US FERC erred in asserting jurisdiction over gas gatherer: court

Washington (Platts)--13Jul2004

The US Federal Energy Regulatory Commission exceeded its authority in a 2002
order asserting jurisdiction over a Transcontinental Gas Pipe Line's
gas-gathering affiliate in the US Gulf of Mexico, the US Court of Appeals for
the District of Columbia Circuit said Tuesday. The court remanded the order to
the agency, saying that in asserting jurisdiction over the gathering
affiliate, FERC violated the Natural Gas Act, which explicitly exempts
gathering firms from its oversight. FERC, however, has claimed that in
instances where a gathering affiliate is "leveraging" its relationship with
the pipeline company to enhance market power, it can legitimately claim
jurisdiction. Transco in 2001 received FERC approval to "spin down" its
gathering facilities in the US Gulf of Mexico, offshore North Padre Island,
Texas, to its Williams Gas Processing-Gulf Coast (WGP) affiliate. The assets
included lines on the island that are used to gather and move offshore gas to
a 24-inch-diameter feeder owned by Transco.

After the spin down was approved, WGP informed producer Shell Offshore that it
would increase the gathering and transportation charge to 20 cts/Dt from the 8
cts/Dt it charged before the spin down. Shell filed a complaint with FERC,
alleging Transco and WGP illegally were leveraging their dominance in the
North Padre Island gathering and transportation markets in an effort to force
Shell to pay unjust and unreasonable rates. FERC agreed, ruling that because
Transco and WGP's actions were "conducted on a concerted basis, the actions of
[WGP] can be attributed to Transco, and vice versa, as if the facilities were
still part of the Transco system." FERC reasserted NGA jurisdiction over WGP's
gathering system and established a gathering and transportation rate of 1.69
cts/Dt.

Transco and WGP appealed the order, arguing FERC had no authority under NGA to
regulate the affiliate. The court agreed, saying FERC violated its earlier
test for asserting jurisdiction over an affiliated gas gathering, namely
whether there was concerted action between the pipeline and affiliate and
whether the activities of the two were conducted in a manner that frustrates
FERC's ability to regulate the jurisdictional pipeline. Shell's complaint that
WGP was charging an "exorbitant gathering rate," the court said, had nothing
to do with the fact that it was a Transco affiliate. It was able to do so, the
court added, because it was a "recently deregulated monopolist" and could have
taken these actions regardless of who owned it. The court also rejected FERC's
claim that it could regulate WGP under provisions of the Outer Continental
Shelf Lands Act that require open access to gas transmission facilities,
finding that the commission "has no general power" to enforce the act's
open-access provisions.

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