Claiming that Equitrans is holding eastern Kentucky producers hostage to its pipeline system, the state’s attorney general has asked FERC to condition any certificate approving the company’s Big Sandy Pipeline project on Kentucky producers being granted open-access taps to take their gas off an affiliated gathering system for transportation on pipelines other than Equitrans.
While reviewing the proposed Big Sandy project, Kentucky Attorney General Gregory D. Stumbo said a red flag rose regarding the relationship between Equitrans, the interstate pipeline subsidiary of Equitable Resources in Pittsburgh, PA, and its nonjurisdictional gathering affiliate Kentucky West Virginia Gas Co. Kentucky West, a former interstate pipeline, is the sole gatherer in many areas of eastern Kentucky.
Stumbo told FERC that he was “concerned specifically” that Equitrans controlled Kentucky West and operated it as a “subservient, nonregulated division” of the pipeline company. “This concern was brought about by the fact that Equitrans, speaking for Kentucky West, had repeatedly denied requests by independent Kentucky natural gas producers for [discharge] taps on the Kentucky West system …[to] take their gas out of Kentucky West’s pipelines prior to that gas entering Equitrans’ proposed Big Sandy Pipeline, or the gas processing and compression facilities which will serve the Big Sandy pipeline,” he said in a FERC filing [CP06-275].
The Big Sandy project calls for the construction of a 60-mile, 20-inch diameter pipeline that would extend from the existing Kentucky Hydrocarbon plant in Langley, KY, to Tennessee Gas Pipeline’s Broad Run Lateral in Carter County. The project is one of two that have been proposed to ease the transportation constraints in eastern Kentucky, which have forced producers to shut in their gas. Equitrans officials said they expect FERC to approve their Big Sandy project later this month (see Daily GPI, Aug. 25).
“[Equitrans’] denial of the requested taps on the Kentucky West system has the effect of holding independent producers hostage to Equitrans/Big Sandy/Kentucky West. As the situation exists today, once producers’ gas enters the Kentucky West gathering system, those producers are foreclosed from taking delivery of their gas off Kentucky West in order to market that gas into alternative pipelines,” Stumbo said.
“It is clearly the intention of Equitrans to continue holding this gas hostage (even though much of its is currently not flowing due to pipeline constraints on Kentucky West and pipelines connected to Kentucky West) until the Big Sandy project is completed. Once Big Sandy is completed, this gas will be forced to flow into that pipeline, and nowhere else,” he noted.
Equitrans contends that the Federal Energy Regulatory Commission cannot grant the relief requested — open-access taps on the Kentucky West system — because Kentucky West is nonjurisdictional and outside the reach of FERC. But Stumbo disagrees.
“When a pipeline and its gathering affiliate act in concert for anticompetitive purposes that frustrate the Commission’s regulations — such as to tie the use of the Kentucky West gathering system to the use of the Equitrans’ Big Sandy project — the Commission may disregard the corporate structure and exercise jurisdiction over the otherwise nonjurisdictional gatherer,” he said. “The Commission does have the legal authority to treat Kentucky West as an indistinguishable part of Equitrans.”
Or in the alternative, Stumbo said FERC could reassert jurisdiction over Kentucky West itself, making it once again a jurisdictional, open-access pipeline.
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