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FERC Denies Rehearing of Gulf South Abandonment Case

FERC on Thursday denied a request for rehearing of its December 2013 decision to deny Gulf South Pipeline Co. LP's request to abandon pipeline facilities in Louisiana, Mississippi and Texas to affiliate companies.

More than two years ago, the Federal Energy Regulatory Commission agreed with protesting shippers and soundly rejected a proposal by Gulf South to abandon nearly 2,000 miles, or about 25%, of its 7,241-mile system, selling pipeline segments and auxiliary facilities to affiliated non-jurisdictional intrastates (see Daily GPIDec. 19, 2013).

Gulf South maintained that the lines it sought to abandon are small-diameter, low-pressure pipeline facilities used mainly for gathering and deliveries to distribution, municipal, and end-use customers. FERC found that despite the pipelines' diameters and operating pressures, "...they are nonetheless a part of Gulf South's jurisdictional interstate pipeline system and have been continuously used to render interstate service under Gulf South's open-access tariff for customers on its system."

In its request for rehearing, Gulf South said that FERC erred "...by treating continuity of service as the primary, and essentially only consideration in assessing whether the public convenience and necessity permits abandonment of the subject facilities," the Commission said in its Thursday order [CP13-91, -92, -93].

FERC disagreed with the assertion. "...[W]e evaluate abandonment applications on a case-by-case basis and consider all relevant factors, including the needs of Gulf South and its customers, the degree to which the subject facilities are utilized, and the economic impact of abandonment on Gulf South and its customers." The Commission said continuity of service was the primary but not the only factor considered.

Gulf South argued that the Commission applied an "overly-strict standard" in denying its requested abandonment. According to the Commission, Gulf South had contended that Congress intended a more lenient approach be taken in considering abandonment than when considering certification. "Gulf South fails to provide relevant support for this distinction or effectively contest established precedent," FERC said.

The Commission also disagreed with Gulf South's assertion that the regulator improperly discounted continuity of service agreements made with shippers. "Contrary to Gulf South's claim, the record shows that Gulf South's proposal could have material and significant negative impacts on its existing customers."

Gulf South had claimed that the lines it sought to abandon had suffered decreased use, represented less than 2% of its total system throughput and brought in lower revenues, forcing its mainline customers to subsidize the smaller sections of pipe. Further, it said because of increased competition and changes in gas flows it had been unable to earn its approved return on equity of 12.25%. Instead, its estimated return on equity was 7.9% in 2010, 5.3% in 2011 and 8.33% in 2012.

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