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Producers: OCS Jurisdiction Turns on Legal Issue

Producers: OCS Jurisdiction Turns on Legal Issue

A group of producers and marketers said it backs the "general [policy] objectives" on offshore regulation that were espoused last month by Energy Secretary Bill Richardson in a letter to FERC, but stresses that debate over the "key issue" of the jurisdictional status of offshore natural gas pipelines involves "a legal, not a policy" 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 its authority under the lighter handed Outer Continental Shelf Lands Act (OCSLA). But "rather than address these specific issues, Secretary Richardson's letter [to Chairman James Hoecker] outlines a general set of goals" for offshore regulation, drawn from a 1993 policy paper on domestic gas and oil initiatives, to guide the Commission in its inquiry, noted the Producer Coalition, which includes companies that have "significant investment" in E&P projects in the Gulf of Mexico.

Based on that policy paper, Richardson proposed several aims for FERC's offshore policy - such as encouraging "competitive transportation options" for offshore producers and gas buyers, and the removal of "artificial regulatory barriers" impeding private sector development - but he "does not take a position on any of the [legal] issues" posed by the Commission in its OCS inquiry, "nor does he explain how the goals identified in his letter are applicable," the coalition responded in a missive to Hoecker earlier this month [RM98-8].

While Richardson's goals may be laudable, "we point out...that on the key issue of jurisdictional status of OCS facilities, goals and objectives cannot be determinative" in light of the Fifth Circuit Court's remand of FERC's decision on Sea Robin Pipeline. The 1997 remand recommended that the Commission take a hard look at its primary function test and possibly reformulate it, which prompted it to initiate a notice of inquiry (NOI) last June. The test is used as a guidepost to determine whether gas pipelines are FERC jurisdictional transportation or exempt gathering operations.

The results of the NOI not only will be used to decide the jurisdictional status of Sea Robin on remand, but also likely could have generic application for other large pipelines operating on the offshore. The industry expects that a decision will be forthcoming soon from FERC on its offshore policy. "I think their commitment is to act on it soon. We had thought maybe they'd have something out on it by the end of this month," said one producer source.

The Producer Coalition favors a policy in which the Commission would assert complementary NGA and OCSLA authority over the offshore - the NGA to ensure rate fairness and the OCSLA to provide for non-discriminatory access to the OCS. Furthermore, it proposes that FERC replace its primary function test with the "feeder line" test in Section 5 of the OCSLA, which defines as exempt gathering those lines that feed into a facility where gas is first collected or separated, dehydrated or otherwise processed.

The coalition believes that FERC's treatment of offshore pipelines under the NGA has been both "evenhanded and responsive" to the changing needs of the industry and has allowed offshore projects to be financed and constructed in a "timely and environmentally sensitive manner" so as to keep pace with market demand. But it sees "even greater competitive options...available to OCS shippers once the Commission implements Section 5 of the OCSLA to effect transactional transparency and combat discriminatory practices."

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ISSN © 2577-9877 | ISSN © 1532-1231
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