Giving pipelines the presumption in favor of rolled-in rates mayhave been a good idea a couple of years ago, but CommissionerWilliam Massey said he’s now beginning to have second thoughtsabout that decision.

“I’ve just been thinking about the changes in the gas marketover the past few years and whether we made the right call infavoring rolled-in rates,” he said in an interview with NGI lastweek. “I haven’t made my mind up about that” yet, but “I do thinkit would be very useful for us to debate that question right now.”An alternative to the rolled-in rate presumption, he said, would beeither no presumption at all, or simply requiring those shipperswho sign up for new capacity to pay for it.

Massey believes a debate on this issue and others isparticularly important in light of the fact that more and morecapacity is being held by pipeline marketing affiliates. “I thinkwhat this Commission needs to think about is whether our policiesare somehow discouraging long-term commitments by capacity-holdersother than affiliates.”

He also wants FERC to take a close look at the certificateprocess, which he said is becoming “more complex” at a time whenthere’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 theiropposition to proposed pipeline projects. “…[T]hey certainlyweigh in before this Commission with more force” on environmentaland local concerns than they did in the past.

FERC is “right in the middle of all of this,” he said. “We wantto grow the gas market, we want to meet the needs of a 30 Tcfmarket” that’s anticipated in 15-20 years, which would require theinstallation of an additional 8 Tcf of new pipeline capacity, butit’s taking place “in an environment that appears to be morepolitically charged.” The key question facing the Commission is”how do we weigh all this, how do we sort it out, with all thesecrosswinds.” FERC will have a “very tough job [of] balancing all ofthese competing” concerns.

Massey stopped short of saying that FERC is bowing more toenvironmental and local concerns when deciding whether to certifypipeline projects, but he said “it seems to me that in recent casesenvironmental concerns have been highlighted more.” This may havebeen “just because of the particular facts of those projects, or it[may have been] that the advocates before the Commission, who haveconcerns about projects, have become more sophisticated in makingtheir cases.”

He cited several pipeline projects – Granite State GasTransmission’s LNG project in Maine, United States Gypsum Corp.’spipeline facility in Tennessee/Alabama and Southern Natural Gas’pipeline extension into northern Alabama – that have generatedsubstantial local opposition. “I think [these are] just symbolic ofthe problems to come.”

Massey noted dissatisfied landowners, such as those affected bythe Granite State and U.S. Gypsum projects, have taken their casesbeyond FERC to Capitol Hill. In fact, Sen. Fred Thompson (R-TN)recently introduced legislation that would require pipelines tonotify landowners by certified mail of their intent to seize theirproperty under eminent domain (See related story, page 6). The billwas introduced after landowners in Marion Country, TN, complainedthey were taken by surprise by U.S. Gypsum’s efforts to seize theirproperty for its gas pipeline project. Current regulations onlyrequire that a notice of seizing of property be published in theFederal Register, a publication that Thompson said isn’t regularlyread by the average landowner.

“That issue of eminent domain is after all our granting approvalto build…and I think that issue may be more complex as well inthe future.”

All of this doesn’t mean that local and environmental concernswill take precedence over long-term contracts when FERC reviewspipeline projects, Massey said. “I think long-term contracts willremain critically important to us.”

Unlike Commissioner Curt Hebert Jr., he doesn’t think theCommission’s decision on Granite State’s LNG project last monthsignaled a departure in its current certificate policy forevaluating whether new projects have adequate market support (SeeNGI, March 16). Hebert, as well as some pipelines, suggested thedecision meant that the existence of long-term contracts for most,if not all, of a project’s capacity would no longer be key towinning certification.

“…I don’t think that it [Granite State] means that there’sbeen a change in policy. I wouldn’t overstate the importance of thedecision myself,” Massey told NGI. “But I do think it is a goodcase to look at for evidence that this Commission intends tobalance [the] competing concerns” of pipelines and landowners.

Changes in Certification Ahead

He hopes that balancing these interests will not lead to aprotracted certification process. “That would be a mistake. Infact, I wish we could make these decisions quicker,” Massey said.”But I think we will make a mistake if we handle these cases in away that does not appear to be thoughtful and reasoned andresponsible to all competing concerns.” That’s why he voted to holdanother hearing in the Granite State case to determine whetherthere were any existing alternatives to the controversial LNGproject.

Massey said his “hunch” is that the Commission’s certificationprocess will evolve on a case-by-case basis rather thangenerically. He expects the certification process, as well asissues such as flexible terms and conditions for pipelines andreform of the secondary market, to be addressed by FERC this year.These are among the many second-generation Order 636 issuesincluded in an options paper that’s currently being reviewed at theCommission.

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

Assessing OCS Policy

He also addressed the significance of the Fifth Circuit Court ofAppeals’ remand in the Sea Robin Pipeline case to FERC’s overallOuter Continental Shelf (OCS) policy. In that decision, the courtvacated the Commission’s jurisdictional finding for Sea Robin, andleft open the door for FERC to reshape its primary function test.”The issue before us is whether we should use the Sea Robindecision to set a new policy that would then be applicable over theentire OCS.”

The Producer Coalition, an ad hoc group of gas producers andmarketers, has asked the Commission to establish formal proceduresfor the disposition of Sea Robin, which it says likely will be the”lead case on the determination of jurisdictional status ofexisting OCS pipelines.” It listed a number of other cases -involving Transcontinental Gas Pipe Line, Enron Gulf CoastGathering, Venice Gathering and Trunkline Gas – that are hanging inthe balance pending a decision in Sea Robin. At issue for producersis the future viability of the modified primary function test,which FERC uses to delineate between interstate transportation andgathering 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 meantfor the Commission to throw out entirely its modified primaryfunction test. “But I do think it means that we have some work todo in reformulating the test [so that it] will withstand judicialscrutiny.” The Fifth Circuit remand, he said, has left theCommission with the choice of totally deregulating the OCS orreformulating 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 foreither of those” extremes. “I think I come down somewhere in themiddle.”

Massey’s pet project – a proposed rulemaking for filingrequirements for electric utility mergers – is scheduled to befinally released and discussed at this week’s FERC meeting. “ThisNOPR is intended to give [applicants] a road map with respect towhat 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 andwhether we ought to let computer software do some of our work forus in ascertaining market power.” The Department of Justice hasadvocated the use of modeling in FERC’s merger analysis, Masseysaid. Modeling “is not a panacea, but it allows you to take a sliceof the market-power analysis and handle it more quickly, moreobjectively through sophisticated computer software.”

Massey, whose current term expires at the end of June, would notcomment on whether he will sign up for another five-year tour ofduty at the Commission, but sources at FERC have indicated he wantsto stay on and, in fact, has asked the White House to forward hisname to the Senate for consideration. An announcement from theWhite House is expected soon. “I will say that I think there’sstill a lot of very important, interesting work to do at thisCommission.”

Susan Parker

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