[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