Massey Questions Rolled-in Rate Policy

Giving pipelines the presumption in favor of rolled-in rates may have been a good idea a couple of years ago, but Commissioner William Massey said he's now beginning to have second thoughts about that decision.

"I've just been thinking about the changes in the gas market over the past few years and whether we made the right call in favoring rolled-in rates," he said in an interview with NGI last week. "I haven't made my mind up about that" yet, but "I do think it would be very useful for us to debate that question right now." An alternative to the rolled-in rate presumption, he said, would be either no presumption at all, or simply requiring those shippers who sign up for new capacity to pay for it.

Massey believes a debate on this issue and others is particularly important in light of the fact that more and more capacity is being held by pipeline marketing affiliates. "I think what this Commission needs to think about is whether our policies are somehow discouraging long-term commitments by capacity-holders other than affiliates."

He also wants FERC to take a close look at the certificate process, which he said is becoming "more complex" at a time when there's a "push" to increase pipeline capacity by almost one-third. He sees the process now being transformed by outside forces - landowners - that are more organized and more vocal in their opposition to proposed pipeline projects. "...[T]hey certainly weigh in before this Commission with more force" on environmental and local concerns than they did in the past.

FERC is "right in the middle of all of this," he said. "We want to grow the gas market, we want to meet the needs of a 30 Tcf market" that's anticipated in 15-20 years, which would require the installation of an additional 8 Tcf of new pipeline capacity, but it's taking place "in an environment that appears to be more politically charged." The key question facing the Commission is "how do we weigh all this, how do we sort it out, with all these crosswinds." FERC will have a "very tough job [of] balancing all of these competing" concerns.

Massey stopped short of saying that FERC is bowing more to environmental and local concerns when deciding whether to certify pipeline projects, but he said "it seems to me that in recent cases environmental concerns have been highlighted more." This may have been "just because of the particular facts of those projects, or it [may have been] that the advocates before the Commission, who have concerns about projects, have become more sophisticated in making their cases."

He cited several pipeline projects - Granite State Gas Transmission's LNG project in Maine, United States Gypsum Corp.'s pipeline facility in Tennessee/Alabama and Southern Natural Gas' pipeline extension into northern Alabama - that have generated substantial local opposition. "I think [these are] just symbolic of the problems to come."

Massey noted dissatisfied landowners, such as those affected by the Granite State and U.S. Gypsum projects, have taken their cases beyond FERC to Capitol Hill. In fact, Sen. Fred Thompson (R-TN) recently introduced legislation that would require pipelines to notify landowners by certified mail of their intent to seize their property under eminent domain (See related story, page 6). The bill was introduced after landowners in Marion Country, TN, complained they were taken by surprise by U.S. Gypsum's efforts to seize their property for its gas pipeline project. Current regulations only require that a notice of seizing of property be published in the Federal Register, a publication that Thompson said isn't regularly read by the average landowner.

"That issue of eminent domain is after all our granting approval to build...and I think that issue may be more complex as well in the future."

All of this doesn't mean that local and environmental concerns will take precedence over long-term contracts when FERC reviews pipeline projects, Massey said. "I think long-term contracts will remain critically important to us."

Unlike Commissioner Curt Hebert Jr., he doesn't think the Commission's decision on Granite State's LNG project last month signaled a departure in its current certificate policy for evaluating whether new projects have adequate market support (See NGI, March 16). Hebert, as well as some pipelines, suggested the decision meant that the existence of long-term contracts for most, if not all, of a project's capacity would no longer be key to winning certification.

"...I don't think that it [Granite State] means that there's been a change in policy. I wouldn't overstate the importance of the decision myself," Massey told NGI. "But I do think it is a good case to look at for evidence that this Commission intends to balance [the] competing concerns" of pipelines and landowners.

Changes in Certification Ahead

He hopes that balancing these interests will not lead to a protracted certification process. "That would be a mistake. In fact, I wish we could make these decisions quicker," Massey said. "But I think we will make a mistake if we handle these cases in a way that does not appear to be thoughtful and reasoned and responsible to all competing concerns." That's why he voted to hold another hearing in the Granite State case to determine whether there were any existing alternatives to the controversial LNG project.

Massey said his "hunch" is that the Commission's certification process will evolve on a case-by-case basis rather than generically. He expects the certification process, as well as issues such as flexible terms and conditions for pipelines and reform of the secondary market, to be addressed by FERC this year. These are among the many second-generation Order 636 issues included in an options paper that's currently being reviewed at the Commission.

Separately, he thinks FERC within a "reasonable period of time" needs to make a decision on its complaint process. "We've been talking about reform of the complaint process for a long time. This is a subject matter that isn't all that complex." It's not "rocket science." For Massey, the issue now is whether "various groups on the electric side and gas side can get together because, I think, we'd all like to see, if possible, a common complaint procedure for all cases."

Assessing OCS Policy

He also addressed the significance of the Fifth Circuit Court of Appeals' remand in the Sea Robin Pipeline case to FERC's overall Outer Continental Shelf (OCS) policy. In that decision, the court vacated the Commission's jurisdictional finding for Sea Robin, and left open the door for FERC to reshape its primary function test. "The issue before us is whether we should use the Sea Robin decision to set a new policy that would then be applicable over the entire OCS."

The Producer Coalition, an ad hoc group of gas producers and marketers, has asked the Commission to establish formal procedures for the disposition of Sea Robin, which it says likely will be the "lead case on the determination of jurisdictional status of existing OCS pipelines." It listed a number of other cases - involving Transcontinental Gas Pipe Line, Enron Gulf Coast Gathering, Venice Gathering and Trunkline Gas - that are hanging in the balance pending a decision in Sea Robin. At issue for producers is the future viability of the modified primary function test, which FERC uses to delineate between interstate transportation and gathering in the offshore. The coalition thinks the court remand "cast[s] doubt" on whether the test is "any longer viable."

Massey doesn't believe that the court's Sea Robin ruling meant for the Commission to throw out entirely its modified primary function test. "But I do think it means that we have some work to do in reformulating the test [so that it] will withstand judicial scrutiny." The Fifth Circuit remand, he said, has left the Commission with the choice of totally deregulating the OCS or reformulating the primary function test. Massey hasn't seen any "persuasive arguments" for the former or, for that matter, declaring the OCS to be totally jurisdictional. "...I'm not for either of those" extremes. "I think I come down somewhere in the middle."

Massey's pet project - a proposed rulemaking for filing requirements for electric utility mergers - is scheduled to be finally released and discussed at this week's FERC meeting. "This NOPR is intended to give [applicants] a road map with respect to what they have to file, [and] how to file it." Hopefully, it will "make navigating the merger process at the Commission easier..."

The NOPR also "raises [the] issue of computer modeling and whether we ought to let computer software do some of our work for us in ascertaining market power." The Department of Justice has advocated the use of modeling in FERC's merger analysis, Massey said. Modeling "is not a panacea, but it allows you to take a slice of the market-power analysis and handle it more quickly, more objectively through sophisticated computer software."

Massey, whose current term expires at the end of June, would not comment on whether he will sign up for another five-year tour of duty at the Commission, but sources at FERC have indicated he wants to stay on and, in fact, has asked the White House to forward his name to the Senate for consideration. An announcement from the White House is expected soon. "I will say that I think there's still a lot of very important, interesting work to do at this Commission."

Susan Parker

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