In an unusual move Wednesday, the Federal Energy Regulatory Commission, without any prodding from the courts, vacated an order that authorized Transcontinental Gas Pipe Line to spin off its 400-mile South Texas mainline and lateral facilities to an unaffiliated Texas intrastate pipeline, Enbridge Pipelines LP.

On rehearing, “we concluded that the record does not support a finding that Transco’s proposed abandonment [of the South Texas facilities] is permitted by the public convenience and necessity,” the agency order said [CP02-141-001]. “Enbridge’s acquisition of the subject facilities would prevent Transco from honoring its long-term contractual arrangements [to provide] interstate services,” it noted. The order also indicated FERC was not convinced that Enbridge would provide continuity of service to Transco’s current customers that are served by the South Texas facilities.

“In sum, the record does not support a finding that the potential detrimental impacts on Transco’s existing firm transportation customers are outweighed by the possible benefits to Transco and Enbridge.”

The Commission’s decision to reverse its Jan. 29 order, which gave Transco the go-ahead to sell the South Texas pipeline, came in response to a rehearing plea by six major producers, who claimed that the FERC-approved sale would bifurcate Transco’s pipeline system into jurisdictional and non-jurisdictional segments and force shippers to deal with a patchwork of rates, schedules and nominations.

The producers, all of which are shippers on Transco’s South Texas facilities, include ExxonMobil Corp., Shell Offshore Inc., Texaco Exploration and Production Inc., Chevron U.S.A. Inc., American Production Co. and BP Energy Co.

FERC did not say what caused the radical shift in its view of Transco’s proposed sale over the past three months.

In the January order, FERC justified its approval of the sale by saying the South Texas system had been significantly underutilized for years, had been a drain on the pipeline’s finances, and would be better used in the Texas intrastate market by Enbridge. However in the latest order, the agency said, “while the subject facilities are underutilized, they still transport significant volumes of interstate gas.” As of last November, Transco estimated that 195 MMcf/d flowed through its South Texas pipelines.

“In other cases the Commission has authorized interstate pipelines to abandon certificated pipeline facilities by transfer to intrastate entities,” the order said, but it noted “either no gas was flowing through the subject facilities or only small volumes of gas were being transported in interstate commerce.” Moreover, “in those cases there were no protests by shippers with contracts for firm transportation service on the facilities.”

In the Transco case, “we find that Transco has failed to support its contention that the facilities are underutilized to the extent that they are not essential to the provision of its open-access interstate transportation service,” the order said.

Transco had sought to spin off 258 miles of 10- to 26-inch diameter mainline facilities originating in Hidalgo and Cameron Counties, TX, which receive natural gas from offshore and onshore gathering lines and transport it to Transco’s Station 30 in Wharton County, TX; a 139-mile, 24-inch diameter lateral starting in McMullen County, TX, that ships gas to Station 30; four other interconnected laterals that range from 3.4 to 23 miles in length and 6 to 20 inches in diameter; and an 8,800 horsepower compressor station.

After the spin-off, Transco would have retained the portion of its system from the Gulf of Mexico to onshore Texas, and all facilities downstream of Station 30 through Georgia to New York. In effect, the Transco pipeline system would have been severed into three segments — two of which would have been FERC jurisdictional and one subject to state oversight.

If the facilities were abandoned to Enbridge, existing shippers on Transco’s South Texas system “would be paying more to move their gas the same distance,” the order noted. They would continue to pay an IT Feeder rate to Transco for transportation service using the North Padre Island lateral, as well as a rate to Enbridge for service through the South Texas pipeline to Station 30, it said.

In vacating the January order, “we have also taken into account the speculative nature of the representations that Enbridge would integrate the South Texas pipeline facilities with its existing facilities and use them for intrastate service, in a manner materially different from how they currently operate,” the FERC order said.

“First, it is unclear how the facilities would be integrated with Enbridge’s existing facilities, since Enbridge has an assortment of non-contiguous intrastate facilities. Further, Enbridge has indicated that its intention to physically integrate the South Texas pipeline facilities is contingent on how intrastate markets develop. There is no evidence that such markets are likely to develop, however, and if they do not develop to warrant the necessary construction by Enbridge to achieve physical integration, it appears that the facilities would continue to perform only interstate service.”

This was in stark contrast to the Commission’s comments in the January order. The agency then said that the interweaving of interstate and intrastate pipelines was common near the Gulf of Mexico. Thus, it noted “Enbridge’s integration of the South Texas pipeline facilities into its existing intrastate system would be neither unique nor impede our jurisdictional oversight.”

FERC at the time also said Enbridge had “satisfactorily demonstrated its willingness and ability to provide comparable unbundled open-access…transportation service to shippers and producers” on the South Texas system.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.