A very divided FERC last week proposed a rulemaking that seeksto create a uniform, complaint-driven system for regulating nearlyall offshore gas pipelines based on its authority under thelighter-handed Outer Continental Shelf Lands Act (OCSLA).

In a 3-2 vote, with Commissioners Vicky Bailey and Curt Hebertdissenting, the Commission proposed replacing its currentregulatory regime on the Outer Continental Shelf (OCS), which givesit jurisdiction solely over gas transmission facilities, withlighter-handed regulation of virtually all offshore gas pipelinesin federal waters [RM99-5].

The notice of proposed rulemaking (NOPR) calls for uniformreporting requirements to be imposed on OCS gas pipelines toprotect offshore shippers against potential discriminatorybehavior. Pipelines that currently are subject to FERC’s NaturalGas Act (NGA) jurisdiction already would meet the proposed filingrequirements. In fact, jurisdictional pipes are likely to get abreak under the NOPR. The requirements “are significantly lessburdensome than what is currently required under the NGA,” saidCommissioner Linda Breathitt. The brunt of the NOPR’s impact wouldbe felt by offshore gas pipelines that enjoy non-jurisdictionalstatus now. The NOPR is the result of a FERC inquiry into OCSpolicy that began more than a year ago.

In a related case, the Commission – in an equally divideddecision – took its cue from the Fifth Circuit Court of Appeals andsplit the baby on Sea Robin Pipeline, ruling that half of thepipeline’s offshore facilities are gathering and half aretransportation. Specifically, it said Sea Robin’s facilitiesupstream of the Vermillion 149 platform are gathering, while itspipeline facilities (a 66-mile, 36-inch line) downstream of theplatform are transmission in nature [CP95-168-002].

The court “frankly [was] pretty blunt about saying that theVermillion Compressor Station is a reasonable demarcation in this[case] given all the factors in our primary function test, and weagree,” said Chairman James J. Hoecker.

In 1995, the Commission had classified Sea Robin’s offshorefacilities as jurisdictional transportation, but the Fifth Circuitkicked back the decision and suggested FERC consider the halfgathering-half transportation approach. It also recommended FERCconsider reformulating the primary function test used to determinewhether offshore facilities are jurisdictional transportation orexempt gathering. The Commission majority contends it did just thatlast week, concluding that the “totality of the circumstances” onSea Robin revealed that its offshore facilities performed twofunctions.

But Commissioner Hebert countered that “a closer inspectionreveals the proposed reformulation gives certain weight to variousfactors, such as central-point-in-the-field, thereby presenting yetanother jurisdictional test for this arena.”

With respect to the NOPR, the Commission is “looking for aregulatory regime that works well for everyone, that promotescompetition…..without the primary function test being sodeterminative of how and who we regulate, without perhaps some ofthe burdens of NGA-type regulation…..,” Hoecker said.

OCS pipelines presently are subject to the NGA and OCSLA, whichhe described as “overlapping and contradictory forms ofregulation.” Despite the divisiveness at the Commission on how toregulate the offshore, “what we would, I think, all like…..ismore competitive and regulatory uniformity on the OCS for allpipelines,” Hoecker said.

The NOPR would bring a greater number of offshore pipelinesunder FERC’s jurisdictional wing. And while some might characterizethis as an attempt by the Commission to extend its jurisdictionalreach in the OCS, “I would have to say that’s only half [of] thestory. The other half is…..our intent is to regulate withrelatively minimal intrusion,” Breathitt said. She notedNGA-regulated pipelines already satisfy the filing requirementsproposed in the NOPR, and a number of other offshore pipelineswould be exempt from them (i.e. a producer-owned pipeline thattransports gas for itself or an affiliate).

“It’s not our purpose in issuing this NOPR to develop anotherlayer of regulations for pipelines that are already regulated underthe Natural Gas Act…..,” said Commissioner Massey. If anything,he believes the proposed reporting requirements in the NOPR wouldbenefit pipelines that currently are regulated under the NGA.”We’ve heard complaints from NGA-regulated pipelines that they faceunfair competition from non-jurisdictional pipelines in the OCS.This proposal will provide the Commission with the informationnecessary to ensure that any difference in regulatory status underthe NGA or OCSLA does not thwart competition.”

The NOPR would require an OCS pipe to submit information to FERCpertaining to its ownership and corporate affiliations, adescription and map of facilities (including location, length andsize of pipe), conditions of service, statement of operatingconditions, the rates it charges, and how the rates are derived.The information would be on file at the Commission for offshoreshippers to inspect to determine if they are being discriminatedagainst by pipelines.

In his dissent, Hebert said he wasn’t “comfortable” with theNOPR. “Yes, the regulatory scheme would be light-handed” forNGA-regulated pipelines, “but when compared to no regulation [whichnon-jurisdictional pipes have enjoyed], it can only seem…..quiteheavy handed.”

Bailey, who would declare the entire OCS jurisdictional if shehad her way, was steadfastly opposed to the NOPR. “Ibelieve…..that the proposal is not necessary. And I am concernedthat it raises new OCS issues without resolving already difficultones presented to us,” she said.

“I would prefer to continue the current practice of relying onthe anti-discrimination provisions of the OCSLA if and whencomplaints are filed…..I do not find any compelling evidence thatwe need to expand our OCSLA regulatory regime by promulgating theserules.” If FERC’s existing OCSLA authority is inadequate to addressa discriminatory rate complaint, Bailey believes “a legislativesolution would be a [more] viable option.”

With respect to the Sea Robin case, Bailey said she would havegranted the pipeline’s petition to have its offshore facilitiesdeclared non-jurisdictional gathering. “I remain convinced that themovement of gas across the OCS is often a collection process”rather than transportation.

Susan Parker

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