A group of producers and marketers said it backs the “general[policy] objectives” on offshore regulation that were espoused lastmonth by Energy Secretary Bill Richardson in a letter to FERC, butstresses that debate over the “key issue” of the jurisdictionalstatus of offshore natural gas pipelines involves “a legal, not apolicy” matter.

As part of its broad inquiry into Outer Continental Shelf (OCS)regulation, FERC has sought comment on three specific issues,including the proper jurisdictional test under the Natural Gas Act(NGA) for offshore facilities and the scope and exercise of itsauthority under the lighter handed Outer Continental Shelf LandsAct (OCSLA). But “rather than address these specific issues,Secretary Richardson’s letter [to Chairman James Hoecker] outlinesa general set of goals” for offshore regulation, drawn from a 1993policy paper on domestic gas and oil initiatives, to guide theCommission in its inquiry, noted the Producer Coalition, whichincludes companies that have “significant investment” in E&Pprojects in the Gulf of Mexico.

Based on that policy paper, Richardson proposed several aims forFERC’s offshore policy – such as encouraging “competitivetransportation options” for offshore producers and gas buyers, andthe removal of “artificial regulatory barriers” impeding privatesector development – but he “does not take a position on any of the[legal] issues” posed by the Commission in its OCS inquiry, “nordoes he explain how the goals identified in his letter areapplicable,” the coalition responded in a missive to Hoeckerearlier this month [RM98-8].

While Richardson’s goals may be laudable, “we point out…thaton the key issue of jurisdictional status of OCS facilities, goalsand objectives cannot be determinative” in light of the FifthCircuit Court’s remand of FERC’s decision on Sea Robin Pipeline.The 1997 remand recommended that the Commission take a hard look atits primary function test and possibly reformulate it, whichprompted it to initiate a notice of inquiry (NOI) last June. Thetest is used as a guidepost to determine whether gas pipelines areFERC jurisdictional transportation or exempt gathering operations.

The results of the NOI not only will be used to decide thejurisdictional status of Sea Robin on remand, but also likely couldhave generic application for other large pipelines operating on theoffshore. The industry expects that a decision will be forthcomingsoon from FERC on its offshore policy. “I think their commitment isto act on it soon. We had thought maybe they’d have something outon it by the end of this month,” said one producer source.

The Producer Coalition favors a policy in which the Commissionwould assert complementary NGA and OCSLA authority over theoffshore – the NGA to ensure rate fairness and the OCSLA to providefor non-discriminatory access to the OCS. Furthermore, it proposesthat FERC replace its primary function test with the “feeder line”test in Section 5 of the OCSLA, which defines as exempt gatheringthose lines that feed into a facility where gas is first collectedor separated, dehydrated or otherwise processed.

The coalition believes that FERC’s treatment of offshorepipelines under the NGA has been both “evenhanded and responsive”to the changing needs of the industry and has allowed offshoreprojects to be financed and constructed in a “timely andenvironmentally sensitive manner” so as to keep pace with marketdemand. But it sees “even greater competitive options…availableto OCS shippers once the Commission implements Section 5 of theOCSLA to effect transactional transparency and combatdiscriminatory practices.”

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