Document ID: PHMSA-2014-0051-0009
Agency: phmsa
Document Type: Notice
Title: Pipeline Safety: Liquefied Natural Gas Facility User Fee Rate Increase
Posted Date: 2015-05-07T04:00Z

[Federal Register Volume 80, Number 88 (Thursday, May 7, 2015)]
[Notices]
[Pages 26324-26327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10614]

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DEPARTMENT OF TRANSPORTATION

Pipeline and Hazardous Materials Safety Administration

[Docket No. PHMSA-2014-0051]

Pipeline Safety: Liquefied Natural Gas Facility User Fee Rate 
Increase

ACTION: Notice of agency action.

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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 blaine.keener@dot.gov, 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

[[Page 26325]]

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

[[Page 26326]]

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

[[Page 26327]]

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.
[FR Doc. 2015-10614 Filed 5-6-15; 8:45 am]
 BILLING CODE 4910-60-P