FERC on Thursday agreed with protesting shippers and soundly rejected a proposal by Gulf South Pipeline Co. LP to abandon nearly 2,000 miles, or about 25%, of its 7,241-mile system, selling pipeline segments and auxiliary facilities in Texas, Louisiana and Mississippi to affiliated non-jurisdictional intrastates.

Gulf South maintained that the lines it seeks to abandon are small-diameter, low-pressure pipeline facilities used mainly for gathering and deliveries to distribution, municipal, and end-use customers. These would be spun off to affiliates Boardwalk Louisiana Intrastate Pipeline Co. LLC, Boardwalk Mississippi Intrastate Pipeline Co. LLC, and Boardwalk Texas Intrastate Pipeline Co. LLC. The company said it would ensure that customers received the same rates from the intrastate shippers for the duration of their firm contracts.

Gulf South claimed that the lines it sought to abandon had suffered decreased use, represented less than 2% of its total system throughput and brought in lower revenues, forcing its mainline customers to subsidize these smaller sections of pipe. Further, it said because of increased competition and changes in gas flows it has been unable to earn its Federal Energy Regulatory Commission-approved return on equity of 12.25%. Instead, its estimated return on equity was 7.9% in 2010, 5.3% in 2011 and 8.33% in 2012.

The company said it sought the abandonments rather than filing a rate case to set higher rates because it has been forced to discount to maintain throughput, and roughly 70% of its customers receive discounted rates (see Daily GPI, Aug. 1). Even if it had higher stated rates, it would still have to offer the discounts.

Abandonment, however, is not an option, FERC said. The lines all still have long-term firm customers paying demand charges, who have protested the change in service. Many of them subscribe to a combined transport and storage service geared to meet the peak and off-peak commercial and residential demand that they would not receive from an intrastate system. Also, while Gulf South says it will ensure rate stability for the length of their contracts, the customers would lose the contract rights to renew firm service. The Commission said it has never approved abandonment where firm customers protested.

"Because the facilities at issue are certificated facilities and Gulf South uses them to provide jurisdictional interstate transportation services, Gulf South has “an obligation, deeply embedded in the law, to continue service” on these certificated facilities. Therefore, to receive abandonment authority, Gulf South must demonstrate, consistent with Commission precedent, that the public interest “will in no way be disserved” by abandonment.

A number of protestors, including CenterPoint Energy and Indicated Shippers, representing producers, have claimed that the proposed abandonment facilities are currently being used, in fact, to provide interstate transmission service, delivering interstate gas supplies to customers throughout Gulf South’s operating region. They assert that the facilities affected by the proposed abandonments are located in the heart of Gulf South’s mainline interstate transmission market area, directly connect with other Gulf South mainline pipeline facilities, and constitute “critical pipeline supply links to interstate gas supplies.”

Centerpoint, which operates local distribution facilities that would be affected, noted that the facilities that Gulf South seeks to abandon have been "functionalized and classified as interstate transmission pipeline facilities for eight decades" and provide "vital links to interstate gas supply resources." The distribution company said if the abandonment were to be approved it would be denied access to supply resources from producing areas located elsewhere on, or off the Gulf South System.

The Commission said none of the mainline shippers who purportedly subsidize transportation on the affected segments have supported the Gulf South proposal.