[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Proposed Rules]
[Pages 63476-63478]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30062]



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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Chapter I

[Docket No. RM96-5-000]


Gas Pipeline Facilities and Services on the Outer Continental 
Shelf--Issues Related to the Commission's Jurisdiction Under the 
Natural Gas Act and the Outer Continental Shelf Lands Act

November 29, 1995.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Proposed rule; notice of inquiry.

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SUMMARY: The Federal Energy Regulatory Commission is initiating an 
inquiry into the Commission's policy respecting the application of its 
jurisdiction under the Natural Gas Act and the Outer Continental Shelf 
Lands Act over natural gas facilities and services on the Outer 
Continental Shelf (OCS). The notice of inquiry is intended to receive 
information respecting the structure and operation of natural gas 
gathering and transportation on the OCS and the effects of the 
Commission's current policy. The notice of inquiry solicits comments on 
the legal and policy issues to be considered, in either maintaining or 
departing from the Commission's present policy, the operational 
considerations pertaining to OCS exploration and development 
activities, and pipeline systems that the Commission should take into 
account in its review of its current policy. The notice of inquiry 
invites all interested persons to participate in the inquiry and to 
submit answers to several specific questions.

DATES: Written comments must be received on or before January 12, 1996; 
an original and 14 copies should be filed.

ADDRESSES: All comments should refer to Docket No. RM96-5-000 and 
should be addressed to: Office of the Secretary, Federal Energy 
Regulatory Commission, 888 First Street, N.E., Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT:
Robert Wolfe, Office of the General Counsel, 888 First Street, NE., 
Washington, DC 20426, (202) 208-2098.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    The Federal Energy Regulatory Commission is initiating an inquiry 
into the Commission's policy respecting the application of its 
jurisdiction under the Natural Gas Act (NGA) and the Outer Continental 
Shelf Lands Act (OCSLA) over natural gas facilities and services on the 
Outer Continental Shelf (OCS).
    The Commission is initiating this Notice of Inquiry (NOI) to 
examine the structure and operation of natural gas gathering and 
transportation on the OCS and the effects of the Commission's current 
policy. The NOI will also seek information on the legal and policy 
issues to be considered, in either maintaining or departing from the 
Commission's present policy, the operational considerations pertaining 
to OCS exploration and development activities, and pipeline systems 
that the Commission should take into account in its review of its 
current policy.

II. Background

    The Commission's current policy respecting the jurisdictional 
status of gas pipelines and services on the OCS presents a number of 
issues concerning the status, scope, and effects of the Commission's 
regulation of gathering and transportation on the OCS. The Commission 
has determined that it should undertake a review of these issues.
    Increases in successful offshore exploration and development 
activities, particularly in the Gulf of Mexico, have heightened the 
significance of these jurisdictional issues. Recently, several 
companies have either filed requests for, or have indicated their 
intent to request, exempt gathering status for offshore pipeline 
systems that each is eager to construct to bring gas onshore from 
significant newly developed deep water reserves in the Gulf. There are 
also pending requests for declaratory orders concerning existing 
certificated offshore systems.
    There are 18 existing interstate pipelines on the Outer Continental 
Shelf (OCS) in the Gulf of Mexico that are presently subject to the 
Commission's regulation under the NGA. There are also numerous 
facilities that are not under NGA jurisdiction. These are principally 
producer-owned facilities. It is noteworthy that an estimated 27% of 
the lower 48 State's total dry gas production comes from the Gulf of 
Mexico OCS.\1\

    \1\ See, Natural Gas Production for the Lower 48 States 1982 
through 1993, Energy Information Agency, March 1993.
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    The various OCS pipeline system proposals and Sea Robin Pipeline 
Company's request for rehearing of the Commission's June 16, 1995 order 
in Docket No. CP95-168-000 \2\ have prompted reexamination of the 

[[Page 63477]]
Commission's approach to regulating OCS facilities. Given the 
continuing importance of the OCS as a source of natural gas, a 
principal aim of the Commission is to develop regulatory policies that 
do not impede or distort developmental activities on the OCS.

    \2\ 71 FERC para. 61,351 (1995).
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III. The Statutory Framework

A. The Natural Gas Act (NGA)

    The basic purpose of Congress in enacting the NGA was to ``occupy 
the field'' \3\ of the regulation of natural gas moving in interstate 
commerce by the primary grant of jurisdiction to the Commission over 
those aspects of such regulation over which the states may not act.\4\ 
To that end, Congress meant to create a comprehensive regulatory scheme 
of dual state and federal authority.\5\ Section 1(b) of the NGA 
embodies the primary grant of jurisdiction to the Commission. At the 
same time, section 1(b) exempts from the Act's coverage ``the 
production or gathering of natural gas.'' Thus, section 1(b) first 
grants to the Commission broad plenary authority to regulate the 
business of transporting and of wholesaling natural gas moving in 
interstate commerce. Secondly, section 1(b), by operation of the 
``production and gathering'' exemption, removes from that plenary grant 
of federal jurisdiction those aspects of natural gas regulation which 
are the proper subject of state regulation.\6\

    \3\ See Schneidwind v. ANR Pipeline Co., 485 U.S. 293, 310-311 
(1988).
    \4\ Interstate Natural Gas Co. v. FPC, 331 U.S. 682 (1947).
    \5\ FPC v. Louisiana Power & Light Co., 406 U.S. 621 (1972).
    \6\ See, e.g., Phillips Petroleum Co. v. Wisconsin, 347 U.S. 
672, 682-84 (1954); Interstate Natural Gas Co. v. FPC, supra at 690.
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B. The Outer Continental Shelf Lands Act (OCSLA)

    Additional sources of regulatory authority over OCS pipeline 
facilities and activities are sections 5(e), and 5(f)(1), of the 
OCSLA.\7\ Generally, sections 5(e) and 5(f)(1) of the OCSLA give the 
Commission certain responsibilities and authorizations to ensure that 
natural gas pipelines on the OCS transport for non-owner shippers in a 
nondiscriminatory manner and operate in accordance with certain 
competitive principles.

    \7\ 43 U.S.C. Sec. 1334(e), (f)(1).
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    Section 5(e) of the OCSLA requires pipelines to transport natural 
gas produced from the OCS ``without discrimination'' and in such 
``proportionate amounts'' as the Commission, in consultation with the 
Secretary of Energy, determines to be reasonable. In addition, section 
5(f)(1) of the OCSLA requires pipelines transporting gas on or across 
the OCS to adhere to certain ``competitive principles''. These 
``competitive principles'' include a requirement that the pipeline must 
provide ``open and nondiscriminatory access to both owner and nonowner 
shippers.''
    The applicability of the provisions of sections 5(e) and 5(f)(1) is 
not restricted to interstate pipelines that are subject to the 
Commission's NGA jurisdiction. The only pipelines that may be exempt 
from the Commission's authority under the OCSLA are certain ``feeder 
lines,'' which are defined in section 5(f)(2) of the OCSLA \8\ as a 
pipeline that feeds into a facility where oil and gas are ``first 
collected'' or a facility where oil and gas are ``first separated, 
dehydrated, or otherwise processed.'' These ``feeder lines'' may only 
be exempted from the requirements of the OCSLA by order of the 
Commission.

    \8\ 43 U.S.C. Sec. 1334(f)(2).
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IV. The Commission's Current Policy

    In 1989, in response to the court's decision in EP Operating v. 
FERC (EP Operating),\9\ which reversed a Commission determination that 
a 51-mile long, 16-inch diameter OCS pipeline was a jurisdictional 
transportation facility, the Commission set upon a review of its 
``gathering policy.'' The purpose of that review was to assess the 
impact of EP Operating as well as the continuing viability and 
relevance of the ``primary function'' test, which at that time was the 
Commission's preferred methodology for determining the jurisdictional 
status of gas pipeline facilities.\10\ That review culminated in the 
Commission's articulation and application of the ``modified primary 
function'' test in Amerada Hess, et. al. (Amerada Hess).\11\

    \9\ 876 F. 2d 46 (Fifth Cir. 1989).
    \10\ The ``primary function'' test was articulated in Farmland 
Industries, Inc. (Farmland), 23 FERC para. 61,063 (1983). In 
Farmland the Commission enumerated several physical and geographic 
criteria to be included in the analysis for determining whether the 
``primary function'' of a facility is the transportation or the 
gathering of natural gas. These factors are: (1) the length and 
diameter of the line, (2) the extension of the facility beyond the 
central point in the field, (3) the line's geographic configuration, 
(4) the location of compressors and processing plants, (5) the 
location of wells along all or part of the facility, and (6) the 
operating pressure of the line. The ``primary function'' test has 
been found by the Commission to be applicable to both onshore and 
offshore facilities. The criteria set out in Farmland were not 
intended to be all inclusive. The Commission has also considered 
nonphysical criteria such as the intended purpose, location, and 
operation of the facility, the general business activity of the 
owner of the facility, and whether the jurisdictional determination 
is consistent with the objectives of the NGA and the Natural Gas 
Policy Act of 1978 (NGPA).
    \11\ 52 FERC para. 61,268 (1990).
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    As set out in Amerada Hess, the ``modified primary function'' test 
consists of the continued application of the ``primary function'' test, 
with a modification in its application in accord with EP. Specifically, 
when applying the Farmland criteria, the Commission stated that it 
would consider, especially for offshore facilities, the changing 
technical and geographic nature of exploration and production. The 
order explained that because of recent advances in engineering and 
available technology, offshore drilling operations were moving further 
offshore and further from existing interstate pipeline 
interconnections. Accordingly, the order explained that a relatively 
long pipeline on the OCS may be consistent with a primary function of 
gathering or production whereas an onshore pipeline of similar length 
would not. Therefore, in applying the ``modified primary function'' 
test to OCS pipeline facilities the Commission stated that it would 
apply, in effect, a sliding scale that would allow for the use of 
gathering pipelines of increasing lengths and diameters in correlation 
to the distance from shore and the water depth of the offshore 
production area.

V. Specific Questions for Response by All Commenters

    The Commission has compiled a list of questions, set forth below, 
that will be helpful in assessing the Commission's current policy and 
possible policy alternatives. This list is not meant to be all 
inclusive. Parties to this proceeding are invited to present 
alternative solutions not specifically referenced in this notice.
    A. General.
    1. It is necessary or appropriate to continue distinguishing 
between gathering and transportation on the OCS, or would it be better 
either to declare that under the NGA all such facilities are exempt 
gathering facilities or to declare that under the NGA all such 
facilities are jurisdictional transportation facilities?
    2. Does the Commission need to continue to regulate offshore 
transportation under the NGA, or is reliance on the OCSLA sufficient to 
protect the public interest?
    3. Is there a ``regulatory gap'' pertaining to rates or any other 
matter respecting gas pipeline facilities or services on the OCS?
    4. What is the extent of the Commission's authority under the 

[[Page 63478]]
    OCSLA respecting rates for gas pipeline services?
    5. Does the OCSLA provide sufficient remedial authority for the 
Commission to ensure nondiscriminatory access by prohibiting 
discriminatory or excessive rates?
    6. Does the OCSLA provide the Commission with sufficient authority 
to protect the interests of historical customers of existing offshore 
interstate pipelines if these pipelines were declared to be gathering 
facilities?
    7. Is it feasible, as a matter of law and policy, to adopt a light-
handed regulatory approach that relies on complaints about 
discriminatory access or rates?
    8. If such an approach is adopted, is there a need to distinguish 
between new and existing pipelines to determine how much regulation is 
necessary? What would be the legal and policy basis for any such 
distinction?
    9. What are the implications of a change in OCS gathering policy on 
existing OCS interstate pipelines that may wish to retain their 
jurisdictional status or on existing, interstate pipeline-owned, OCS 
transmission facilities that wish to retain a transmission 
classification for those facilities?
    10. How much, if any, OCS gas is processed at locations other than 
onshore or in shallow waters?
    B. Should the Commission issue a rule under the NGA declaring all 
pipeline facilities on the OCS to be nonjurisdicational gathering 
facilities and simultaneously issue a rule under the OCSLA imposing 
terms and conditions on OCS facilities to protect existing shippers on 
existing OCS interstate pipelines or on existing OCS transmission 
facilities?
    1. What would be the practical effect of these rules?
    2. Does the Commission have sufficient authority under the OCSLA to 
prohibit, eliminate or alter rates that are clearly discriminatory or 
rates that are so high that they would have the effect of denying 
access to shippers?
    3. What would be the impact of the Commission's ceasing to regulate 
any offshore pipeline rates under the ``just and reasonable'' standard 
of sections 4 and 5 of the NGA?
    4. Is here a legal basis under the OCSLA for the Commission to 
regulate generally the level of rates for services performed by OCS 
pipelines?
    5. What conditions could the Commission require under the NGA and/
or the OCSLA to protect historical customers of currently regulated OCS 
pipelines if their facilities are declared to be exempt gathering 
facilities?
    6. Under this option, should the Commission consider allowing all 
rate regulation to end at any point that a pipeline and a (non-
affiliated) shipper agree? (This option would be similar to recent 
proposals for ``recourse rates''.\12\)

    \12\ Under ``recourse rates'', pipelines would be free to offer 
negotiated rates. Customers could choose either negotiated rates or 
they could choose the pipeline's on-file, cost-of-service rates.
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    C. Should the Commission issue a rule under the NGA declaring all 
pipeline facilities on the OCS to be jurisdictional transportation 
facilities, but only regulate transportation rates for historical 
customers on existing interstate pipelines and for non-owner shippers 
on new facilities?
    1. What would be the practical effect of such a rule?
    2. Does a ``regulatory gap'' exist on the OCS that would support 
the issuance of such a rule?
    3. What legal support is there for the Commission's regulating only 
those pipelines that transport non-owner shipper gas?
    4. Is there any need to regulate the rates charged new customers 
that have not relied upon or have no expectation of NGA regulation?
    5. Would the provisions of the OSCLA provide sufficient protection 
from undue discrimination to both historical and new customers of OCS 
pipelines?
    6. Under this option, should the Commission consider allowing all 
rate regulation to end at any point that a pipeline and a (non-
affiliated) shipper agree? (This option would be similar to recent 
proposals for ``recourse rates''.\13\)

    \13\ See n. 13 supra.
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    D. Should the Commission continue the application of the ``modified 
primary function'' test on a case-by-case basis? What would be the 
effects of this approach?

VI. Procedure for Comments

    The Commission invites interested persons to submit comments, data, 
views, and other information concerning the matters set out in this 
notice.
    To facilitate the Commission's review of the comments, commenters 
are requested to provide an executive summary of their position on the 
issues raised in the NOI. Commenters are requested to identify the 
specific question posed by the NOI that their discussion addresses and 
to use appropriate headings. Additionally, commenters should double 
space their comments.
    The original and 14 copies of such comments must be received by the 
Commission before 5:00 p.m., Friday, January 12, 1996. Comments should 
be submitted to the Office of the Secretary, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington DC 20426 and should refer 
to Docket No. RM96-5-000.
    In addition, commenters are asked to submit their written comments 
and executive summaries on a 3 1/2-inch diskette formatted for MS-DOS 
based computers. In light of our ability to translate MS-DOS based 
materials, the text need only be submitted in the format and version 
that it was generated (i.e. MS WORD, WordPerfect, ASC III, etc.) For 
Macintosh users, it would be helpful to save the documents in word 
processor format and then write them to files on a diskette formatted 
for MS-DOS machines.

    By direction of the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 95-30062 Filed 12-8-95; 8:45 am]
BILLING CODE 6717-01-M