A plan to ease federal regulation of a liquefied gas terminal in Southern Maryland has become a test case in a dispute between industry supporters who say it would benefit consumers and environmental groups that say it would drive up gas prices across the region.
Consumer advocates and environmentalists filed a motion with the Federal Energy Regulatory Commission last month to oppose a proposal by the Dominion Cove Point facility in Calvert County to become the first operational liquefied natural gas terminal in the country to gain exemption from competitive bidding and public disclosure requirements.
"Waiving market transparency rules . . . to allow Dominion to unilaterally dictate which company receives such large volumes of natural gas invites corruption and uncompetitive business practices, which harms consumers," Public Citizen, a District-based consumer advocacy group, and Green Delaware, an environmental group, wrote in a May 16 filing.
But Dan Donovan, a spokesman for Cove Point, said fewer financial restraints would benefit gas users. He said less regulation would spur construction of more plants, which would increase the gas supply and drive down prices.
"It's the American system," Donovan said. "We're competing with other plants and with other sources of gas. Companies will only come through us if we give them a rate that lets them be competitive."
About one-third of the liquefied natural gas imported into the country passes through the Cove Point terminal. The facility supplies gas to about 12 percent of homes in Maryland that are heated by gas and up to 9 percent of the gas that Washington Gas distributes to its customers in the District, Northern Virginia and Maryland.
The Cove Point application is being closely watched by industry analysts nationwide to see how federal regulators apply a 2002 decision that eased restrictions on liquefied natural gas terminals. That decision, known as the Hackberry rule, eliminated some financial regulations for the plants; it had no effect on safety rules.
Under the original regulatory system, plants were required to allow all gas importers access to their facilities on a non-discriminatory basis. The terminals could charge only the cost of providing service with a specific profit margin added on. The entire bidding process and cost-based rates were tightly regulated.
But industry officials said companies need to be assured that they will have continual access to a liquefied natural gas terminal before investing billions of dollars in a new plant. They said the requirements for public auctions for access to terminals hinder investment in new liquefied natural gas projects.
Federal energy regulators agreed. In the Hackberry decision, the commission said a proposed plant in Louisiana could contract directly with energy companies without a public bidding process. It also said the rates do not need to be based on the cost of providing service.
Tyson Slocum, research director for Public Citizen's energy program, said eliminating open access and transparency rules would make it more likely that energy companies would secretly inflate gas prices and gouge consumers.
"This is Enron all over again," he said. The Federal Energy Regulatory Commission "likes to put all of their trust in energy companies and thinks that they always do the right thing. They don't always do the right thing."
Cove Point has asked the commission to apply the Hackberry rule to two new storage tanks it plans to build to boost the plant's overall storage from 7.8 billion cubic feet to 14.6 billion cubic feet.
Norway-based Statoil ASA signed a 20-year contract with Dominion last year to gain access to all the increased capacity at the Cove Point plant.
Donovan said Statoil would not have invested in the terminal expansion without the presumption that the commission would ease regulations under the Hackberry rule.
"They needed a firm commitment for the capacity in order to make this whole thing work," he said.