On May 20, 2010, the FERC granted in part, and denied in part, Southern LNG Inc.’s (“Southern LNG”) petition for a declaratory order that the Commission would not regulate certain sale and lease activities if Southern LNG decided to reactivate the truck loading facilities at its liquefied natural gas (“LNG”) terminal at Elba Island, Georgia. 

Previously, Southern LNG reactivated the Elba Island terminal in 2001.  However, Southern LNG did not reactivate its truck loading facilities at that time.  More recently, on November 23, 2009, Southern LNG filed a petition for a declaratory order regarding the truck loading facilities.  Southern LNG asked the Commission to find the following if Southern LNG reactivated their truck loading facilitates and then leased the capacity to a new joint venture involving Southern LNG (“Newco”): (1) the Commission would not regulate the terms of Southern LNG’s lease agreement with Newco; (2) the Commission would not have jurisdiction over the rates, charges, terms or conditions of Newco’s sales services; and (3) Newco’s LNG sales activities would not require Southern LNG’s compliance with the Part 358 Standards of Conduct with respect to its interactions with Newco.

In its order, the Commission first stated that it would not regulate the terms of Southern LNG’s lease agreement with Newco.  The Commission noted that while it can consider the leasing agreement if it needs to determine whether or not to allow the truck loading facilities to be reactivated under Section 3 of the Natural Gas Act (“NGA”), it would not prescribe the provisions of the lease agreement.  As such, the Commission generally noted that the lease should not contain provisions which would go against design, operation, safety and security findings by the Commission regarding the LNG import terminal. 

Second, while the Commission agreed in its order that it would not have jurisdiction over Newco’s sales of gas directly to end users, it would have jurisdiction over Newco’s sales of gas for resale in interstate commerce.  Based on Commission precedent, “first sales” of gas to an interstate or intrastate pipeline, local distribution company, or any person for use by such person, as well as any sale which precedes such a sale are exempt from NGA Section 3 jurisdiction.  However, this does not include sales by these same entities unless they or their affiliate produced the gas involved in the sale.  Since neither Southern LNG nor Newco will be the producer of the gas to be sold, it does not qualify under the “first sales” exemption.   

Finally, in terms of the Standards of Conduct, the Commission found that Newco’s proposed activities would be considered affiliated marketing functions if Newco makes any sale for resale.  However, the Commission also found that Southern LNG would not be providing any services under its Part 284 blanket certificate for Newco and Newco would purchase its LNG volumes from a customer that holds capacity at the terminal and not Southern LNG.  As such, Southern LNG would not be conducting transmission transactions with an affiliate.  Therefore, Newco’s sales activities will not require Southern LNG to comply with the Part 358 Standards of Conduct with respect to its interactions with Newco.  

The Commission’s order can be found at www.ferc.gov under Docket No. RP10-173-000.