Both independent and major producers fear that FERC’s proposedrulemaking on the Outer Continental Shelf (OCS), which seeks toextend regulation to virtually all offshore gas pipelines under thelighter handed Outer Continental Shelf Lands Act (OCSLA), is thefirst step in a Commission plan to eventually abandon its NaturalGas Act regulation in the offshore.
The combination of the July 30th notice of proposed rulemakingaddressing regulation of the OCS and FERC’s remand decision on SeaRobin Pipeline “portends” that the Commission is headed in thisdirection, the Independent Petroleum Association of America (IPAA)warned in its Aug. 27th comments on the NOPR [RM99-5].
The NOPR proposes to extend regulation to nearly all pipelinesin the OCS – both existing jurisdictional lines and producer-ownedfacilities – based on the Commission’s authority under the OCSLA.Using its OCSLA authority, this is the first time that FERC isproposing to regulate producer-owned pipelines in the offshore.Offshore jurisdictional facilities owned by pipeline companiesheretofore have been regulated under the NGA.
Judging from the industry comments on the NOPR, parties areunsure of how the NOPR will affect FERC’s NGA regulation in theOCS. Producers fear FERC is proposing to replace its NGA regulationof jurisdictional pipelines with a light-handed, OCSLA-basedregulatory regime, while interstate pipelines suspect that it isseeking a more burdensome dual NGA-OCSLA regulation. (see NGI Aug.30) The proposed rulemaking would subject mostly all OCS pipelinesto uniform reporting requirements to protect offshore shippersagainst potentially discriminatory behavior.
If FERC’s objective in the NOPR is to eliminate NGA regulationof offshore pipeline facilities entirely (or substantially as inSea Robin) in favor of a reporting regime under the OCSLA,independent producers said they would strongly disapprove. “Such amove is unlawful and ill-advised.” However, if the Commission’sintent is to achieve greater transparency of market informationfrom OCS pipelines by imposing reporting requirements under theOCSLA, the independents said they would favor such a move.
Although FERC indicated in the NOPR that it is moving towardlight-handed regulation of OCS facilities, the Commission “cannotand must not abdicate its duty under the NGA to curb and controlthe monopoly power of interstate pipelines on the OCS,”independents said. They urged FERC to clarify in a final rule thatcurrently jurisdictional OCS facilities would continue to besubject to the Commission’s NGA authority.
While independents gave FERC the benefit of the doubt withrespect to its intention in the NOPR, the larger gas producers wereopposed to any attempt by the Commission to extend its authority inthe OCS to include production and production-related facilities,which heretofore have been free of any kind of regulation.
“…[T]here is no evidence, much less substantial evidence, thatthere is a problem at all and, in particular, a problem ofsufficient magnitude as to require an entirely new regulatoryscheme imposed on previously unregulated companies and activities,”a group of OCS Producers told FERC. Specifically, it noted therewas “no evidence of abuse” to justify subjecting them to theproposed reporting requirements. The group urged the Commission tocontinue with the status quo in the OCS, regulatingNGA-jurisdictional pipelines and exempting production facilities.
Like the independents, the OCS Producers conceded they werebaffled by the Commission’s intent in the NOPR – specifically, thestatement that the proposed rule was a “key step to developing auniformly-applied, light-handed regulatory standard” to all OCS gasservice providers. “…[O]ne interpretation is that the FERCintends to relax its NGA regulation applicable to offshoreinterstate pipelines and/or declare such pipelines, or segmentsthereof, to be non-jurisdictional gathering.”
The OCS Producers said they “vehemently oppose[d] any erosion”of FERC’s NGA regulation of OCS jurisdictional pipelines. Theynoted that FERC couldn’t authorize light-handed regulation for anNGA jurisdictional pipeline, in the form of market-based rates,without a showing that the pipeline first lacked market power.
The Producer Coalition, an ad hoc group of independentsoperating in the OCS, seemed to be the only one not threatened byFERC’s proposed rule exerting its OCSLA authority. They called theOCSLA an “apt tool” for “instilling greater regulatoryaccountability and market transparency” in the growing OCStransportation market. Nor were they especially concerned that itwould lead to a corrosion of FERC’s NGA authority in the offshore.In fact, the coalition recognized that “the development andimplementation of an effective scheme of regulation under the OCSLAmay, at a future date, provide a basis for lighter handedregulation of jurisdictional OCS pipelines under the NGA.”
In their comments, OCS Producers also took issue with the scopeof the reporting requirements that would be imposed by the NOPR.The Commission “has gone too far in mandating a generic, ‘scattergun’ approach” to reporting…”
OCS Producers called on FERC to convene an informal technicalconference to listen to some of the “potential complexities andburdens” associated with the proposed reporting rule from engineersand corporate executives who would have to deal with it.
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