shipped, transferred, stored or distributed. They were certainly not aware of the industry’s safety record or expansive regulatory base of safety controls. Thus, EcoElectrica immediately set out on a large scale education program. Schools (4th grade up to post-graduate college), community groups, media representatives, government officials and technical staff, politicians, and business organizations were all subjected to the roving EcoElectrica team of “educators”. Public seminars with coffee con leche and suizos were sponsored throughout three neighboring municipalities. Members of the U.S. Coast Guard and local pilots association presented layman language explanations for their safety plan responsibilities and the attendees were favored with the Bob Lakey “Traveling LNG Thermos” exhibition – truly a valuable show-and-tell for adults. The educational program sponsored by EcoElectrica (and presented by its local resident staff) was comprehensively executed throughout the island (not just in the towns local to the project) and proved to be one of the most valuable expenditures of personnel time and money in the entire development program. Today’s project sponsors are certainly implementing some (or maybe all) of the same types of programs for their new proposals. Certainly there is a large amount of data and information on the several web pages being sponsored by project proponents. Perhaps, however, there is also the belief that the mainland population is more sophisticated about this type of energy source. There certainly is a long history of living with, and therefore a personal familiarity with, petroleum related industries all along the coastlines of Texas and Louisiana. This could be at least one explanation as to why LNG proposals in that neck of the woods are proceeding relatively well through the public approval process. The question then is whether or not the level of knowledge presupposed for the east and west coast populace has been overestimated? Or perhaps the scope of the programs being implemented is too limited in geographic or personal interaction tasking? • Disclosure The EcoElectrica educational program was executed well in advance of any governmentally sponsored public forums and well before any significant media coverage. The program was designed to be a first-in-time “influence” opportunity and the project maximized that design element in a rapid succession mode with multiple seminars, newsletters and public speaking forays. The program was also designed to be repetitive and exciting (of interest) for the populace, and it was formatted to be maintained over the entire period of NEPA compliance and individual permit acquisitions. When one travels to the LNG “hot spots” along the east and west coasts of the mainland U.S. today, you do not hear from the local populace that they have the knowledge they would like to have about LNG. You do not hear from most of them that they have had the opportunity to speak to the project sponsors about LNG. Whether this is true or not – most of the citizenry perceive themselves to be in a black-hole of ignorance about the subject and the proposed project – and they resent it. Most rely on the news media, or worse, word of mouth for information because, according to them, that is their only available source of information. One must ask then – where is the advance educational program for this project? Where are the newsletters? Where are the posters announcing another town seminar? As discussed in the next section of this paper, the responsibility for this situation does not lie solely with the project proponents. To be honest, however, the industry does appear for the most part to be inflicting a lot of the harm on itself. The words most often heard from the local citizenry when one asks about the demeanor or actions of the project


proponents are – “arrogant” and “secretive”. Again, this characterization might be totally invalid. It might even be the result of misrepresentative media coverage or too much “word-of mouth”. Regardless of the truth of the matter being asserted – there was a saying in Puerto Rico that the EcoElectrica team took to heart – “Perception is Reality to Many”. • Fear We know by now that there is a serious public concern about the “safety of LNG”. Perhaps, however, a more accurate characterization of the concern is that the public is afraid of the effects of terrorism on LNG safety. This variation in definition could mean a fundamental difference in how one approaches the issue of LNG safety. Our arguments about the past history of the industry and the technical/regulatory safeguards built into LNG shipping and storage will continue to be less than sufficient in appeasing the public debate on safety until the risk of terrorist interference with those safeguards is addressed. Think of it. Each time we present the details of the vast number of technical and regulatory safeguards that are applicable to LNG, more so than any other carbon fuel source, we are underscoring in the public’s minds the apparently inherent danger of LNG. The public hears “LNG is so dangerous that it requires a different set of rules – super expensive double-hulled ships, shipping lane exclusions, standby tugs to fend off collisions, etc.” Explaining LNG safety has always presented a paradoxical risk in a development program. The educational program implemented for EcoElectrica significantly diminished the safety issue. It had answers for the questions that came from the public. It let the public touch LNG and see LNG react to fire, sparks, water, etc. It educated people before others had the opportunity to present misinformation or emotion. It functioned before fear had a basis in the debate. Terrorism has changed all that – or again, another clarification – the 9/11 occurrence of terrorism on U.S. soil has changed all of this. What the public hears now about LNG safety is MIT and Sandia Laboratory study results that empirically calculate the worst case potential hazards of an effective terrorist attack on an LNG ship or storage tank. These results are presented without the benefit of quantified risk assessments regarding the actual likelihood of terrorist attack success. This information is understandably kept confidential – but it exacerbates the paradox of the LNG industry’s discussion of safety. Until an industry member steps forward and says “Here, take my ship and LNG load and see if you can blow it up” everyone will be dealing with empirical formulas and hypothetical scenarios. This leaves the public to choose between competing experts and rationalizations as to why or why not a terrorist will strike at Project X site versus Project Y site. That is most probably a no-win situation for the LNG industry. Assuming there are no volunteers for the Blow Up My Ship and Multi-Million Dollar Cargo experiment, how then do we get past the element of fear in the current public approval equation? Unfortunately the answer may lie in part on a return to the dreaded mathematics and explanatory complexity of quantifiable risk assessments. Used in the nuclear and waste-to-energy permitting worlds, quantified risk assessments allow a number to be placed on the comparative probability of your particular fear being realized. Knowing that your chance of dying by lightning is 10,000 times more likely than your chance of being the victim of a successful terrorist attack on an LNG ship (that also produces a gas plume in your exact location that also ignites simultaneously to the gas plume being in your exact location, etc.) is something that you can perhaps use as a basis for a rational decision. This presumes of course that most people would rather prefer to make a rational decision than one that is based solely on fear. Similarly, the suggestion that a quantifiable risk assessment be used in the public debate presumes that the data to do so is available (i.e., not top secret) or that it can be made sufficiently representative of probable event data. There is also the “reverse” analysis method of debating LNG risk assumption. It goes like this:

Assume that the exclusion zones being presented by the empirical calculations presented to date, absent any realistic application of the effectiveness of terrorism protection measures, are made enforceable.

That means the U.S. would apply an exclusion zone of at least 2.0 miles(*) around any LNG ship entering the waters of the U.S. (*conservative maximum distance that Sandia National Laboratories calculated for the presence of flammable clouds of natural gas vapors produced by a leaking ship with a 3-tank breach in an intentional spill scenario).

Now calculate the number of locales along the coasts of the U.S. that could satisfy this exclusion zone criteria and thus allow the entry of an LNG ship and/or the presence of an LNG terminal.

Predicting that the final answer to this set of assumptions and calculations is “0”, the conclusion to be forced into the safety debate is that there would be no allowable avenue for the U.S. importation of natural gas. This result would


clearly be against U.S. energy policy as well as against the self-interests of the public body at large and even most environmentalists. A NIMBY argument of this magnitude simply does not have a high rate of success. Whatever combination of approaches is to be used to begin leveling the field in the debate on LNG safety, it needs to occur quickly and uniformly across the country independently of any particular project proposal. LNG terminals are being publicly attacked with testimonials such as “the project would be a Bhopal India plant in my back yard, except this one will burn” and opponent web sites featuring movie clips showing an LNG tanker with an entire city bursting into flames. V. STRATEGIC DECISION-MAKING AND NEGOTIATION WITH THE FERC, COAST GUARD AND OTHER

AGENCIES • The U.S. Federal Energy Regulatory Commission (the “Commission”) FERC has primary jurisdiction over land-based facilities in the U.S. and the Coast Guard has primary jurisdiction over offshore projects. In February 2004, an Interagency Agreement formalized and explicitly defined the bounds of each agency’s regulatory responsibilities. One of the earliest decisions to be made by an LNG facility developer is the manner in which it will interact with the FERC and/or the U.S Coast Guard. Traditionally, the agency followed the standard first step in NEPA compliance which typically started with up to one to two years of information gathering and analysis of the project. This activity was largely conducted without significant public interaction, except for the performance of an interim interagency and public scoping of project issues. The extensive period of project definition and environmental/engineering analysis was then followed with the publication of a Draft Environmental Impact Statement (EIS), the holding of public hearings and receipt of comments, and then the issuance of a Final EIS and Record of Decision (presuming the project was approved). But for one exception, this was the procedure that was basically used in the EcoElectrica Project. As noted in previous sections of this paper, EcoElectrica internally conducted a substantial project design and environmental site characterization, as well as a public education program, prior to its formal application to FERC. Coincident with the market rush to develop LNG import terminals in the U.S., FERC modified its traditional procedure for initiating the approval process. In July 2003, FERC began “recommending” that prospective LNG project applicants use a procedure modification originally implemented for natural gas pipeline projects. FERC termed this option a “Pre-Filing” NEPA Project Review. This Pre-Filing uses a Public Notification, with only minimal information, as a call for “a scoping of the issues.” FERC states that the process is intended to speed the application process and allow interested parties “the opportunity to have input before the development of the application so that issues are raised and addressed and solutions crafted and presented as part of the company’s proposal” {emphasis added). Thus, the primary result of this modification was to involve the public at a much earlier stage in the project review process so that it became a principal party in not just the review of the project, but also in the definition of the project. FERC promoted the new process by emphasizing its potential to save several months in the approval process – a potential benefit that LNG developers hastily pursued. What was not apparent to some at the time was that the LNG import terminal developer actually faced a serious dilemma. Choosing the Pre-Filing process might accelerate the project’s permit schedule by several months but it would also prompt an early public debate of the project, perhaps before the applicant was really prepared to present all of its justification for the project. Potentially even more dangerous, the Pre-Filing process meant that an external definition of the project would be conducted, mostly beyond the management control of the project proponent. On the other hand, selection of the traditional NEPA path offered a more controlled environment for persuasively defining the project’s site selection, design components and the private negotiation of political and public support. While it would be more time consuming and would most likely displease FERC substantially, selection of the traditional NEPA path preserved the applicant’s opportunity to be prepared for a public discourse on the project’s merits. Similarly, a future applicant could just as well decide to do a lot of the up-front project work on their own and defer the formal introduction of the project to FERC, thus gaining the time needed to prepare their case at hand. Either of these courses of action would have meant, however, that the future applicant would have had to step aside from the mad rush of LNG project announcements and sit quietly by as proposal after proposal hit the public billboards and the LNG export market place. In California and Massachusetts, Pre-Filing notifications galvanized opposition before descriptive background information and alternatives analysis of the subject projects could even be suitably documented, let alone debated in a controlled forum. Media reports indicate that citizen concerns in these cases ranged from the expected issues of safety to the most basic design elements (Will dredging of the bay be necessary? Will the fishing fleet be restricted?). Comments received from state review agencies following the Port of Long Beach Pre-Filing Notification universally called for significant and diverse alternatives analysis of both site selection and technology. Thus, the earliest LNG projects that elected to use the Pre-Filing procedure (assuming they were in fact given a choice in the matter) were rewarded with staunch opposition that was exacerbated by the informational deficiency of the Pre-Filing process itself.


For a few LNG projects, particularly those proposed at Gulf of Mexico sites in Texas and Louisiana, the results of implementing the Pre-Filing Process appear to have been beneficial in speeding the FERC licensing process, but by only one or two months. For others, however, the Pre-Filing Process choice continues to be troublesome. While some still hope to achieve an accelerated official review, they are facing potential adversaries in the meantime who (1) demand an extremely vast array of information so that they may “help” define the project ahead of the official application or (2) use the Pre-Filing Notice and its informational void to build the type of advance public opposition that can be fatal to a new project development effort. To its credit, FERC is reviewing lessons learned so far from the implementation of the Pre-Filing NEPA Project Review process. After the numerous failures among the earliest project proposals, one would not be wrong to suppose that there are in fact developers out there who have selected the more quiet approach to NEPA compliance and simply have yet to be heard from. • The U.S. Coast Guard and the Maritime Administration The Coast Guard procedures are not significantly different than those of the FERC relative to new approval applications. The Coast Guard and the Maritime Administration are, however, required by law to complete their review of offshore projects within a calendar year of their receipt of a completed application. The finite time limits and prerequisites thereof are outlined in the Deepwater Port Act of 1974, as amended (33 U.S.C. 1501 et seq.). To many developers this seemed a godsend. Unfortunately, there have been problems. At last count, almost a half dozen project proponents seemed to be having trouble completing the informational and impact assessment requests of the Coast Guard and their application processing timeline has been suspended by the agency. On the other hand, some believe that the suspensions are equally the fault of the Coast Guard as it struggles to process the large number of projects being reviewed and as it becomes more immersed in the variety and complexity of the issues coincident with the offshore storage and transfer of LNG. In either case, the key to the successful advancement of a proposed project is the attainment of a decision that the application submittal can be deemed “Complete”. Most agencies avoid this milestone for as long as they can – most developers would like to submit an empty binder and have it be deemed “Complete.” In the EcoElectrica project, discussions concerning what constituted a “complete” permit application submittal were held with almost every agency involved with the project. If it was at all possible, a written confirmation of the substantive informational elements was extracted from the agency. This was more than just a repetition of the often open-ended or vague statutory listing found in the regulations. It was a specific definition of the data, analyses and scope of impact assessment that would be considered sufficient to satisfy the individual permit reviewer/writer. Finally, in the case of land-based proposals, it seems that the rush to file has also meant the public introduction of several LNG projects before a “Ship Operations Plan” has been drafted by the applicant and reviewed with the Coast Guard or local channel/harbor pilots. This important document is a mainstay in allaying the fears of the local fishing industry and recreational boat owners regarding any possible restrictions and operational factors that would be coincident to the transit of an LNG ship. Without the plan, project sponsors are left standing at the microphone postulating what the rules might end up being, which only serves to frustrate the people who will be directly impacted in their livelihoods or their enjoyment of the waterway. • Other Agencies Federal agencies other than FERC as well as state and local agencies have never been particularly enamored with the exclusive jurisdiction of FERC in matters related to LNG facility siting and design. As indicated by the CPUC court challenge to FERC’s claim of exclusive jurisdiction, the issue has become especially serious. A new project applicant would be ill advised to approach any non-FERC agency with a presumption of there possibly being a different modus operandi based on FERC’s jurisdictional rights. However, this is not to say that every opportunity to benefit from FERC’s jurisdictional authority shouldn’t be optimized…but as it used to be said within the EcoElectrica team: Assume the Worse, Work for the Best. As it turned out, the EcoElectrica experience illustrated that the FERC was deadly serious about its regulatory commitment (18 CFR Part 380) to conform its requirements to accommodate those of other agencies, particularly state and local authorities. Not only did FERC agree to preparing a joint EIS with the Commonwealth of Puerto Rico’s Planning Board, but for every significant permit issue, it was critical for the project to be able to demonstrate the acceptability of the project’s proposed permit compliance from the issuing agency itself. This meant that, despite FERC primacy, there was effectively no difference at all in how the project approached each agency’s permitting requirements and procedures. In particular, the COE and PSD permit procedures, as well as that for the Coastal Zone Management Consistency Determination, were all totally unaffected by FERC’s position as the lead NEPA compliance agency or site certification authority.


In some instances, this reality is incumbent upon the FERC simply because of the intricately difficult aspects of some permits, especially PSD. The EcoElectrica PSD permit acquisition program was extremely complex and was conducted under severe time constraints, requiring maximum efforts on the part of both the company and the EPA. Since the EcoElectrica project, the rules and analyses coincident with PSD and the Clean Air Act have become even more complex. Because there are LNG proposals now that include a co-located power plant, this paper includes a discussion of the changes since the time of EcoElectrica (see Attachment C). • Last Notes A “few” additional items of interest learned from EcoElectrica regarding agency permitting interactions (without giving up all the tricks in the bag and knowing full well that any of the agencies involved with LNG may also read this paper): If the lead developer tells you, the environmental affairs director, that if you need help in getting a permit - the Vice

President of the United States is just a phone call away – do not under any circumstances ever believe that. If the lead developer adamantly insists that he or she be allowed to attend the next status or permit negotiation

meeting with an agency because they “can not believe that this is taking so long” – inform the lead developer that you are officially notifying him or her that the minds of permit writers are from Mars and the minds of developers are from Venus, and that if they do not cease and desist from their foolish demand to attend the meeting, you reserve the right to frequently tell them “I told you so” after the meeting.

If you are a permit negotiator and do not know what the “Giggle Rule” is – learn it. Lastly, you must wood-shed your team of “experts” prior to public hearings. As part of that responsibility, inform the

person who most resists such a foolish exercise that he or she will almost certainly be the one who gives the worst performance of the group. In fact, bet on it.

VI. FAST-TRACK PERMITTING CONCEPTS AND IMPLEMENTATION PROGRAMS Discussion has already been presented in this paper concerning one fast-track philosophy of permitting: it’s easier to amend a permit then it is to get the original permit. For obvious reasons, there are limitations to the implementation of this approach. In most cases it will only work once and as noted in the next section, one needs to be sure of the financing scrutiny that will be undertaken in the review of the original permit. It also has the tendency to make the governmental review of the projects that follow a little bit more difficult; a fact that will not be lost on your fellow industry members or the public. A fast-track permitting concept that was used for the EcoElectrica project involved what came to be known as “optimized multi-tasking” but really was nothing more than thinking outside the box. If you are allotted only two years to do a four or five year permitting program, the natural tendency is to be creative, or at least to fight the rules whenever you can. Most federal and state environmental procedures do not allow the execution of permits in advance of the completion of the NEPA process. Makes sense – the purpose of NEPA is to conduct an open planning exercise and to consider the impacts of making one decision or another. For that very reason, NEPA does not result in a permit being issued. Historically, project developers and consultants have pushed their projects through the entire NEPA process and upon obtaining a final EIS, they then embark on the permitting process. The resulting gap in time between the EIS and the final permits is often more than a year, sometimes much more. However, if one were to realize that the preparation of a permit application is much more detailed and thought provoking to the engineering/environmental/legal staff than is the preparation of an EIS, than one might decide to reverse the traditional pattern of EIS first: Permits second. The tendency to think in this reverse manner is even more likely to occur if the persons involved have ever witnessed a project where the EIS was issued, only to find out later in the permitting exercise that the project approved in the EIS won’t work in the permitting world. This actually happens quite often – thus the world of “Supplemental EIS” came into being. If one indeed implements the reverse preparation path, what one ends up with is completely scoped project elements that have passed a certain degree of regulatory scrutiny and even acceptance. Furthermore, the permit preparation exercise affords the project with a great deal of material to use for the NEPA EIS and a great deal of certainty regarding the project being proposed (and thus less likelihood of a need for a supplemental amendment to the original EIS). Carefully choreographed, one might even find that agency sign-offs on the Draft EIS are remarkably faster and that the gap between the issuance of the Final EIS and the first issuance of subsequent permits is surprisingly reduced. In some instances, it might even be a gap of only a few days. Another fast track permitting approach can be extrapolated from the philosophy that if life gives you lemons, make lemonade. A case in point would be if your preferred site just happens to be contaminated with industrial wastes and/or your neighbors have that problem. This situation would of course normally require you to walk away from selecting that


site at all let alone choosing it as your preferred site. Unless of course you didn’t know that the land was or might be contaminated before you made a commitment to it, either by purchase or public announcement. Alas, not to worry. The EPA loves the prospect of contaminated land being recovered and revitalized. They even have a highly funded program for land like this – its called the Brownfields Program – and it has favored status at EPA. Taking your project (and your neighbors) to EPA and wrapping it (and them) into a Brownfields Initiative is a worthwhile venture and not unlikely to cause an admiration of your project at EPA which is always helpful, especially when you are asking for permit approvals to be expedited. VII. THE SIGNIFICANCE OF THE PERMIT PROGRAM TO FINANCIAL DUE DILIGENCE After having direct involvement in the financial due diligence efforts required to close more than $3 billion dollars worth of energy project capital, there are a number of critical lessons learned relative to the conduct of an environmental permitting program that merit being passed on to new project teams. From a developer/environmental director perspective, these are:

The value of your FERC approval and other issued permits is inversely proportional to the number of Special Conditions that accompany them. If they are numerous, your project may have gotten approved faster, but you risk substantially adverse financial terms as a result.

Bank staff have little knowledge of environmental permitting. Be prepared to provide them a post-graduate

education. For those bank staff that do have knowledge, be prepared to suffer. Be prepared to explain why proving a negative is not desirable in the permitting world. You will be asked to

get a confirmation letter from any agency that you have decided did not have jurisdictional authority over your project. If you have declared a self-exemption from any permit, you will also be asked to obtain a confirmation letter from the appropriate agency. If you have never asked an agency for this type of letter, you do not understand the significance of telling the bank no in this matter – just do it.

The best developers out there insist that their project not be a “first to try it” in any regulatory matter.

They’ve been through financial closure before – trust them. There are certain forbidden words that should never be spoken at a bank meeting or on a bank conference

call – some of these words are “Superfund”, “RCRA wastes”, “modeling”, etc. The bank(s) will hire an independent engineer to review your project. Some of these firms are excellent;

some of them resent never having gotten a contract as Owner’s Engineer. Keep a watch on your permit expiration dates. EcoElectrica only had to renew half of its permits by the time

financial due diligence was completed. If you have a power plant as part of your LNG project, forget it – you’ve already missed the filing application

date for your Acid Rain Permit – and there are not too many bank lawyers out there who understand that no one complies with the 2-year advance submittal deadline of an Acid Rain Permit.

Start a due diligence documentation system that records every agency communication and copies every

correspondence with an agency to file on the very first day that development starts. You’ll be grateful you did when financial closing starts more than a year later.

Be aware that bank lawyers are not particularly fond of warranties and representations that are signed by the

in-house consultant because he is the only one with the personal knowledge to certify the document. He or she may have done a better job than anyone else could, just have a back-up who is a company employee at a minimum.

If you truly understand the language of an environmental indemnity clause – you are underpaid.

Lastly, if you are sensitive to hearing profanity, need five hours or more of sleep each night over the course

of a year or more, are about to be married or alternatively want to stay married – you probably shouldn’t be on a financial closing due diligence team.


ABOUT THE AUTHOR Rob Wyatt of WRC International Inc has been a professional environmental consultant for almost 30 years. His primary expertise lies in the strategic and technical management and negotiation of major industrial development environmental permits, compliance with federal, state and local regulations, and transactional due diligence. He has been responsible for defining the scope of and managing literally hundreds of environmental studies and regulatory compliance programs for a number of Fortune 100 industrial clients. He has worked in more than 38 states, Mexico, Canada, Saudi Arabia and the Caribbean. In the LNG industry, Rob is best known for his work as the Environmental Affairs Manager for the successful grass roots development of the EcoElectrica LNG Import Terminal and Cogeneration Power Plant Project in Puerto Rico (Kenetech Energy Systems and Enron Development Corp). Mr. Wyatt was responsible for the project’s developmental permitting program and the direction of its Joint Federal and Puerto Rico EIS as well as the simultaneous performance and negotiation of all permitting activities (over 80 permits). Rob has a Juris Doctorate from the South Texas College of Law and a Bachelor of Science Degree from the University of Miami, Florida. Gary Napp of EnviroMet was the lead air quality scientist in the EcoElectrica PSD permitting program. Gary’s 25-year career allows him to specialize in permitting, BACT analyses, MACT implementation, human health and ecological risk assessments, dispersion modeling studies and due diligence studies. Gary is also responsible for EnviroMet's regulatory review function including regulation development tracking and analysis. Gary provides routine regulatory updates to EnviroMet's team members and its Clients.


ATTACHMENT A

SITE SELECTION CRITERIA

A. ENGINEERING/OPERATIONS 1 Harbor Pilots are Well Trained 2 Established SPCC Plan for Harbor Area Industries 3 High Level of Site Access Control Potential 4 Suitable Foundation Support Capability (Marine/Land) 5 Pre-Existing Sites wth Dikes, Berms or Elevated Areas 6 Turning Basin Available 7 In-Harbor Interim Anchoring Available 8 Emergency Dockage Available 9 Docking Orientation Relative to Prevailing Winds 10 Exclusion Zone Availability B. ECONOMIC 1 Site Proximity to NG Distribution 2 Required Land Options ($/#) C. ENVIRONMENTAL - Facility Area (Non-Pipelines) 1 Located within a Harbor 2 Natural Deep Water Access 3 Site Proximity to Harbor Entrance 4 Within Wind-Sheltered Harbor 5 Within Wave-Sheltered Harbor 6 Fog Frequency 7 Protected Site Shoreline 8 Pre-Existing Industrial/Petrochemical Harbor Use Area 9 Pre-Existing Industrial Land Use History 10 Pre-Existing Land Disturbance 11 Minimal Ongoing Development in Area 12 No Competing Land Development Proposals 15 Distant Population Center (Residential, Retail) 16 Distant Recreational Land Areas 17 Proximity to Electrical Power Supply (Construction) 18 Proximity to Electric Transmission Supply (Operation) 19 Proximity to Industrial Water Supply 20 Proximity to Potable Water Supply 21 Construction Road Adequacy 22 Proximity to Barge/Ship Materials Unloading 23 Availability of Construction Work Areas 25 Distance to Major Roadway 26 Dredging Required? 27 Dredging Amounts Required 28 Maintenance Dredging Believed Necessary 29 Potential Upland Areas Available for Dredge Disposal 30 Potential Offshore Areas Available for Dredge Disposal 31 Potential for Dredge Spoil Contaminants 32 Perceived Ecological Value of Fill Area 33 Known Ecological Value of Fill Area? 34 Proximity to Established/Permitted Borrow Areas 35 Historical Data of Site RCRA/CERCLA Experience 36 Site RCRA/CERCLA Conditions are Known 37 Host Community Includes Industrial History 38 Host Community Assimilation of Industrial Traffic 39 Agency Familiarity with Site Area Environment 40 Agency Experience in Permitting Developments in Area 41 Ongoing Environmental Studies in Site Area 42 Aesthetics of the Site Area are Industrial


43 Limited Viewer Visibility Potential 44 Existing Landscape Quality 45 Site Land Use is Compatible with Existing Uses 46 Site Land Use is Compatible or AnImprovement re Future Use 47 Site Land Use is Compatible with Adjacent Land Uses 48 Threatened and Endangered Species Present? 49 Species of Value Use Patterns/Significance Known? 50 Proximity to Upland Species of Concern 51 Cultural Resources - Upland Areas 52 Cultural Resources - Marine Terminal Area 53 Flood Potential - Terminal/Dock Area 54 Flood Potential - Support Facilities Area 55 Distance to Noise Receptors 56 Existing Noise Character of Area 57 Site Contamination History 58 Brownfields Opportunity


ATTACHMENT B

FERC RESOURCE REPORT 10, ALTERNATIVES (ABSTRACTED) MINIMUM REQUIREMENTS TO AVOID REJECTION

Address the “no action” alternative. (§ 380.12(l)(1)). Discuss the costs and benefits associated with

the alternative. For large projects, address the effect of energy conservation or energy alternatives to the project (§

380.12(l)(1)) D. Describe the effect of any state or regional energy conservation, load-management, and demand-side management programs on the long-term and short-term demand for the energy to be supplied by the project. The discussion should include any technological, environmental, institutional, political, or social barriers that could inhibit the implementation of energy conservation and load-management programs in the area. Discuss energy alternatives in sufficient detail to convincingly present the advantages or disadvantages of natural gas relative to oil, coal, electricity, and other alternative fuels readily available in the project area.

Identify system alternatives considered during the identification of the project and provide the rationale for rejecting each alternative (§ 380.12(l)(1)). Discuss the costs and benefits associated with each alternative. System alternatives should be analyzed for large projects and for projects where there are significant concerns about the disturbance of a particular resource. System alternatives would meet the objectives of the project, but would use a different (and often existing) natural gas pipeline system or a different configuration.

Identify major and minor route alternatives considered to avoid impact on sensitive environmental areas (e.g., wetlands, parks, or residences) and provide sufficient comparative data to justify the selection of the proposed route (§ 380.12(l)(2)(ii)). For onshore projects near to offshore areas, be sure to address alternatives using offshore routings.

Identify and discuss alternative sites considered for the location of major new aboveground facilities and provide sufficient comparative data to justify the selection of the proposed site (§ 380.12(l)(2)(ii)). The consideration of alternative sites is necessary if specific problems are identified with a new site (e.g., wetlands, land use incompatibility, critical habitat, noise-sensitive areas). Describe the procedure used to identify the preferred site. Identify and discuss the decision criteria and weighting used at each decision point and clearly state the basis for each decision. Provide maps of the locations of the preferred and most viable alternative sites. The analysis and comparison of environmental characteristics of the alternative sites should include a discussion of the following factors;

new stations versus additional compression at existing station(s); area (acres) required;

land use (e.g., wetland, farm, pasture), designated land uses (e.g., flood storage), and availability; visual impact; amount of prime farmland soils; presence of critical habitat or federally endangered or threatened species; presence of NRHP-eligible sites; zoning (e.g., industrial, residential, agriculture); miles of pipeline required to reach site; number and location of Noise-Sensitive Areas (NSAs); air quality and noise considerations; technical considerations (with a clear statement of why the alternative sites are considered

unreasonable); and economic considerations (with a clear statement of why the alternative sites are considered

unreasonable). NOTE: Resource Report 11, Reliability and Safety, requires a description of how the project facilities would be designed, constructed, operated, and maintained to minimize potential hazard to the public from the failure of project components as a result of accidents or natural catastrophes (§ 380.12(m)). A comparative evaluation of the reliability and safety of each of the site alternatives should be considered mandatory.


ATTACHMENT C

CHANGES IN AIR PERMITTING OF NATURAL GAS-FIRED POWER PLANTS SINCE ECOELECTRICA Air permitting requirements for natural gas-fired (gas-fired) power plants have changed significantly since 1997, when EcoElectrica’s federal air permit became effective. This section describes major changes that have occurred in air permitting requirements for gas-fired power plants in the U.S. since the mid 1990s. The discussion below is not comprehensive. It focuses on major, current federal air permitting requirements only. While all States must follow minimum federal air permitting requirements, air permits in the U.S. vary from State to State due to the fact that each State has there own state laws and regulations dealing with air pollution. For example, an air permit for a combined cycle power plant issued in Texas will have a different structure and “flavor” from a permit issued

in California or New Jersey. Certain air permitting requirements are in their infancy in the U.S. (e.g., State of Washington CO2 mitigation requirements and addressing federal Endangered Species Act requirements in air permit applications). These aspects are not discussed. Neither are permitting implications of firing distillate oil as a backup fuel. EcoElectrica was required to obtain two separate air permits, one from the U.S. EPA Region 2 office in New York City and one from the Puerto Rico Environmental Quality Board. The permitting requirements for both organizations were essentially equivalent. In the U.S., project opponents can challenge an air quality pre-construction permit after it has been made “final” by the permitting authority. The permit becomes “effective” after any challenges to the “final” permit have been exhausted. If no challenges are brought then a final permit typically becomes effective 30-60 days after the permit’s “final” date. In EcoElectrica’s case, the federal air permit was final on October 1, 1996 but was not effective until six months later when on April 8, 1997, the U.S. EPA Environmental Appeals Board denied several petitions for review brought by Project opponents. Note that the EcoElectrica air permit was an authorization to construct the facility. If the source is large, it must also obtain an operating permit under EPA’s Title V operating permit program. A new source must apply for a Title V permit within one year of startup. Some background on the EcoElectrica facility is required first in order to frame the discussion that follows. EcoElectrica consists of a nominal 500 MW combined-cycle cogeneration power plant, including two, 175 MW Westinghouse 501F combustion gas turbines. The gas turbines use natural gas as a primary fuel, propane as a secondary fuel, and 0.04% sulfur distillate fuel oil as a back up fuel. Exhaust gases are directed to two multi-pressure heat recovery steam generators (HRSGs). Each HRSG is equipped with an array of duct burners to supply supplemental heat. Cooling is provided by a ten-cell seawater cooling tower. Each major aspect of EcoElectrica Project air permitting is described separately below. The requirement and/or permit condition from the EcoElectrica era, i.e., the mid-1990s, is described first followed by a description of current-day U.S. federal requirements. 1 Berthold, Jessica. Dow Jones Newswires. US Energy Under Secy Backs FERC Authority In LNG Siting. Dow Jones & Company, Inc. June 22, 2004. 2 Schneidewind v. ANR Pipeline Co., 485 U.S. 293 (1988); National Fuel Gas Supply v. Public Service Commission, 894 F.2d 571 (2d Cir. 1990); and Iroquois Gas Transmission System, L.P., et al., 52 FERC ¶ 61,091 (1990) and 59 FERC ¶ 61,094 (1992). 3 Wyatt, Robert. Presented in PFC Energy Memo entitled “LNG Permitting Faces Growing Public Role & Pitfalls”. April 9, 2004.

gastech 2005 past” robert c. wyatt, author director of … conferences... · 2005. 5. 26. · in...

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