Tossing aside its “tortuous” modified primary function methodfor deciding the jurisdiction of offshore pipelines, FERC last weekissued a long-awaited final rule that’s designed to bring”symmetry” to the regulation of natural gas pipelines on the OuterContinental Shelf (OCS) by imposing similar reporting burdens onall facilities.

By a 4-0 vote, the Commission moved to impose uniform reportingrequirements on all gas pipelines operating on the OCS using itsauthority under the lighter-handed Outer Continental Shelf LandsAct (OCSLA). The rule will have the biggest impact on offshore gaspipelines that heretofore have enjoyed non-jurisdictional status.They will become subject to reporting requirements under the OCSLAthat are very similar to the requirements that Natural GasAct-regulated pipelines have had to fulfill all along [RM99-5].

NGA-regulated pipes in the OCS got a break in the final rule.Although the proposed rulemaking envisioned a sort of combinedNGA-OCSLA reporting burden for these pipelines, the final rulemaintained the status quo for them. This means jurisdictionaloffshore pipes will be required to only meet the reporting burdenof the NGA, not the OCSLA.

“This change was a result of the desire not to impose anotherlayer of reporting requirements on those pipelines alreadyregulated under the Natural Gas Act,” said Commissioner WilliamMassey. However, he noted the NGA jurisdictional pipelines willhave to satisfy the OCSLA reporting requirements for theirnon-regulated gathering assets in the OCS.

Under the final order, all OCS pipelines will be required tofile with FERC information on their ownership, corporateaffiliations, a description of the pipeline facilities (location,length, size et al) and a map of the facilities. Also, the pipeswill have to submit compliance filings each quarter, spelling outtheir conditions of service along with either all of their currentcontracts or a statement of their operating conditions, rates andhow the rates were derived. These reporting requirements are the”centerpiece” of the rule, and will help to ensure open andnon-discriminatory access for shippers in the OCS, saidCommissioner William Massey.

“This rule explores, I think, the potential for rates, terms andconditions’ regulation under the OCSLA that applies across theentire Outer Continental Shelf and, therefore, doesn’t necessitatethe tortuous and often challenged jurisdictional determinationsunder our modified primary function test that we use under theNatural Gas Act. And that, at least in my view, is partly what’sbroken” with the Commission’s regulation of the OCS, said ChairmanJames Hoecker. “There are disproportionate regulatory requirementson the OCS for facilities that do essentially the same things.”

Hoecker hinted the Commission wasn’t done with the OCS yet. “TheCommission has to get comfortable with its OCSLA authority beforeit contemplates any further changes in its application of the NGAon the Outer Continental Shelf,” he said.

Hoecker said the Commission FERC released the final rule nowbecause of how “critically important” the Gulf of Mexico is to thenation’s energy future, and to provide greater certainty toinvestors in the OCS. He noted the Gulf produced 5.24 Tcf of gas in1997 and has proven reserves of nearly 30 Tcf.

“As a result of these prospects, exploration and production hasbeen at record levels in the Gulf deep-water areas,” he said. Butthe “lower oil and gas prices since 1997 have impactedshallow-water areas in the Gulf….., where decline rates haveincreased and drilling has virtually stopped.” Hoecker believes the”recent price reversals” for oil and gas are going to change thatsituation. “This means more infrastructure, more drilling activityand more connecting up to the interstate pipeline grid,” he said,adding that this “substantially changes the situation from aregulatory perspective [to] a competitive perspective.”

Susan Parker

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