FERC addresses offshore gathering jurisdiction

Sep 19, 2005 02:00 AM

by Nick Snow

The Federal Energy Regulatory Commission has begun to examine whether it might reassert jurisdiction over offshore natural gas gathering operations.
The current legal structure contains a regulatory gap that allows offshore gathering companies to collect monopoly rents, which can lead to offshore natural gas production being shut in, FERC Chairman Joseph T. Kelliher said. Gathering facilities beyond state waters are unregulated, and state and federal regulators have no express statutory authority to oversee their costs and rates.
"This regulatory gap is a particular concern in the wake of Hurricane Katrina. Restoration of offshore gas production is critical to mitigating high natural gas prices this winter," Kelliher maintained.

In a Sept. 15 notice of inquiry, FERC requested comments on criteria contained in its 1994 Arkla Gathering Service Co. order allowing the commission to invoke its "in connection with" jurisdiction under the Natural Gas Act to protect against monopoly rents by unregulated gathering affiliates of pipeline companies.
FERC said its Arkla test involves a determination that, as a result of the concerted action of a pipeline and its gathering affiliates, the commission's effective regulation of the pipeline has been circumvented or frustrated. It would then reassert jurisdiction over the gathering services "in connection with" interstate rates subject its Natural Gas Act oversight.

As a result of an appeals court decision, FERC said it would re-evaluate the criteria under the Arkla test.
"The commission is interested in re-evaluating both its legal authority to reassert jurisdiction and then policy considerations in deciding whether to do so," FERC said in its inquiry notice. FERC has tried different legal theories to prevent monopoly rents and suffered a series of court defeats, according to Kelliher.
"We may have run out of theories. If the law permits monopoly rents, it is time to change the law," he said. "Allowing monopoly rents in offshore gathering may retard restoration of offshore gas production. The time has come for Congress to close this regulatory gap," he added.

Court decision
The notice stems from a July 13, 2004, decision by the federal appeals court's District of Columbia circuit. The ruling vacated and remanded commission orders in response to a complaint by Shell Offshore about Williams Field Services, a gathering affiliate of Transcontinental Gas Pipe Line Corp. The court determined that FERC, in granting Shell Offshore's complaint and reasserting jurisdiction over the spun-down Transco affiliate, had misapplied the Arkla criteria, FERC said.
In a related Sept. 15 order, the commission denied a rehearing request from Shell Offshore in the case after determining that the request would involve abandoning the Arkla test and adopting new criteria for reasserting jurisdiction over gathering services of pipeline affiliates.

Changing the Arkla criteria within the context of Shell's complaint would not be equitable, according to FERC.
"Making any change to the Arkla test raises industry-wide implications," it said as it terminated the Shell Offshore complaint proceeding. "The commission would not abandon the Arkla test and develop new criteria without a better understanding of such a change on the industry."

The inquiry notice seeks comments on 13 detailed questions, such as whether there is an inherent anticompetitive issue involved when pipelines spin down gathering facilities to affiliates and whether it is common for such companies to seek higher rates for gathering services than were available from the FERC-regulated pipeline before it spun down the gathering affiliate.
The notice asks for comment on the relevant factors in determining whether a gathering company is separate from its pipeline affiliate and what kind of conduct should trigger FERC's reassertion of jurisdiction over the gathering affiliate. It also asks whether states have incentives to ensure that gathering service providers do not engage in anticompetitive behaviour and asks for assessments of the nature of any gap between state and FERC regulation of natural gas companies.

Source: Washington Post
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