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Texas Producers Call for Investigation of TX Midstream 'Abuses'

The Texas Alliance of Energy Producers (TAEP), which represents nearly 3,000 independent oil and natural gas producers, has asked the Texas attorney general to investigate "suspicious business practices" by intrastate natural gas gatherers and processors. Its call for an investigation follows two other requests to Texas Attorney General Greg Abbott: one by the National Association of Royalty Owners and the other by the Texas Independent Producers & Royalty Owners Association, which last week requested Abbott review possible price manipulation by Energy Transfer Co. (ETC) (see Daily GPI, Nov. 1).

Alex Mills, president of the TAEP, told NGI Tuesday the attorney general had not responded to the alliance's letter. However, he remains hopeful Texas independents will finally get some action on the apparent "monopoly abuses" by Texas midstream operators. Producers, he said, have made little headway complaining to their first line of defense, the Texas Railroad Commission (TRC). Last month, the TRC issued its Natural Gas Pipeline Competition Advisory Report, intended to review competition in the Texas intrastate pipeline industry and outline recommendations for the Texas Legislature (see Daily GPI, Nov. 1). But the report, which Mills called a disappointment, "doesn't deal with competition at all."

"We just felt like if we were going to try and keep our members from being run over by the monopoly pipes, we had to do something," Mills said of requesting an investigation. "We've tried legislation and that failed. We've tried appealing to the Texas Railroad Commission...we've not been very successful there. The next step is the attorney general."

TAEP, like TIPRO, wants the alleged price manipulation by ETC investigated. However, Mills said other possible pipeline monopoly abuses also need to be reviewed.

"Just recently, more than a dozen people formerly trading natural gas in the midstream sector have pleaded guilty or been found guilty in federal courts for manipulation of prices, giving false information, or wire fraud. Former employees of Dynegy, El Paso, Enron and others used their influence with the reporters of the newsletters that reported the natural gas indices to give false information and impact the market..." Mills cited public testimony by former energy traders, who said price manipulation was "common" practice.

"Producers and consumers have suspected suspicious activity for quite some time," Mills said in his letter to Abbott. "Pipelines, gatherers go to great lengths to keep as much of their business secret and complicated, because it plays to their advantage to work under a shroud of secrecy. Pipelines have become 'deregulated monopolies' in the intrastate system of Texas. The intrastate system has become a haven for the abusers of the system. They buy old regulated pipelines, originally built with rate-payers money, sprinkle a little magical dust on them and are reclassified 'deregulated gathering lines.' Once the new systems being built, the RRC has allowed pipelines to self-certify that they should not be classified as a public utility."

The pipeline operator "claims that it does not have to transport a producer's gas for a fair and reasonable fee," said Mills. "The pipeline probably will force the producer to sell his gas at the wellhead under his contractual provisions. No negotiation. Take-it-or-leave-it...We believe these actions violate the Texas Business and Commerce Code, the Common Purchaser Act and the Cox Act." The TAEP also alleges intrastate pipelines also violated antitrust laws of Texas, the Texas Natural Resources Code and the Public Utilities Code.

Mills said, "We think the law is on our side. We think that all or parts of each of these laws has been violated." TIPRO "has taken a different approach...but we're both seeking the same results -- fair treatment for gas producers in Texas. We've got to get this thing turned around. Our strategy is to bring together all of the natural gas producers in Texas to draw attention to this...the large producers of natural gas in Texas are losing a substantial amount of money on natural gas taxes and royalties."

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