FERC Ends Divided OCS Regulation
Tossing aside its "tortuous" modified primary function method
for deciding the jurisdiction of offshore pipelines, FERC last week
issued a long-awaited final rule that's designed to bring
"symmetry" to the regulation of natural gas pipelines on the Outer
Continental Shelf (OCS) by imposing similar reporting burdens on
By a 4-0 vote, the Commission moved to impose uniform reporting
requirements on all gas pipelines operating on the OCS using its
authority under the lighter-handed Outer Continental Shelf Lands
Act (OCSLA). The rule will have the biggest impact on offshore gas
pipelines that heretofore have enjoyed non-jurisdictional status.
They will become subject to reporting requirements under the OCSLA
that are very similar to the requirements that Natural Gas
Act-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 combined
NGA-OCSLA reporting burden for these pipelines, the final rule
maintained the status quo for them. This means jurisdictional
offshore pipes will be required to only meet the reporting burden
of the NGA, not the OCSLA.
"This change was a result of the desire not to impose another
layer of reporting requirements on those pipelines already
regulated under the Natural Gas Act," said Commissioner William
Massey. However, he noted the NGA jurisdictional pipelines will
have to satisfy the OCSLA reporting requirements for their
non-regulated gathering assets in the OCS.
Under the final order, all OCS pipelines will be required to
file with FERC information on their ownership, corporate
affiliations, a description of the pipeline facilities (location,
length, size et al) and a map of the facilities. Also, the pipes
will have to submit compliance filings each quarter, spelling out
their conditions of service along with either all of their current
contracts or a statement of their operating conditions, rates and
how the rates were derived. These reporting requirements are the
"centerpiece" of the rule, and will help to ensure open and
non-discriminatory access for shippers in the OCS, said
Commissioner William Massey.
"This rule explores, I think, the potential for rates, terms and
conditions' regulation under the OCSLA that applies across the
entire Outer Continental Shelf and, therefore, doesn't necessitate
the tortuous and often challenged jurisdictional determinations
under our modified primary function test that we use under the
Natural Gas Act. And that, at least in my view, is partly what's
broken" with the Commission's regulation of the OCS, said Chairman
James Hoecker. "There are disproportionate regulatory requirements
on the OCS for facilities that do essentially the same things."
Hoecker hinted the Commission wasn't done with the OCS yet. "The
Commission has to get comfortable with its OCSLA authority before
it contemplates any further changes in its application of the NGA
on the Outer Continental Shelf," he said.
Hoecker said the Commission FERC released the final rule now
because of how "critically important" the Gulf of Mexico is to the
nation's energy future, and to provide greater certainty to
investors in the OCS. He noted the Gulf produced 5.24 Tcf of gas in
1997 and has proven reserves of nearly 30 Tcf.
"As a result of these prospects, exploration and production has
been at record levels in the Gulf deep-water areas," he said. But
the "lower oil and gas prices since 1997 have impacted
shallow-water areas in the Gulf....., where decline rates have
increased and drilling has virtually stopped." Hoecker believes the
"recent price reversals" for oil and gas are going to change that
situation. "This means more infrastructure, more drilling activity
and more connecting up to the interstate pipeline grid," he said,
adding that this "substantially changes the situation from a
regulatory perspective [to] a competitive perspective."