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Pennsylvania PUC Kicks Laser Gathering Project Back to ALJ

Laser Northeast Gathering Co. LLC's wait to learn whether it can construct a gas gathering pipeline with "public utility" status in the heart of Pennsylvania's Marcellus Shale country was extended Thursday when the Pennsylvania Public Utilities Commission (PUC) voted to remand the case to an administrative law judge (ALJ).

The case is being watched closely by the industry because the designation of a pipeline/gathering company as a public utility could set a precedent that would move other pipe firms under the PUC's purview. Pennsylvania grants franchises to public utilities, regulates their rates and extends the right of eminent domain along with the franchise. In the past intrastate pipelines or gathering lines have not come under the mantle of public utilities.

The motion to remand was made by Commissioner Wayne E. Gardner. Vice Chairman John F. Coleman Jr. offered a statement on the case, with Commissioner James H. Cawley offering a dissenting statement.

"We are gratified by and agree with the decision made today by the commission,"said Laser CEO Thomas F. Karam. "Laser has operated and will continue to operate in a manner consistent with the duties and responsibilities of a public utility company."

Laser's gathering project is proposed to run 21 miles from Susquehanna County to the New York border, then extend another nine miles within Broome County, NY, to a connection with interstate Millennium Pipeline in New Windsor. The cost of the project is estimated at $50 million.

"I believe that the acceptance of these settlement terms would not be an unlawful expansion of the commission's jurisdiction," said Gardner in his motion. "I believe that the settlement terms should be remanded to the ALJ for further development of the record regarding whether they are in the public interest."

Coleman added: "I agree with the decision to remand this case to the office of administrative law judge for the reasons expressed in the motion. On the threshold issue of whether Laser is a public utility, I agree that the proposed service clearly meets the statutory definition of public utility."

Last December an ALJ urged the PUC to deny the application from Laser to be deemed a public utility with the ability to exercise the right of eminent domain for its proposed gathering and transportation pipeline (see Shale Daily, Dec. 3, 2010). Laser Northeast is not a public utility as defined by the state's Public Utility Code and has not proved entitlement to a certificate of public convenience, ALJ Susan D. Colwell wrote in her recommended decision in December.

In his dissenting opinion on Thursday, Cawley said the designation of "public utility" holds great power. "Whether to grant or deny a certificate of public convenience, conferring public utility status, is within the sound discretion of the commission, with the public interest being paramount, not that of the corporate applicant, and 'public utility' status only a secondary consideration," Cawley said.

"The Public Utility Code must be strictly construed when pipelines are involved because a certificate also confers the power of eminent domain, which upsets the negotiating balance between landowners and pipeline operators over rights-of-way or easements, with grave implications for the individual Pennsylvanians and their communities given the enormity of shale gas extraction under way in the state," Cawley added. "The upset of this balance is not in the public interest and is sufficient reason to deny Laser's application."

The ALJ in December also ruled that the pipeline was being designed to serve only a specific group and not the entire public. "A gathering system designed to serve the producers of natural gas by transporting the gas to a designated transmission line is constructed only to serve specific individuals," and is therefore not a service "to or for the public," according to the Public Utility Code, Colwell said at the time.

Laser told NGI's Shale Daily late last year the company plans to proceed with the project regardless of the PUC decision. "Laser Northeast does not need to be a public utility in order to construct and operate our Susquehanna gathering system," a spokesman said.

As for the fear that a public utility designation for Laser might end up moving other pipe companies under the PUC's thumb, attorney Daniel Clearfield with the Harrisburg, PA, office of Eckert, Seamans, Cherin & Mellot, LLC, said that's not the case.

"There are very well established ways that you can construct your project so that you are not a public utility under existing law," Clearfield told NGI's Shale Daily. "A lot of projects do it this way so that they become private utilities, so it's not like all gathering/pipelines will be public utilities if this decision goes through. A lot of these guys have contracts with only two or three companies, so they are not offering themselves out to the public. They are private utilities."

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