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FERC Reverses Decision Reasserting Jurisdiction Over Transco Gathering Affiliate

In a complete about-face, FERC last Wednesday reversed an earlier order in which it accepted a complaint alleging that Williams' Transcontinental Gas Pipe Line Corp. and its gathering affiliate, Williams Field Services Co. (WFS), had engaged in "collusive behavior" by pushing gathering rates for service on a portion of the North Padre Island gathering facilities to monopolistic levels and violated requirements of the Outer Continental Shelf Lands Act (OCSLA).

The Federal Energy Regulatory Commission's (FERC) latest decision was in response to a July 2004 ruling by the U.S. Court of Appeals for the District of Columbia Circuit, which held that the Commission had exceeded its authority in the complaint case when it reasserted jurisdiction over the segment of the North Padre Island (NPI) gathering facilities that Transco had spun down to affiliate WFS (see Daily GPI, July 14, 2004).

FERC took this action in September 2002 when it found that Transco and WFS had "acted in concert" to drive up gathering rates to monopolistic levels on the NPI offshore Texas facilities and to apparently frustrate effective agency regulation of Transco's interstate transportation system. The case was significant in that it was believed to be the first time FERC had reasserted authority over gathering since it turned the responsibility over to the states in the 1990s.

Before the D.C. Circuit Court, Transco and WFS argued that the Commission lacked any authority under the Natural Gas Act (NGA) to assert jurisdiction over an affiliated gatherer, and had misapplied its own Arkla Gathering test that identified "limited scenarios" for when the agency can treat a pipeline and sister gatherer as a single entity. The court decision last summer was a major victory for Transco and its gathering affiliate.

Based on the court's ruling, "the Commission will reverse the initial decision and deny [the] complaint" filed by Shell Offshore Inc., which had accused WFS of charging an exorbitant gathering rate and attaching anticompetitive conditions to its gathering service on the NPI facilities, the agency order said [RP02-99-009].

"The court found that the actions of WFS in increasing its gathering rates and attaching anticompetitive conditions to its gathering services, such as requiring Shell to commit its remaining reserves to WFS' gathering system after the spin-down, did not warrant a reassertion of jurisdiction [by FERC] over WFS under [the Arkla] test," it noted.

"The court stated that, under Arkla, the Commission's ability to reassert jurisdiction is limited to abuses directly related to the affiliate's unique relationship with an interstate pipeline, such as tying gathering service to the pipeline's jurisdictional transmission service or cross-subsidization between the affiliate's gathering rates and the pipeline's transmission rates."

"The court also rejected the Commission's finding that WFS' actions warranted application of the OCSLA's open-access and non-discrimination prohibitions to set a just and reasonable gathering rate."

Based on the court's interpretation of the Arkla test and the OCSLA, "the Commission finds that there is not sufficient basis to reassert NGA jurisdiction or to assert OCSLA jurisdiction over the gathering rates and services of WFS' North Padre Island gathering facilities," the order noted.

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