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Pipes, Customers at Odds over Posting Regs for Intrastates, Hinshaws

February 23, 2009
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Natural gas pipelines and utilities are opposed to FERC increasing the posting requirements for Section 311 intrastate pipelines and Hinshaw pipelines to mirror the stiffer posting requirements for interstate pipelines under Section 284 of the Natural Gas Act (NGA). However, pipeline shippers endorse greater accountability for intrastates and Hinshaw pipes that provide interstate services.

"Requiring Section 311 and Hinshaw pipelines to publicly disclose all the information required for interstate pipelines, including price, customer and delivery point location, will place pipelines offering Section 311 and Hinshaw service at a competitive disadvantage to those pipelines offering strictly intrastate service...[FERC] would be creating a competitive problem in the intrastate markets," said the Texas Pipeline Association (TPA), which represents 30 natural gas and liquids pipeline companies in Texas [RM09-2].

Intrastate pipelines have the authority to provide transportation and storage services in interstate commerce under Section 311 of the Natural Gas Policy Act (NGPA), while still remaining exempt from the jurisdiction of the Federal Energy Regulatory Commission. Hinshaw pipelines also are exempt from FERC jurisdiction because the gas they deliver, although received from interstate pipeline sources, is consumed totally within the state in which they operate.

"Imposing the burdensome reporting requirements of Section 284...could have a chilling effect on the amount of intrastate capacity available in interstate markets and prompt a regression to the bifurcated gas markets of the 1970s," the TPA told FERC.

The comments are in response to a notice of inquiry (NOI) that FERC began in late November, exploring whether the disparate reporting requirements for interstate and NGPA Section 311 and Hinshaw pipelines have had an adverse competitive effect on interstate pipelines (see Daily GPI, Nov. 21, 2008).

TPA contends that the Commission's "cumulative actions" of issuing the NOI and Order 720, which increased the posting requirements for interstate gas pipelines and certain noninterstate pipelines, "sends the message that the Commission intends to impose regulations on intrastate pipelines in the same expansive manner as interstate pipelines."

One way for intrastate pipelines to "minimize their exposure to [the] new FERC regulation being explored in the NOI is to limit their interaction with the interstate market; that is, limit Section 311 and Hinshaw activities. The Commission's actions here may be the tipping point that leads pipelines to decide that performing Section 311 service is no longer worth the regulatory costs and risks," the pipeline group said.

It called for FERC to "wait to see what impact these posting requirements [under Order 720] will have on market transparency before imposing additional burdens on intrastate pipelines." Order 720, which was issued in November, established new posting requirements under Section 23 of the NGA that call for all interstate and certain major noninterstate pipelines to post on their publicly accessible websites daily operational information, such as scheduled volume information and design capacity for certain receipt and delivery points.

Cranberry Pipeline, a small pipeline in West Virginia, called on FERC to grant a general exemption from the posting requirements for small intrastate pipelines, such as itself, that did not deliver more than 50 MMBtu of gas over the past three years.

The American Gas Association (AGA), which represents gas utilities, also urged the Commission not to impose burdensome reporting requirements on Hinshaw pipelines. "While many LDCs [local distribution companies] with Hinshaw pipelines are authorized to provide interstate services under limited jurisdiction blanket certificates...the number and kinds of interstate transactions in which LDCs engage are fairly limited -- infrequent, with few counterparties, multi-month or long term, and subject to cost-based rates approved by this Commission or a state commission," the utility group said.

However, if FERC believes additional transparency is necessary, "AGA would not oppose a requirement that Hinshaw pipelines that provide interstate services under limited jurisdiction blanket certificates file with the Commission on a quarterly basis a report of jurisdictional activities that includes the same type of contract information that LDCs currently provide in their annual reports and semiannual reports."

The LDC group called on the Commission to "clearly limit the scope of any revised reporting requirements for Hinshaw pipelines to the jurisdictional transactions in which they engage under their...blanket certificates."

If FERC in the end should require gas utilities to report more frequently than quarterly or to post information on their website, "AGA strongly urges the Commission to establish an appropriate reporting threshold below which Hinshaw pipelines with limited transactions would not need to report more frequently than at present."

The American Public Gas Association (APGA), which represents municipal gas utilities, wants Section 311 intrastate pipelines and Hinshaw pipelines to be subject to the same posting requirements as interstate pipelines. "The Commission's oversight in this regard leaves the segment of the market for jurisdictional services provided by noninterstate pipelines shrouded in darkness, despite the fact that 'distinctions between intrastate and interstate natural gas markets...are not meaningful from the perspective of market price formation,'" the group said.

"The burden is on the Commission to provide a reasonable justification for excluding Section 311 intrastate pipelines and Hinshaw pipelines that provide jurisdictional services from its posting requirements under Section 284. No such reasonable justification exists, however, because the current exclusion only serves to obscure market transparency and create a potential discriminatory advantage for the affected noninterstate pipeline companies."

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