Both independent and major producers are concerned that FERC’sproposed rulemaking on the Outer Continental Shelf (OCS), whichseeks to extend to virtually all OCS gas pipelines some form oflighter handed regulation, is the first step in a Commission planto entirely abandon its Natural Gas Act (NGA) regulation ofoffshore jurisdictional pipelines.

The combination of the June 30th notice of proposed rulemakingaddressing regulation of the OCS and FERC’s remand decision on SeaRobin Pipeline “portends” that the Commission is headed in thisdirection, the Independent Petroleum Association of America (IPAA)said last week in comments on the NOPR [RM99-5].

The NOPR proposes to extend regulation to nearly all pipelinesin the OCS – both currently jurisdictional lines and producer-ownedfacilities – based on the Commission’s authority under the lighterhanded Outer Continental Shelf Lands Act (OCSLA). It’s not clear,however, whether the proposed OCSLA-based regulatory regime wouldbe a substitute for FERC’s NGA authority over currentlyjurisdictional pipelines, or whether it would augment thatauthority. The proposed rulemaking would subject OCS pipelines touniform reporting requirements to protect offshore shippers againstpotentially discriminatory behavior.

If FERC’s objective in the NOPR is to eliminate NGA regulationof offshore pipeline facilities entirely (or substantially as inSea Robin) in favor of a reporting regime under the OCSLA,independent producers said they would strongly disapprove. “Such amove is unlawful and ill-advised.” However, if the Commission’sintent is to achieve greater transparency of market informationfrom OCS pipelines by imposing reporting requirements under theOCSLA, the independents said they would favor such a move.

Although FERC indicated in the NOPR that it is moving towardlight-handed regulation of OCS facilities, the Commission “cannotand must not abdicate its duty under the NGA to curb and controlthe monopoly power of interstate pipelines on the OCS,”independents said. They urged FERC to clarify in a final rule thatcurrently jurisdictional OCS facilities would continue to besubject to the Commission’s NGA authority.

While independents have given FERC the benefit of the doubt withrespect to its intention in the NOPR, the larger gas producers wereopposed to any attempt by the Commission to extend its authority toinclude OCS production and production-related facilities, whichheretofore have been free of any kind of regulation. They contendthere’s no need for such regulation, given the lack of shippercomplaints against producer facilities in the past, and the”chilling effect” it would have on offshore gas development in thefuture.

“…[T]here is no evidence, much less substantial evidence, thatthere is a problem at all and, in particular, a problem ofsufficient magnitude as to require an entirely new regulatoryscheme imposed on previously unregulated companies and activities,”a group of OCS Producers told FERC. Specifically, it noted therewas “no evidence of abuse” by offshore production-related pipelinesand other facilities to justify subjecting them to the proposedreporting requirements under the OCSLA. The group urged theCommission to continue with the status quo in the OCS, regulatingNGA-jurisdictional pipelines and exempting production facilities.

Like the independents, the OCS Producers conceded they werebaffled by the Commission’s intent in the NOPR – specifically, thestatement the proposed rule was a “key step to developing auniformly-applied, light-handed regulatory standard” to apply toall OCS gas service providers. “…[O]ne interpretation is that theFERC intends to relax its NGA regulation applicable to offshoreinterstate pipelines and/or declare such pipelines, or segmentsthereof, to be non-jurisdictional gathering.”

The OCS Producers said they “vehemently oppose any erosion” ofFERC’s NGA regulation over OCS jurisdictional pipelines. They saidFERC couldn’t authorize light-handed regulation for an NGAjurisdictional pipeline, in the form of market-based rates, withouta showing the pipeline lacked market power.

Major producers also took issue with the scope of the reportingrequirements that would be imposed by the NOPR. The “scope of therule is so broad as potentially to include intensely proprietaryand confidential information directly related to the verycompetitive exploration and production business.” They stressedthey were not arguing against market transparency. But instead theybelieve the Commission “has gone too far in mandating a generic,’scatter gun’ approach” to reporting…”

The OCS Producers further objected to the NOPR provision thatwould make most OCS “gas service providers,” not simply pipelinefacilities, subject to the reporting requirements. That catch-allphrase could apply to all production-related facilities (platforms,collection lines, separators, dehydrators and treaters), as well asto contracts for production-related services, the producers said.They asked FERC to add these facilities to its “narrow” list ofalready-proposed exemptions to the NOPR.

If the Commission should decide to proceed with a final rule,OCS Producers urged it to first convene an informal technicalconference to listen to some of the “potential complexities andburdens” associated with the proposed reporting rule. “Engineersand corporate executives should be invited to explain the offshoreexploration, development and gathering business and offer theirviews as to the desirability of the newly proposed regulations.”

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