A very divided FERC yesterday approved a proposed rulemakingthat seeks to create a uniform, complaint-driven system forregulating all offshore gas pipelines based on its authority underthe lighter-handed Outer Continental Shelf Lands Act (OCSLA).

In a 3-2 vote, with Commissioners Vicky Bailey and Curt Hebertdissenting, the Commission proposed replacing its currentregulatory regime on the Outer Continental Shelf (OCS), where ithas jurisdiction solely over gas transmission facilities, withlighter-handed regulation of all offshore gas pipelines.

The notice of proposed rulemaking (NOPR) calls for uniformreporting requirements to be imposed on all OCS gas pipelines toprotect offshore shippers against potential discriminatorybehavior. Pipelines that currently are subject to FERC’s NaturalGas Act (NGA) already would meet the proposed filing requirements.In fact, jurisdictional pipes are likely to get a break under theNOPR. The requirements “are significantly less burdensome than whatis currently required under the NGA,” said Commissioner LindaBreathitt. The brunt of the NOPR’s impact would be felt by offshoregas pipelines that currently are non-jurisdictional.

In a related case, the Commission – in an equally divideddecision – took its cue from the Fifth Circuit Court of Appeals andsplit the baby on Sea Robin Pipeline, ruling that half of thepipeline’s offshore facilities were gathering and half weretransportation. Specifically, it said Sea Robin’s facilitiesupstream of the Vermillion 149 platform were gathering, while itspipeline facilities (a 66-mile, 36-inch line) downstream of theplatform were transmission in nature.

In 1995, the Commission had classified Sea Robin as ajurisdictional transportation pipeline, but the Fifth Circuitkicked back the decision and suggested that FERC consider the halfgathering-half transportation approach. It also recommended thatFERC consider reformulation of its primary function test that’sused to determine whether offshore facilities are jurisdictionaltransportation or exempt gathering. The Commission did just thatyesterday, deciding that the “totality of the circumstances” on SeaRobin demonstrated that half of the pipeline’s function wastransportation in nature.

With the NOPR, FERC is “looking for a regulatory regime thatworks well for everyone, that promotes competition…..without theprimary function test being so determinative of how and who weregulate, without perhaps some of the burdens of NGA-typeregulation…,” said Chairman James J. Hoecker.

OCS pipelines currently are subject to the NGA and OCSLA, whichhe described as “overlapping and contradictory forms ofregulation.” Despite the divisiveness at the Commission on how toregulate the offshore, “what we would, I think, all like…..is adesire for more competitive and regulatory uniformity on the OCSfor all pipelines,” Hoecker said.

The NOPR would bring a greater number of offshore pipelinesunder FERC’s jurisdictional umbrella. And while some mightcharacterize this as an attempt by the Commission to extend itsjurisdictional reach in the OCS, “I would have to say that’s onlyhalf [of] the story. The other half is…..our intent is toregulate with relatively minimal intrusion,” Breathitt said. Shenoted NGA-regulated pipelines already would meet the filingrequirements proposed in the NOPR, and many other offshorepipelines would be exempted from them (i.e. a producer-ownedpipeline that transports gas for itself or an affiliate).

“It’s not our purpose in issuing this NOPR to develop anotherlayer of regulations for pipelines that are already regulated underthe Natural Gas Act…,” said Commissioner William Massey. Ifanything, he believes the proposed reporting requirements in theNOPR would benefit pipelines that currently are regulated under theNGA. “We’ve heard complaints from NGA-regulated pipelines that theyface unfair competition from non-jurisdictional pipelines in theOCS. This proposal will provide the Commission with the informationnecessary to ensure that any difference in regulatory status underthe NGA or OCSLA does not thwart competition.”

The NOPR would require an OCS pipe to submit information to FERCpertaining to its ownership and corporate affiliations, adescription and map of facilities (including location, length andsize), conditions of service, statement of its operatingconditions, the rates it charges, and how the rates are derived.

In his dissent, Commissioner Hebert said he wasn’t “comfortable”with the NOPR. “Under normal circumstances, I would find…..theproposal to replace NGA jurisdiction with light handed,complaint-driven regulation [to be] appropriate. But in thissituation the pairing of lighter-handed regulation for NGAcompanies with regulation for currently non-jurisdictionalcompanies is unacceptable. Yes, the regulatory scheme would belight handed” for NGA-regulated pipelines, “but when compared to noregulation [which non-jurisdictional pipes have enjoyed], it canonly seem…..quite heavy handed.”

Commissioner Bailey, who would declare the entire OCSjurisdictional if she had her way, was steadfastly opposed to theNOPR. “I believe…..that the proposal is not necessary. And I amconcerned that it raises new OCS issues without resolving alreadydifficult ones presented to us,” she said.

“I would prefer to continue the current practice of relying onthe anti-discrimination provisions of the OCSLA if and whencomplaints are filed…..I do not find any compelling evidence thatwe need to expand our OCSLA regulatory regime by promulgating theserules.” She believes the NOPR would “create at least initially adual scheme of regulation for certain pipelines on the OCS.”

With respect to the Sea Robin case, Bailey said she would havegranted the pipeline’s petition to have its offshore facilitiesdeclared non-jurisdictional gathering. “I remain convinced that themovement of gas across the OCS is often a collection process”rather than transportation.

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