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ALJ Dismisses Meat of Enforcement Case Against Oasis Pipe

In a blow to FERC's enforcement case against Energy Transfer Partners' Oasis Pipeline LP, a presiding administrative law judge (ALJ) last Tuesday dismissed the agency's most serious charge against the pipeline -- that its discriminated against nonaffiliated shippers in favor of affiliated shippers.

The partial initial decision, which only addressed the discrimination/preference issue, can either be approved or rejected by the Federal Energy Regulatory Commission (FERC) in full or in part. These charges were the meat of the FERC enforcement case against Oasis Pipeline, with the agency proposing $15.5 million in civil penalties for the alleged Natural Gas Policy Act (NGPA) violations of undue discrimination and undue preference.

"I find that there is no genuine issue of material fact with regard to stipulated issue I" -- undue discrimination of undue preference, said ALJ Bruce L. Birchman. To prove undue discrimination/preference, he said it must be shown that two classes of customers are similarly situated, and that the two classes of customers are treated differently. But the FERC staff litigating the case failed on this score, he noted.

FERC's expert witness Thomas J. Norris, a consultant and former long-time employee of Tenneco Inc., "compared a class of interstate interruptible shippers under dual contracts executed by Oasis, referred to as 'fill-in-shippers,' with another class of interstate shippers who do not hold dual contracts, referred to as 'stand alone' shippers. In deposition testimony, Norris answered 'no' repeatedly to questions by Oasis counsel and on redirect by staff counsel with regard to whether these classes of shippers were similarly situated," the ALJ said.

"As the classes of shippers which he compared are not similarly situated, the requisite genuine issue of material fact to warrant adjudication is not present. Consequently summary disposition is appropriate with regard to [this issue]."

Birchman said he also granted an Oasis motion to compel the production of information related to an enforcement hotline call, which triggered the FERC investigation into Dallas-based Energy Transfer, Oasis Pipeline and other affiliates. This will be the "subject of a forthcoming certification to the Commission with a request...that the Commission authorize the disclosure of the information considered by staff witness Norris."

In a deposition in September, Norris admitted that the enforcement litigation staff divulged to him the identity of the person who placed the hotline call to the Commission, accusing Oasis Pipeline of denying capacity to interstate shippers. FERC regulations require that all information and documents obtained via the hotline be treated as nonpublic by the Commission and its staff.

Oasis attorneys argued that FERC staff's disclosure of the hotline call's contents to Norris waived privilege and necessitated the production of the information to Oasis.

Birchman, however, has denied an Oasis motion to disqualify or strike portions of the testimony of FERC expert Norris. "I found on balance that Mr. Norris does possess sufficient expertise to provide helpful testimony to assist ...on issues for which staff has submitted testimony in this case," he said.

Birchman said FERC staff and Oasis would resume hearing on Dec. 10 on the two remaining charges facing the pipeline:

In May, FERC set for hearing the issues of whether affiliates Oasis Pipeline LP, Oasis Pipeline Co. Texas LP and ETP Texas Pipeline Ltd. violated certain regulations under Section 311 of the NGPA, including unduly discriminating against nonaffiliated shippers and unduly preferring affiliated shippers; charging rates in excess of the Commission-approved fair and equitable rates, and, if so, the amount of unjust profits due shippers; and failing to file an amended operating statement in violation of agency regulations (see NGI, May 19).

In the same order FERC set for hearing allegations that Oasis Pipeline's parent, Energy Transfer Partners, and several affiliates -- Energy Transfer Co., ETC Marketing Ltd. and Houston Pipeline Co. -- manipulated physical natural gas prices at the Houston Ship Channel (HSC) and Waha trading hub on various dates from December 2003 through December 2005.

FERC has accused Energy Transfer and affiliates of market manipulation, with potential civil penalties totaling $82 million -- $79 million for the manipulations at the HSC and $3 million for the manipulations at Waha and Permian trading hubs (see NGI, July 30, 2007). The Commission also proposed disgorgement of $69.9 million, plus interest, in unjust profits. This includes $67.6 million for manipulation in the HSC and $2.2 million for manipulation at Waha and Permian.

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