In a blistering attack on another energy company on Wednesday, Apache Corp. Chairman Raymond Plank called The Williams Companies an “Enron Clone” that used monopoly power to manipulate Gulf Coast gathering rates levied on producers.

An administrative law judge for the Federal Energy Regulatory Commission (FERC) ruled in June that Williams subsidiaries Williams Gas Processing — Gulf Coast Company and Transcontinental Gas Pipe Line Corp. (Transco) acted in concert in offering gathering services and abused their monopoly market power to charge producers “not reasonable competitive market” rates. The judge found that Williams’ actions hampered effective regulation of interstate transportation of natural gas.

According to the FERC judge’s decision, “Whether the increase is viewed as a doubling of the effective combined rate for gathering and transportation, or more than a tripling of the estimated separate rate for gathering, the rate increase shows an abuse of monopoly power.” He recommended FERC reassert its jurisdiction over the gathering system and reregulate the rates charged for services. FERC still has not ruled on the judge’s decision.

Williams subsequently filed lawsuit to overturn the ALJ decision in federal court, claiming FERC’s expedited hearing schedule prejudiced the case against Williams.

Apache, Shell Offshore Inc. and other affected producers shut in production from North Padre Island offshore Texas and filed the complaint with FERC last fall after Williams transferred ownership of a monopoly gas gathering system from a regulated subsidiary (Transcontinental Gas Pipe Line) to an unregulated affiliate (Williams Gas Processing). After the spindown, Williams presented the producers with a contract containing a “non-negotiable” rate change that would have tripled the cost of transportation (from 3 cents to 12 cents/Dth, according to an Apache spokesman) over the 3.8-mile pipeline, required a lifetime commitment of reserves to the gathering system, and prohibited the producers from ever appealing for regulatory relief.

“Williams set up a toll booth and presented us with what they said was a non-negotiable fee for transporting natural gas for the life of the reserves. They provided no additional services, jacking up the price only because they thought they could get away with it,” said Apache’s Plank, who noted that the pipeline is the only means of moving gas from the affected North Padre Island properties, offshore Texas, to the mainland.

“This is yet another example of an Enron clone trying to manipulate the market any way it can,” Plank said. “The culture of greed that prompted the marketer-speculators to engage in wash trades, off-balance-sheet ‘stealth debt’ schemes, dishonest financial reporting and consumer rip-offs is alive and well, despite all the public attention focused on corporate corruption.”

Plank said exercise of monopoly power by Williams and similarly inclined unregulated carriers could artificially inflate the price of gas or curtail supplies as producers are forced to shut in production from the Gulf of Mexico, which provides one quarter of the nation’s natural gas. Apache still has 20 MMcf/d of gas shut in behind the Williams gathering line and other producers are curtailing production as well. The gathering line transports about 100 MMcf/d.

“We think it’s unfortunate that Apache has decided to attempt a debate on this issue in the press,” said Williams’ spokeswoman Julie Gentz. “This legal proceeding is part of a larger issue about Apache’s desire to change FERC’s [offshore gathering] policy, which has evolved as a result of court orders.” She noted that Apache and other producers would like to prevent the spindown of gathering assets to unregulated affiliates, which can charge whatever the market will bear for gathering. The Natural Gas Act states that gathering is exempt from FERC’s jurisdiction, and it’s up to FERC to determine which offshore facilities owned by interstate pipelines are actually gathering and how to then deregulate those gathering facilities.

Earlier this month the US Court of Appeals for the District of Columbia Circuit upheld FERC’s decision in the Sea Robin Pipeline case, in which the Commission reformulated its test for determining whether a pipeline in the Gulf of Mexico is a nonjurisdictional gathering line or a jurisdictional transmission system. ExxonMobil Gas Marketing had filed an appeal of FERC’s determination that a portion of the 438-mile, 1.3 Bcf/d Sea Robin Pipeline system upstream of the Vermilion 149 station is nonjurisdictional gathering (see Daily GPI, Aug. 7). However, the court said FERC’s jurisdiction over natural gas pipelines “‘demands the drawing of jurisdictional lines, even when the end of gathering is not easily located.'”

“Williams has long been a proponent of this deregulation effort,” Gentz noted. She also said Williams believes its actions are “consistent with the applicable statutes and court precedents.”

“Deregulation has gone way too far when these guys can just say ‘this is not a transmission system and we’re going to jack up the rates three-fold and by the way it’s non-negotiable,'” said Apache spokesman Tony Lentini. “When monopolies can do that, consumers are going to be in big trouble. And look at the companies that are in a position to do this. They are some of the last companies that you would trust right now.”

When asked why Apache couldn’t build its own 3.8-mile pipeline and bypass Williams, Lentini said the company should not have to do that to get a just and reasonable rate. He couldn’t say how high Williams’ a rate of return on the gathering system was.

However, the FERC judge had this to say: “This is a frustration of the effective regulation of Transco… If permitted to continue and allowed to trickle into other markets or regions unchecked, collectively, and eventually, the ultimate consumer would be adversely affected.”

FERC has a reformulated primary function test that is used to determine whether an offshore pipeline can be classified as nonjurisdictional gathering. The Commission looks at issues such as the function of the system, the size of pipe, whether it is upstream of processing facilities, whether it collects gas straight from other wells, and other factors to make its determination.

However, as far as Plank is concerned, gathering rates should be regulated. He is calling on Congress to “re-impose accountability and transparency” in the energy merchant sector. “Their tariffs on their unregulated pipelines are non-public, their actions are arbitrary, and they have absolutely no regard for their customers-consumers or producers,” he said. “The government has the responsibility to protect citizens from price gouging by monopolies.”

He noted citygate gas prices in New York peaked around $10/Mcf at the end of July, “and nobody will know if pipeline capacity was being manipulated until months later. Congress should open gas and electricity markets to full public view in real time if abuses are to be prevented.”

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