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Gathering Industry Debates Impact of Laser Case

While the most vocal opposition to Laser Northeast Gathering Co. LLC's bid to gain public utility status for a proposed gathering system in northeast Pennsylvania is coming from members of the public, there is opposition from within the industry as well.

MarkWest Liberty Midstream & Resources LLC and Laurel Mountain Midstream LLC argue that if the Pennsylvania Public Utility Commission (PUC) makes Laser Northeast a public utility, other gathering companies could be regulated as public utilities, too.

Earlier this month a law firm representing both Laser Northeast and Peregrine Keystone Gas Pipeline LLC, another gathering company separately seeking public utility status in Pennsylvania, issued a paper explaining why it disagrees with that claim.

"A close reading of the decision indicates that the commission's jurisdiction over any gathering and transportation pipeline will turn on the facts surrounding each pipeline's operation and the composition of its customers," wrote Dan Delaney of K&L Gates.

Laser Northeast recently broke ground on the $50 million Laser Marcellus project, running 21 miles from Susquehanna County to the New York border and another nine miles north to the Millennium interstate pipeline (see Shale Daily, Feb. 3).

The issue of whether to give Laser Northeast public utility status turns on whether a gathering company -- transporting a product from producing wells to transmission lines -- serves the "public," like electricity or telecommunications providers do.

An administrative law judge (ALJ) recommended that the PUC deny the request, arguing that Laser wouldn't offer a service to the public (see Shale Daily, Dec. 3, 2010). "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 "public" service under Pennsylvania utility law, ALJ Susan D. Colwell wrote in her recommendation late last year.

The PUC disagreed by a three-to-two vote in May and sent the case back to Colwell to work out the details of how, precisely, the PUC would regulate Laser Northeast as a public utility natural gas gathering company (see Shale Daily, May 20).

The PUC decision hinged on the definition of "public," according to Delaney.

Even though average Joes and Janes won't be using the Laser Marcellus system, the project still meets the definition of a public service, Delaney told NGI's Shale Daily. "The definition of 'public' in Pennsylvania includes people who are specialized users," he said, meaning that as long as a project is open to any entity within a specific group, it serves the public. And alternately, any gathering company looking to avoid becoming a public utility could tailor its project to serve only a select group of customers.

K&L Gates and other firms believe that the PUC admitted as much in its order when it said future cases would "turns on the specific facts surrounding each pipeline operations, including whether the gathering and transportation services are offered for the public."

But MarkWest recently asked the PUC to reconsider its ruling, saying details in the case suggest that Laser Northeast doesn't meet even that "specialized user" definition of "public." Particularly, MarkWest, as well as the Pennsylvania Independent Oil and Gas Association, believe that Laser Northeast could still tailor its customer base through the terms of its mandatory tariff contracts.

Even if the PUC presses ahead on its decision, MarkWest asked that it at least offer the industry guidance by detailing which facts in the Laser Northeast case led to the ruling. And MarkWest also wants the PUC to detail exactly what gathering projects in the future would not be considered public utilities. An attorney for MarkWest did not return several calls seeking comment.

By including lateral lines up to six miles long in its design, Laser showed that it isn't tailoring its project to a few customers, but planning to offer service to any customer in the region, as long as enough capacity exists on the pipeline system, Delaney said.

Delaney also believes that the facts on the ground should show gathering companies they have nothing to worry about. "They're already operating in Pennsylvania. So they already did it...It's not this big mystery that they seem to be concerned about," he said.

The PUC hasn't responded to the request for reconsideration, but the whole issue could someday become moot if state Rep. Phyllis Mundy successfully passes her bill prohibiting gathering companies from becoming public utilities (see Shale Daily, June 27).

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