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FERC Clarifies Policy on Reasserting Jurisdiction Over Gathering

In an attempt to clarify its muddled policy on gathering, FERC Thursday issued a policy statement that identifies the type of potentially abusive practices by gathering affiliates that would frustrate the agency's regulation of interstate pipelines enough to justify reassertion of jurisdiction over exempt gathering.

In a separate order, the Federal Energy Regulatory Commission denied Shell Offshore's appeal of a September 2005 rehearing order in which the agency upheld its rejection of a complaint filed by the company. Shell Offshore had accused Williams Field Services (WFS), the gathering affiliate of Transcontinental Gas Pipe Line (Transco), of charging an exorbitant gathering rate and attaching anticompetitive conditions to its gathering service on its North Padre Island (NPI) facilities (RP02-99-011]. It alleged that WFS and Transco were acting as a single entity and urged FERC to reassert jurisdiction over WFS.

The Commission initially had ruled in Shell Offshore's favor, finding that Transco and WFS had "acted in concert" to drive up gathering rates to monopolistic levels on the NPI offshore Texas facilities and to apparently frustrate effective FERC regulation of Transco's interstate transportation system. But an appeals court vacated the ruling on the grounds that FERC had "jumped to the conclusion" that Transco and WFS were acting as a single entity.

"The Commission has tried a number of times to assert jurisdiction over offshore gathering facilities to protect against undue preference and the exercise of monopoly power, but has been repeatedly rebuffed by the courts. We must accept the judgment of the courts. Under the current law, offshore gathering is an unregulated monopoly. That will remain the case unless and until the law changes," said FERC Chairman Joseph Kelliher at Thursday's meeting.

FERC's new policy statement is in response to a September 2005 notice of inquiry that explored the criteria established in a 1994 order involving Arkla Gathering Service. The Commission in that case determined it could invoke its "in connection with" jurisdiction under the Natural Gas Act (NGA) to protect against potential abuse by unregulated gathering affiliates of Commission-regulated pipeline companies.

While gathering affiliates of interstate pipelines are generally exempted from FERC jurisdiction, the Commission's policy expressed in the Arkla case holds that "if an affiliated gatherer acts in concert with its pipeline affiliate in connection with the transportation of gas in interstate commerce and in a manner that frustrates the Commission's effective regulation of the interstate pipeline, then the Commission may look through, or disregard, the separate corporate structures and treat the pipeline and gatherer as a single entity."

Once FERC determines that its effective regulation of the pipeline has been circumvented or frustrated, it would then reassert jurisdiction over the gathering services, the agency said.

FERC identified the specific types of conduct that could trigger its jurisdiction: when 1) the gatherer has used its market power over gathering to benefit the pipeline in its performance of jurisdictional transportation or sales service; and 2) the benefit is contrary to the Commission's policies concerning jurisdictional service adopted pursuant to the NGA [PL05-10].

If FERC concludes a gatherer is involved in the type of conduct that warrants reassertion of jurisdiction, the Commission said it need not make a determination of "concerted action" between the pipeline and the gathering affiliate. Trying to show that a pipeline and its gathering affiliate acted in concert is where the Commission has gotten into trouble with the courts in the past.

As for Shell Offshore's complaint, "the evidence, as the court has already held..., shows only that WFS charged higher prices and imposed onerous conditions in order to benefit its own gathering business. It did not take actions in order to benefit Transco in the performance of Transco's jurisdictional business," the Commission said. As a result, "Shell has failed to show that WFS engaged in the type of conduct such that an assertion of jurisdiction is necessary to prevent further frustration of the statutory purpose of the NGA."

However, FERC noted that the NPI gathering facilities are located offshore and, thus, are subject to regulation under the Outer Continental Shelf Lands Act. It suggested that Shell could seek remedy for excess charges from the Department of Interior.

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