Williams’ affiliates Transcontinental Gas Pipe Line and Williams Field Services (WFS) manipulated the cost of gathering services by wielding their “collective market power” over the interstate gas transportation path through the spun-down North Padre Island (NPI) facilities and Transco’s IT-feeder system, according to an initial decision issued by Administrative Law Judge Lawrence Brenner.

The affiliates “abused their monopoly market power in a manner that frustrates the Commission’s effective regulation of Transco and the interstate transportation of natural gas from the [offshore] North Padre Island system,” Brenner noted. He agreed with FERC staff claims that the activities of the affiliates allowed Transco to evade Commission jurisdiction by having WFS “do indirectly for Transco what it could not do directly for itself” as a regulated pipeline. The affiliates’ aim was to “trap” captive customers into first using WFS’ North Padre gathering system, and then Transco’s pipeline, he said.

“Any proven abuse should not be tolerated under the current Commission policy for spindowns. In this case, there are multiple proven abuses that would subvert and circumvent the Commission’s effective regulation of Transco. The Commission must now decide what course of action it will take to protect the integrity of its regulatory responsibilities on the OCS [Outer Continental Shelf] in the Gulf of Mexico at the NPI spundown facilities.”

The initial decision addresses a complaint brought by Shell Offshore Inc. last November, accusing Transco and affiliates — WFS, Williams Gulf Coast Gathering Co., and Williams Gas Processing-Gulf Coast Co. LP — of acting in concert in an anti-competitive manner to push Shell and other captive customers into agreeing to “unreasonable and unjust” gathering rates for service on NPI. FERC set the complaint for hearing in March.

At the center of the dispute is the portion of the NPI facilities which FERC permitted Transco to spin down to WFS as unregulated gathering. Transco had sought authority to transfer its entire NPI system to WFS, but the Commission had denied the request. The case currently is pending before an appeals court.

Shell has asked the Commission to re-assert its jurisdiction over the NPI facilities under the Natural Gas Act (NGA). Brenner agreed that such action “would remedy the concerted abusive monopoly market power actions planned and taken by the Williams’ affiliates.” If Transco and WFS were to argue in favor of another remedy, he said “they would have to show that it would be as effective as NGA regulation in remedying the market power abuses and frustration of regulation.”

Shell was required to pay eight cents for gathering services from WFS on top of an almost eight-cent, NGA-regulated rate paid to Transco for IT-feeder service, according to the initial decision. This is double what Shell should be paying, Brenner said. Staff calculated that Shell should be paying a gathering rate of only about 2.5 cents on the NPI spundown facilities, according to the initial decision.

“The worst-case scenario that the WFS and Transco concerted actions could have result in is the shut-in of production of the Shell reserves on the OCS,” the ALJ noted, adding that this already has occurred. As a result, “there are reduced supplies available to the sales market and thus reduced competition.” If left unchecked, Brenner said the “ultimate consumer will be adversely affected.”

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