[Federal Register Volume 63, Number 108 (Friday, June 5, 1998)]
[Proposed Rules]
[Pages 30675-30678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14964]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Ch. I
[Docket No. RM98-8-000]
Alternative Methods for Regulating Natural Gas Pipeline
Facilities and Services on the Outer Continental Shelf; June 1, 1998
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Notice of inquiry.
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SUMMARY: The Federal Energy Regulatory Commission is initiating an
inquiry into alternatives to the Commission's recent methods of
exercising its jurisdiction over natural gas pipeline facilities and
services on the Outer Continental Shelf.
The goal of the notice of inquiry is to generate public comment
that will assist the Commission in exploring possible alternatives to
the application of the existing ``primary function'' test to offshore
pipeline facilities--as well as possible complimentary and/or
alternative modes of regulation under the Outer Continental Shelf Lands
Act.
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 July 16, 1998; an
original and 14 copies should be filed.
ADDRESSES: All comments should refer to Docket No. RM98-8-000 and
should be addressed to: Office of the Secretary, Federal Energy
Regulatory Commission, 888 First Street, NE, Washington, DC 20426.
FOR FURTHER INFORMATION CONTACT: Robert Wolfe, Office of the General
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE,
Washington, DC 20426, (202) 208-2098.
SUPPLEMENTARY INFORMATION: In addition to publishing the full text of
this document in the Federal Register, the Commission also provides all
interested persons an opportunity to inspect or copy the contents of
this document during normal business hours in the Public Reference Room
at 888 First Street, NE, Room 2A, Washington, DC 20426.
The Commission Issuance Posting System (CIPS) provides access to
the texts of formal documents issued by the Commission. CIPS can be
accessed via Internet through FERC's Homepage (http://www.ferc.fed.us)
using the CIPS Link or the Energy Information Online icon. The full
text of this document will be available on CIPS in ASCII and
WordPerfect 6.1 format. CIPS is also available through the Commission's
electronic bulletin board service at no charge to the user and may be
accessed using a personal computer with a modem by dialing 202-208-
1397, if dialing locally, or 1-800-856-3920, if dialing long distance.
To access CIPS, set your communications software to 19200, 14400,
12000, 9600, 7200, 4800, 2400, or 1200 bps, full duplex, no parity, 8
data bits and 1 stop bit. User assistance is available at 202-208-2474
or by E-mail to [email protected].
This document is also available through the Commission's Records
and Information Management System (RIMS), an electronic storage and
retrieval system of documents submitted to and issued by the Commission
after November 16, 1981. Documents from November 1995 to the present
can be viewed and printed. RIMS is available in the Public Reference
Room or remotely via Internet through FERC's Homepage using the RIMS
link or the Energy Information Online icon. User assistance is
available at 202-208-2222, or by E-mail to [email protected].
Finally, the complete text on diskette in WordPerfect format may be
purchased from the Commission's copy contractor, La Dorn System
Corporation. La Dorn Systems Corporation is located in the Public
Reference Room at 888 First Street, NE, Washington, DC 20426.
I. Introduction
In 1995, in response to heightened interest in Outer Continental
Shelf (OCS) exploration and development, the Commission undertook a
review of its OCS gathering policy through a notice of inquiry in
Docket No. RM96-5-000. On February 28, 1996, the Commission issued a
statement of policy respecting pipeline facilities on the
OCS.1 The policy statement concluded that facilities located
in deep water (a depth of 200 meters or more) would be
[[Page 30676]]
presumed to be gathering facilities up to the point where they reach
proximity to, or the point or points of interconnection with, the
existing interstate pipeline grid. Beyond that point, the facilities'
primary function would be determined under the Commission's existing
``primary function'' test discussed below.
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\1\ 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 Land's Act
(Policy Statement), 74 FERC para. 61,222 (Feb. 26, 1996).
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On February 19, 1997, the United States Court of Appeals for the
Fifth Circuit, in Sea Robin Pipeline Co. v. FERC (Sea
Robin),2 vacated and remanded the Commission's decision that
Sea Robin Pipeline Company's (Sea Robin) offshore natural gas pipeline
system, which has been regulated by the Commission under the Natural
Gas Act (NGA) for almost 30 years, is properly classified as a
jurisdictional interstate pipeline facility.3 The basic
ruling of the court was that the Commission did not give adequate
attention to the physical and operational characteristics of Sea
Robin's system in applying the ``primary function'' test to determine
its jurisdictional status.4 The court left open how the
Commission should proceed on remand and offered no judgement as to the
proper result. The court stated that the Commission is free to
reconsider the applicability of the factors in its primary function
test to offshore pipeline systems and then, if necessary, reformulate
this test.5
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\2\ 127 F.3d 365 (Fifth Cir. 1997); reh'g denied, February 5,
1998.
\3\ 71 FERC para. 61,351 (1995), reh'g denied, 75 FERC para.
61,332 (1996).
\4\ 137 F.3d at 370-71.
\5\ Id. at 372.
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To assist it in responding to the court's direction in Sea Robin,
the Commission is initiating an inquiry in the above captioned
proceeding to explore once more what methods it should apply in
exercising its jurisdiction under the NGA and the Outer Continental
Shelf Lands Act (OCSLA) over natural gas facilities and services on the
OCS.
As with the earlier policy statement in Docket No. RM96-5-000, the
Commission's objective is to consider the possibilities for a
simplified regulatory approach that will not impede or distort
developmental or production activities on the OCS and which, at the
same time, will provide shippers the full protection established by the
NGA and the OCSLA. Accordingly, the Notice of Inquiry (NOI) will seek
comments and information on alternatives to the current ``primary
function'' test for making NGA jurisdictional determinations, as well
as alternative methods of regulating OCS pipelines under the NGA and/or
the OCSLA. Of primary interest to the Commission are industry comments
on: alternatives to the Commission's ``primary function'' test that
will simplify the process and/or standard for determining the
jurisdictional status of OCS pipeline facilities under the NGA; the
extent of the Commission's authority under the OCSLA to regulate rates
charged by OCS pipelines; and modes of regulating OCS pipelines under
the OCSLA, with or without the exercise of concurrent NGA jurisdiction.
II. Statutory Framework
A. The Natural Gas Act (NGA)
The basic purpose of Congress in enacting the NGA was to ``occupy
the field,'' 6 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.7 To that end, Congress meant to create a
comprehensive regulatory scheme of dual state and federal
authority.8 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.
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\6\ See Schneidwind v. ANR Pipeline Co., 485 U.S. 293, 310-311
(1988).
\7\ Interstate Natural Gas Co. v. FPC, 331 U.S. 682, 690 (1947).
\8\ FPC v. Louisiana Power & Light Co. V. FPC, 406 U.S. 621
(1972).
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B. The Outer Continental Shelf Lands Act (OCSLA) 9
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\9\ 43 U.S.C. 1334 et. seq.
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An additional source of the Commission's regulatory authority over
OCS pipeline facilities and activities are sections 5(e) and 5(f) of
the OCSLA.10 Generally, these statutory provisions give the
Commission certain responsibilities and authorizations to ensure that
natural gas pipelines on the OCS will be operated in accordance with
competitive principles and in a nondiscriminatory manner. The OCSLA and
the NGA are to be applied reciprocally in furtherance of their
individual regulatory purpose.11
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\10\ 43 U.S.C. 1334(e), (f).
\11\ See Continental Oil Co. V. FPC, 370 F. 2d 57, 67 (Fifth
Cir. 1966).
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Sections 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. 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.'' 12 Section 5(f)(3) requires the Commission to
consult with the Attorney General ``on specific conditions to be
included in any permit, license, * * * or grant of authority in order
to ensure that pipelines are operated in accordance with the
competitive principles set forth in (Section 5(f)(1)).'' 13
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\12\ The conference report states that section 5(f) ``is
intended to prevent ``bottleneck monopolies'' and other
anticompetitive situations involving OCS pipelines'' and that it
``is a reaffirmation and strengthening of subsection 5(e), which
provides for the transport or purchase of all OCS oil and gas
``without discrimination.'' Conf. Rep. 95-372, 95th Cong. 2d Sess.
\13\ 43 U.S.C. 1334 5(f)(3).
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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'', that are defined in section 5(f)(2) of the OCSLA
14/ as a pipeline which 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.
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\14\ 43 U.S.C. 1334(f)(2).
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III. Specific Questions for Response by All Commenters
In light of the Fifth Circuit's opinion, it is not clear what the
best course of action in the Sea Robin proceeding is. Given the
divergence between the court's ruling and the Commission's prior orders
in this proceeding, respecting the limited significance offshore of
certain physical factors of the ``primary function'' test and the
significance of certain nonphysical factors, the continued viability of
the current ``primary function'' test as a method of making
jurisdictional
[[Page 30677]]
determinations that are consistent with the fundamental purposes of the
NGA has been cast into doubt. A number of other proceedings now await
either the Commission's reaffirmation of its existing ``primary
function'' test or the establishment of a new standard for gathering on
the OCS in light of the Fifth Circuit's action. Accordingly, the
Commission seeks assistance in responding to the court's invitation to
reconsider the applicability of the factors in the ``primary function''
test to offshore pipeline systems and, if necessary, reformulate the
test.
The Commission has compiled a list of questions, set forth below,
answers to which, if supported by legal analysis where appropriate,
will be helpful in assessing the Commission's current policy and in
developing and assessing possible policy alternatives. This list is not
meant to be all inclusive. Commenters are invited to present
alternative solutions not specifically referenced in this notice.
A. The ``Primary Function'' Test
1. What are the physical and operational characteristics of an OCS
pipeline facility that have value in assisting the Commission in
determining where gathering ends in the offshore context?
a. What distinguishing physical and operational characteristics are
unique to OCS gathering systems?
b. What distinguishing physical and operational characteristics are
unique to OCS transmission systems?
2. What factors, other than a pipeline facility's physical and
operational characteristics, are relevant to making jurisdictional
determinations in the offshore context?
3. Are there any elements of the existing ``primary function'' test
as it applies to OCS facilities that should be eliminated for lack of
relevance, value, undue complexity, or for any other reason?
4. What alternatives are there to the concept of the ``primary
function'' test as a method of making OCS jurisdictional
determinations?
5. Should the Commission adopt the OCSLA's definition of ``feeder
lines'' as a definition of gathering lines on the OCS?
6. How can the Commission simplify the process of making OCS
jurisdictional determinations?
7. How much, and to what degree of quality, is OCS gas processed at
locations other than onshore or in shallow waters?
B. The Effect Upon Existing Certificated Facilities
1. What would be the practical results of the following possible
Commission determinations if made under the existing ``primary
function'' test?
a. All existing certificated facilities are jurisdictional?
b. All existing certificated facilities are nonjurisdictional?
c. Only those facilities downstream of a central point are
jurisdictional?
2. Are there alternative outcomes in this proceeding other than
1.a., b., and c?
3. Could the Commission make a determination that all, or part of a
pipeline's facilities are exempt from regulation under the NGA,
contingent upon a judicial affirmation of the Commission's
interpretation of the extent of its rate and conditioning authority
under the OCSLA?
C. The OCSLA
1. What is the extent of the Commission's authority under the OCSLA
respecting rates for gas pipeline services?
2. Does the OCSLA provide sufficient remedial authority for the
Commission to ensure nondiscriminatory access by prohibiting
discriminatory or excessive rates?
3. 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?
4. Is there a legal basis under the OCSLA for the Commission to
regulate generally the level of rates for services performed by OCS
pipelines?
5. 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?
6. Should the Commission issue a rule under the OCSLA imposing
terms and conditions on OCS facilities to protect existing shippers on
existing OCS interstate pipelines from excessive rates or
discrimination in the event such facilities are declared
nonjurisdictional?
a. What terms and conditions should such a proposed rule require?
b. Should a similar rule also be considered that would apply to all
customers of any OCS pipeline?
c. Should such a proposed rule require all OCS pipelines to have
rates, terms and conditions on file with the Commission?
d. Would the Commission have authority under the OCSLA to provide a
remedy for an excessive rate that applied uniformly to all customers of
a pipeline/gatherer? Would such a rate constitute a form of
discrimination under the OCSLA?
7. Could the Commission adopt a uniform regulatory regime for the
OCS under which both NGA nonjurisdictional and NGA jurisdictional
pipelines would be regulated solely pursuant to the Commission's
authority under the OCSLA to pro-rate capacity in a pipeline and to
address discrimination in rates?
a. Under this approach, would shippers on OCS interstate pipelines
be adequately protected in the absence of cost-of-service rates?
b. If this approach were adopted, should existing interstate
pipelines be given the option of remaining under traditional NGA
regulation?
8. Is it feasible, as a matter of law and policy, to adopt a light-
handed regulatory approach under the OCSLA that relies on complaints
about discriminatory access or rates?
a. If such an approach is adopted, is there a need to distinguish
between new and existing pipelines to determine how much regulation is
necessary?
b. What would be the legal and policy basis for distinctions
between new and existing pipelines?
c. Does the Commission have the authority to require the electronic
reporting of the price and terms of all agreements for the movement of
natural gas through all OCS pipeline facilities as a mechanism for
implementing a complaint driven regulatory approach ?
9. Does the Commission have the authority under the OCSLA to
regulate OCS pipelines as common carriers?
a. What is the effect of section 185(r)(1) of the Mineral Leasing
Act of 1970 \15\ which requires that pipelines authorized under section
185 be operated as common carriers?
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\15\ 30 U.S.C. 185(r)(1).
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IV. 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,
[[Page 30678]]
commenters should double space their comments.
The original and 14 copies of such comments must be received by
July 14, 1998. 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. RM98-8-000.
In addition, commenters are asked to submit their written comments
and executive summaries on 3\1/2\-inch diskette formatted for MS-DOS
based computers. In light of the ability to translate MS-DOS based
materials, the text need only be submitted in the format and version
for which it was generated (i.e., MS DOS 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.
Commissioner Bailey dissented in part with a separate statement
attached.
By direction of the Commission.
David P. Boergers,
Acting Secretary.
BAILEY, Commissioner, Dissenting in Part
I am dissenting in part from this NOI. This document poses a series
of questions for public comment addressing alternatives to the
Commission's current method of exercising its jurisdiction on the OCS.
I have already expressed my disagreement with many of the Commission's
jurisdictional determinations with respect to pipelines on the
offshore. After seeing the application of the 1996 policy statement to
specific cases, I concluded that continued application of the primary
function test on the offshore is largely unworkable. There is a host of
conflicting precedent, as is evident from looking at the record in the
Sea Robin case.1 Although I certainly understand the need
for this Commission to rethink these issues, I have already reevaluated
my position as indicated in earlier dissents.2 And I
certainly feel that, to the extent the Sea Robin remand goes
unanswered, that is unacceptable.
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\1\ Sea Robin Pipeline Company v. FERC, 127 F.3d 365 (Fifth Cir.
1997); reh'g denied, February 5, 1998.
\2\ See Shell Gas Pipeline Company, 78 FERC para. 61,192 (1997).
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Let me reemphasize some points I have made in the past. I continue
to believe that we should adopt a common sense definition of gathering
as outlined by the Court of Appeals in the EP Operating
decision.3 We should recognize that today's deep water
production means even longer and wider lines to move production to
market, and that the movement of gas across the OCS is often a
collection process. While it might be ideal to preserve FERC/NGA
jurisdiction as a backstop in case a complaint arises, I do not think
we have that right if the function of a line can be viewed as gathering
under a common sense analysis.
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\3\ EP Operating Company v. FERC, 876 F.2d 46 (Fifth Cir. 1989).
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Producers on the OCS are not without statutory protection. The
antidiscrimination provisions of the Outer Continental Shelf Lands Act
are real. The law has not changed. This Commission has acknowledged its
jurisdiction pursuant to that statue and would respond promptly to
complaints filed by shippers on OCS gathering lines that are not
otherwise subject to the Commission's NGA jurisdiction. Ultimately, if
an unduly discriminatory rate is found to be without remedy under the
OCSLA, a legislative solution would be a viable option if that need
were demonstrated.
In sum, I do not find the fear of regulatory gap to be so
compelling that we should adopt a strained definition of what
constitutes a gathering line. While I will certainly review the
comments we receive in response to this current NOI, I do want to
emphasize my thinking on these issues. My thoughts are based on the
extensive record we developed at the time of the 1996 Policy Statement
addressing many of these questions, as well as the cases decided
subsequently. I look forward to the continuing dialogue, and I urge the
Commission, for the sake of those cases that are lingering, to resolve
some of these outstanding issues as expeditiously as we can.
Vicky A. Bailey,
Commissioner.
[FR Doc. 98-14964 Filed 6-4-98; 8:45 am]
BILLING CODE 6717-01-P