Gas gatherers and processors won a major victory when OklahomaGov. Frank Keating vetoed Senate Bill 319 June 19. The legislationwould have given the Oklahoma Corporation Commission (OCC) broadauthority to regulate rates, terms and conditions of gathering andprocessing contracts and to settle disputes between gatherers andproducers.

It essentially would have enabled the OCC to fill FERC’s shoes,making Oklahoma one of the only states to step in and regulategathering since FERC gave up jurisdiction in 1993 and left defaultgathering contracts in place for two years. Many of those defaultcontracts expired last year. Since that time, Oklahoma producersclaim gathering rates have risen significantly – more than 300% insome cases.

But Keating said the bill contained “many undefined and vagueterms” which could “encourage complaints rather than assist inmaintaining an orderly, efficient marketplace.” The legislation, hesaid, “extends overly broad, statutory regulation of gas gatheringfacilities into the competitive marketplace during a period ofderegulation. [It] initiates, for the first time, regulation of gasprocessing activities. [It] was not heard in committee and lackedadequate public debate and input.”

Keating said, however, he is “convinced that a problem doesexist and that there have been overreaching and discriminatory actson the part of some pipeline companies.” As a small concession toproducers, he issued an executive order directing the OCC to issuea notice of inquiry and “begin the process of soliciting andinvestigating complaints of discrimination and anti-competitiveactivities by gathering systems.”

Keating also directed the OCC to use its rulemaking authority tohold hearings and develop rules, including a code of conduct, toregulate gathering activities by Jan. 1, 1999. In addition, heasked the OCC to “identify any legislation required to expand orclarify its authority to promulgate effective rules for gatheringactivities, but not to include gas processing activities,” and saidhe would support introduction of such legislation in the nextsession.

Gas processors and pipelines lauded the governor’s decision.”We’re pleased and are looking forward to working with parties onthe committee level,” said John Dreyer, spokesman for Tulsa-basedGas Processors Association. “The [OCC] would have the expertise inthe oil and gas field to develop rules and regs based on thesituation out there and would be much more able to do so than thelegislature. We’ve always said the OCC already does have more powerand authority than some people would like to believe.”

Under existing law, the OCC does not have the authority to stepin and regulate rates when a dispute arises, which means producerscan be shut in until a dispute is resolved, said Jim Palm,president of the Oklahoma Independent Petroleum Association. Inaddition, any dispute that is resolved cannot be used as aprecedent. Palm said the governor’s decision sends them back to thedrawing board.

It was “a sad day for all Oklahomans, except for a handful ofmillionaire pipeline company executives,” OIPA said, claiming thecurrent “ineffective oversight” of the gathering industry iscosting the Oklahoma treasury $25 million a year in lost grossproduction, income and sales taxes.

Palm said, “The words ‘political cowardice’ come to mind as thisgovernor succumbs to pressure exerted by a handful of major oilcompanies and interstate pipelines.. Obviously, the view from thegovernor’s mansion is that these are the supporters he needs topropel his political career to the next level. It’s abundantlyclear the best interests of Oklahoma got drowned in the tidal waveof Frank Keating’s presidential ambitions.”

Rocco Canonica

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