Oklahoma Governor Shoots Down Gathering Bill

Gas gatherers and processors won a major victory when Oklahoma Gov. Frank Keating vetoed Senate Bill 319 June 19. The legislation would have given the Oklahoma Corporation Commission (OCC) broad authority to regulate rates, terms and conditions of gathering and processing contracts and to settle disputes between gatherers and producers.

It essentially would have enabled the OCC to fill FERC's shoes, making Oklahoma one of the only states to step in and regulate gathering since FERC gave up jurisdiction in 1993 and left default gathering contracts in place for two years. Many of those default contracts expired last year. Since that time, Oklahoma producers claim gathering rates have risen significantly - more than 300% in some cases.

But Keating said the bill contained "many undefined and vague terms" which could "encourage complaints rather than assist in maintaining an orderly, efficient marketplace." The legislation, he said, "extends overly broad, statutory regulation of gas gathering facilities into the competitive marketplace during a period of deregulation. [It] initiates, for the first time, regulation of gas processing activities. [It] was not heard in committee and lacked adequate public debate and input."

Keating said, however, he is "convinced that a problem does exist and that there have been overreaching and discriminatory acts on the part of some pipeline companies." As a small concession to producers, he issued an executive order directing the OCC to issue a notice of inquiry and "begin the process of soliciting and investigating complaints of discrimination and anti-competitive activities by gathering systems."

Keating also directed the OCC to use its rulemaking authority to hold hearings and develop rules, including a code of conduct, to regulate gathering activities by Jan. 1, 1999. In addition, he asked the OCC to "identify any legislation required to expand or clarify its authority to promulgate effective rules for gathering activities, but not to include gas processing activities," and said he would support introduction of such legislation in the next session.

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

Under existing law, the OCC does not have the authority to step in and regulate rates when a dispute arises, which means producers can be shut in until a dispute is resolved, said Jim Palm, president of the Oklahoma Independent Petroleum Association. In addition, any dispute that is resolved cannot be used as a precedent. Palm said the governor's decision sends them back to the drawing board.

It was "a sad day for all Oklahomans, except for a handful of millionaire pipeline company executives," OIPA said, claiming the current "ineffective oversight" of the gathering industry is costing the Oklahoma treasury $25 million a year in lost gross production, income and sales taxes.

Palm said, "The words 'political cowardice' come to mind as this governor succumbs to pressure exerted by a handful of major oil companies and interstate pipelines.. Obviously, the view from the governor's mansion is that these are the supporters he needs to propel his political career to the next level. It's abundantly clear the best interests of Oklahoma got drowned in the tidal wave of Frank Keating's presidential ambitions."

Rocco Canonica

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