2015-10614. Pipeline Safety: Liquefied Natural Gas Facility User Fee Rate Increase

ACTION:

Notice of agency action.

AGENCY:

Pipeline and Hazardous Materials Safety Administration, Department of Transportation.

SUMMARY:

On July 3, 2014, (79 FR 38124) the Pipeline and Hazardous Materials Safety Administration (PHMSA) published a notice in this docket to advise all liquefied natural gas facility (LNG) operators subject to PHMSA user fee billing of a change in the LNG user fee rates to align these rates with the actual allocation of PHMSA resources to LNG program costs. PHMSA is publishing this notice to explain changes PHMSA has made to the rate plan described in the July notice in response to the comments received and to communicate PHMSA's final LNG user fee plan.

FOR FURTHER INFORMATION CONTACT:

Blaine Keener by telephone at 202-366-0970, by email at [e-mail], or by mail at U.S. Department of Transportation, PHMSA, PHP-30, 1200 New Jersey Avenue SE., Washington, DC 20590-0001.

Background

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 (Pub. L. 99-272, Sec. 7005) codified at Section 60301 of Title 49, United States Code, authorizes the assessment and collection of user fees to fund the pipeline safety activities conducted under Chapter 601 of Title 49. PHMSA assesses each operator of interstate and intrastate gas transmission pipelines (as defined in 49 CFR part 192) and hazardous liquid pipelines carrying crude oil, refined petroleum products, highly volatile liquids, biofuel, and carbon dioxide (as defined in 49 CFR part 195) a share of the total Federal pipeline safety program costs in proportion to the number of miles of pipeline for each operator. In accordance with COBRA, PHMSA also assesses user fees on LNG facilities (as defined in 49 CFR part 193).

On July 16, 1986, the agency published in the Federal Register a notice for pipeline safety user fees to describe the agency's implementation of the requirements set forth in the COBRA Act (51 FR 25782) (the user fee notice). With respect to pipelines, the user fee notice adopted pipeline mileage as the fee basis. With respect to the LNG facility portion of the gas program costs, a fee basis other than mileage was needed. For these facilities, the agency decided that storage capacity was the most readily measurable indicator of usage as well as allocation of agency resources. In order to ensure that user fees assessed for each type of pipeline facility have a reasonable relationship to the allocation of departmental resources, the user fee notice established five percent of total gas program costs as the appropriate level and established billing tiers based on the storage capacity of LNG facilities.

In 2014, PHMSA determined that certain changes to the calculation table were necessary because the LNG rates had not been adjusted to reflect the increase in gas program costs since 1986. On July 3, 2014, (79 FR 38124) PHMSA issued a Federal Register notice describing PHMSA's planned approach to updating the LNG user fee assessments. The notice described PHMSA's intention to update the rate for each of the five storage capacity tiers in the table to arrive at five percent of total gas program costs when the tiers are added together. PHMSA stated that it plans to implement the increase in the LNG facility obligation in three equal increments starting in 2015 and invited comments. Based on the comments received, PHMSA has revised its approach and is now establishing 1.6 percent of total gas program costs as the appropriate level and has determined that at this lower level there is no longer a need to implement the increase over 3 years.

SUPPLEMENTARY INFORMATION:

Summary of Comments on the July 3, 2014 Notice

During the 2-month response period, PHMSA received comments on the proposed LNG user fee billing methodology from six commenters: The American Gas Association (AGA), the American Public Gas Association (APGA), Metropolitan Utilities District (MUD), Baltimore Gas and Electric Company (BGE), the Greenville Utilities Commission (GUC), and one individual commenter, David Wilson.

This notice responds to the comments, which may be found at http://www.regulations.gov,, at docket number PHMSA-2014-0051. The comments are summarized below and followed by PHMSA's response.

Comment: AGA commented that PHMSA should provide companies with more time to adjust to this increase by modifying the timeline by which the LNG user fees are raised to 5 percent of the overall User Fee Obligation by phasing the increase in over 5 years instead of the proposed 3-year period so that “operators can modify their short, midterm and long term budgeting to accommodate this impactful increase.”

Response: In response to comments, PHMSA revisited the actual annual LNG program costs and determined that a rate of 1.6 percent of gas costs would cover actual annual LNG program costs. Accordingly, PHMSA expects that the resulting user fee increase to 1.6 percent of gas costs (68 percent lower than initially proposed) will not pose an undue burden for any LNG facility operator. PHMSA will implement the increase to 1.6 percent of gas costs in a single year (FY 2015 user fee billing) rather than over a 3-year period as was proposed for an increase to 5% of gas costs.

Comment: APGA, AGA, and BGE suggested that PHMSA should pursue cost recovery for the design reviews of new LNG facilities as granted in section 13 of the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011. “AGA believes once this regulation has been codified, PHMSA will have the ability to accurately allocate fees to those operators that are utilizing a large portion of PHMSA personnel and resources, thus reducing the overall User Fee Obligation.”

Response: PHMSA appreciates the comments of the AGA, APGA, and BGE and does not disagree. After the design review envisioned in the law is implemented, PHMSA will reevaluate the user fee approach for LNG plants, gas transmission pipelines, and hazardous liquid pipelines and consider making appropriate modifications.

Comment: AGA, APGA, GUC, and MUD commented that PHMSA's proposal to increase LNG user fee collection to 5 percent or $3,774,405 in 3 years will be a significant burden especially to many small LNG operators.

Response: In addition to reducing the proposed 5 percent level to 1.6 percent, PHMSA has modified the plan to shift more of the user fee obligation to larger operators by implementing a new 10 tier billing by total capacity by OPID. Specifically, PHMSA added five new billing tiers to reduce the burden on small operators. These new tiers include an ultra-low storage capacity tier to reduce the burden on operators with storage capacity less than 2,000 barrels. Another tier was added for operators with less than 50,000 barrels of storage. The previous tier structure generated the same fee for all plants over 500,000 barrels of storage, but the highest storage volume in FY 2014 billing was 5 million barrels. We adjusted the boundaries of the top two tiers and added three new tiers for operators with very high storage capacity. Finally, it should be noted that PHMSA exempts mobile and temporary LNG facilities from user fee billing.

Comment: APGA commented “PHMSA's proposal does, however, unfairly burdens small LNG peakshaving facilities with a disproportionate share of the costs” and it places a disproportionate burden on the operators of small LNG peakshaving facilities. For example, Greenville Utility Commission in North Carolina would pay approximately $10,000 per year, or just over $2 per bbl, for its LNG peak shaving plant with a storage capacity of 4,762 bbls. In contrast, Sabine Pass LNG Terminal with over 5 million barrels storage would pay just $60,000, or about 1 penny per bbl.

Response: LNG plants typically include facilities other than storage. Barrels of storage alone do not necessarily reflect the effort associated with regulatory oversight of the plant.

Comment: APGA noted that the disparity in costs to small peak shaving facilities vs. larger import/export facilities is “particularly troubling because it results in U.S. gas consumers paying as much as 200 times what consumers in countries that import US LNG would pay. The ultimate consumers of natural gas exported through these large LNG marine terminals reside in LNG importing countries such as Japan. The ultimate consumers of natural gas coming from Greenville's LNG peakshaving plant reside in Greenville, NC. To charge the citizens of Greenville, NC, pipeline safety user fees that are 200 times higher than those charged to the citizens of Japan makes no sense. Fairness would dictate that the larger LNG export facilities pay at least the same rate per barrel as smaller, domestic LNG peakshaving facilities.” GUC, BGE, and MUD agreed with the comments about the disparity seen in billing of small peak shaving vs. larger import/export facilities.

BGE proposed to increase the billing tiers for facilities with >500,000 barrels to add appropriate larger tiers as appropriate for import/export facilities to more fairly apportion costs across LNG facility types. BGE noted that “These large import and, in the future, export terminals are commercially oriented and operated and are not limited like smaller storage capacity facilities generally associated with satellite and peak shaving facilities operated typically by LDC's under limited Rate of Returns (ROR's) authorized by their state public utility commissions (PUCs).” BGE further noted that under 49 U.S.C. 60301(a), “The fees shall be based on usage (in reasonable relationship to volume-miles, miles, revenue, or a combination of volume-miles and revenues) of the pipelines. If the larger base load facilities that are import terminals and those terminals that become authorized to export and their facilities are constructed, thereby causing PHMSA increased regulatory costs, these facilities should carry a larger burden of the total LNG program costs moving forward.”

Response: PHMSA is planning to increase the number of tiers used for LNG user fee billing to ensure that smaller plants are not disproportionately burdened. We are implementing new tiers with a higher user fee rate for plants with very high storage volumes, such as export plants. PHMSA also determined that a rate of 1.6 percent of gas costs covers actual annual LNG program expenses, a rate 68 percent lower than the 5 percent of gas costs initially proposed. The increase proposed is 68 percent lower than the initially proposed increase, and that lower amount presents a much lower overall burden to all LNG operators, regardless of size. PHMSA believes that with the additional tiers which more equitably spread costs across operators by total per operator capacity, small and large LNG operators are billed at rates more equitably than the originally proposed billing structure, with the smallest half of the operators paying 24 percent of total costs while the largest half of operators pay about 76 percent of costs.

Additionally, after the design review envisioned in the law for new large export terminals is implemented, PHMSA will reevaluate the user fee approach for LNG plants, gas transmission pipelines, and hazardous liquid pipelines and consider making appropriate modifications.

Comment: APGA “estimates that a fee of approximately 6 cents per bbl, would collect approximately $3,774,405, or 5 percent of PHMSA's current gas budget. This formula would more equitably distribute the LNG portion of PHMSA's pipeline safety program among LNG facility owners. It should be phased in at approximately 2 cents/bbl in 2015, 4 cents/bbl in 2016 and 6 cents/bbl in 2017. These would obviously have to be adjusted for any changes in PHMSA's budget. The user fee for natural gas transmission mileage should also be adjusted to take into account that LNG operators are now paying more, so transmission operators would pay less.” MUD endorses APGA's recommendation.

Response: PHMSA plans to add tiers shifting more of the financial burden to larger plants. A new 10-tier system based on per OPID total barrel capacity with new tiers implemented for smaller capacity LNG operators and new tiers for large LNG operators provides a simple method for distributing costs more proportionately by size of operator. And, by reducing the rate increase to 1.6 percent of gas costs, we more equitably distribute the LNG portion among facility owners with a 68 percent reduction in total costs compared to the initial proposed increase. Under the pure cost per barrel approach suggested by APGA, PHMSA believes that too much of the financial burden associated with a given level regulatory oversight of a plant would be shifted from small operators.

Comment: BGE does not consider PHMSA's proposed 5% increase in the LNG facility user fee to be “reasonable and justifiable” arguing that there are minimal increases in LNG regulatory requirements since 1994 opposed to increased regulatory requirements for gas pipeline operators over the same time, while gas transmission operator user fee cost increases over that time were not on the same scale as what we are proposing for LNG cost increases. BGE also noted that the 1986 citation that LNG facilities was to account for 5% of the total regulatory program costs is no longer an appropriate ratio to utilize arguing again that between 1986 and now there are little regulatory changes as opposed to changes for the gas transmission industry at large, so PHMSA accordingly should only marginally increase LNG costs.

Response: PHMSA evaluated actual annual LNG programmatic costs and determined that 1.6 percent of gas costs cover actual expenses. Accordingly, we agree with BGE that the 5 percent level of total regulatory program costs established in the 1986 notice is no longer an appropriate ratio.

Comment: BGE requests PHMSA also consider the following approaches:

“If a ratio of LNG user fee to overall program costs is necessary and justifiable, consider a user fee that matches PHMSA's actual LNG regulatory expenditures and that excludes the dramatic increase for design reviews by PHMSA (likely much closer to 1% for example); retain current LNG user fee assessment values for LNG facilities which are satellite and/or peak shaving (with or without liquefaction) due to their limited operating activity, limited ability to generate revenue, and regulatory effort by PHMSA which has not increased dramatically to justify an approximately 800% user fee increase; and consider a combination assessment fee approach by applying the expanded stepped storage capacity based fee schedule with a facility type based multiplier to recognize the larger base load import/export facilities not limited to a ROR set by state public utility commissions.”

Response: In response to comments, PHMSA evaluated annual costs for LNG oversight and determined that 1.6 percent of gas costs cover PHMSA actual LNG regulatory expenditures. PHMSA will implement additional tiers that better apportion the costs to larger plants.

Comment: Metropolitan Utilities District makes the same comments that APGA made about the impact to small LNG facilities, that the increase to 5% of gas program costs is not related to actual increases in LNG regulatory enforcement, and that the proposed costs for LNG peak shaving facilities, in a five-tier per barrel structure, is disproportional to LNG export facility proposed costs, supporting the APGA recommendation for a cost per barrel structure. Metropolitan Utilities District also supports the cost recovery for design review for LNG facility construction concept.

Response: PHMSA evaluated annual costs for LNG oversight and determined that 1.6 percent of gas costs cover PHMSA's LNG regulatory expenditures. PHMSA will implement additional tiers that better apportion the costs to larger plants.

Comment: David Wilson commented “I object to the fact that PHMSA is seeking a User Fee increase for LNG facility operators based upon an estimated 1986 percentage of 5% and trying to suggest that the program costs should remain at that same percentage without ANY analysis of actual costs today. It requires an enormous amount of capital, economic risk and time to construct LNG storage facilities and I know that several projects are currently being planned, permitted and/or constructed based upon certain fee structure assumptions. To increase the fees for these operators over 800% over the course of three years can change the entire economic viability plan for some projects and will result in increased costs for consumers. I would ask PHMSA to review the allocation of resources for the LNG facilities and resubmit a proposal based upon those current needs.”

Response: The basis for billing LNG facilities at 5 percent of gas program costs was established in the original user fee notice. Based on the comments received, PHMSA has revisited the appropriate level and determined that 1.6 percent of gas program costs cover actual LNG expenditures and accordingly, we are not pursuing 5 percent of gas program costs.

Comment: David Wilson also commented “I would encourage PHMSA to review their program costs to reduce unnecessary programs and waste to the extent that the program costs would remain flat or be reduced over the course of the next three years as the user fee increases are nothing more than an additional tax burden for consumers disguised as a ‘user fee’ ”.

Response: Congress authorized and required use fee collection for LNG facilities and operators as stated above. PHMSA did review program costs relevant to LNG expenditures, adopting an increase to 1.6 percent of gas costs, rather than the previously proposed 5 percent of gas costs.

Revised LNG User Fee Plan

Based on the comments received, PHMSA has made several changes to the historical LNG user fee billing methodology. First, we have implemented an increase to 1.6 percent of gas program costs, based on current annual LNG expenditures. Secondly, the historical 5 billing tiers are expanded to 10 tiers. Instead of billing per plant, user fee bills are based on the sum of storage capacity for all plants reported by an operator. We considered implementing the cents per barrel method suggested by APGA, but determined that this methodology shifted too much burden from small operators.

PHMSA has placed a document in the docket that compares the historical per plant 5 tier fee, the new per operator 10 tier fee, and the APGA proposal for a per barrel fee.

PHMSA decided to bill per operator rather than per plant to reduce the burden on small operators with multiple plants. In actual FY 2014 billing, the highest LNG user fee was paid by Atlanta Gas Light. By paying a fee for each of its four plants, the total Atlanta Gas Light LNG user fee bill exceeded the bill for any LNG import plant. Thirteen other operators with multiple plants each paid a higher LNG user fee bill than any import plant. Billing on the sum of storage capacity for an operator better apportions the costs to larger operators.

PHMSA added five new billing tiers to reduce the burden on small operators. These new tiers include an ultra-low storage capacity tier to reduce the burden on operators with storage capacity less than 2,000 barrels. Another tier was added for operators with less than 50,000 barrels of storage. The previous tier structure generated the same fee for all plants over 500,000 barrels of storage, but the highest storage volume in FY 2014 billing was 5 million barrels. We adjusted the boundaries of the top two tiers and added three new tiers for operators with very high storage capacity.

For example, in FY 2014, an operator with three small plants was billed a total of $3,750 for its three small plants. If PHMSA had implemented 10-tier billing per operator for FY 2014, Energy North Natural Gas Inc., would have paid 62 percent less. Under the cost per barrel approach suggested by APGA, the decrease would have been 11,670 percent. The APGA approach shifts too much of the financial burden from small operators.

In FY 2014, each of the eight operators of an import plant was billed $7,500. If PHMSA had implemented 10-tier billing by operator for FY 2014, each of these eight large operators would have paid 79 percent more. Under the cost per barrel approach suggested by APGA, the percent increase would have ranged from 57 to 83 percent. The percent increase for these large plants using the new PHMSA structure is comparable to the percent increase using the APGA proposal.

For FY 2015, PHMSA has implemented the 10-tier billing structure below to collect 1.6 percent of gas costs with full collection in FY 2015 billing, not over 3 years as previously proposed:

Barrel range	# Operators	Rate
less than 2,000	5	$2,394
2,001-10,000	10	4,787
10,001-50,000	5	7,181
50,001-100,000	7	9,575
100,001-250,000	6	11,487
250,001-300,000	11	16,467
300,001-500,000	11	19,150
500,001-700,000	8	28,721
700,001-2 million	12	34,468
over 2 million	7	40,212

PHMSA continues to exempt mobile and temporary LNG plants from user fee billing.

PHMSA believes that an increase to 1.6 percent of gas costs accurately reflects the allocation of PHMSA resources to LNG operators. By implementing the 10-tier approach and billing by operator instead of by plant, PHMSA has established a rate plan that is fair and equitable to both small and large operators. Since PHMSA has determined that 1.6 percent of gas costs accurately reflect LNG regulatory costs, the increase has been implemented in FY 2015 user fee billing. PHMSA has placed a document in the docket that compares the actual FY 2014 bill and the actual FY 2015 bill for each operator. The largest LNG operator is being billed $40,212.00 and the smallest is being billed $2,394.00. In the future, PHMSA will ensure that LNG user fee rates continue to remain in proper alignment with program costs.

Authority: 49 U.S.C. Chapter 60301 and 601.

Issued in Washington, DC, on May 1, 2015, under authority delegated in 49 CFR 1.97.

Jeffrey D. Wiese,

Associate Administrator for Pipeline Safety.