[Federal Register Volume 65, Number 149 (Wednesday, August 2, 2000)]
[Rules and Regulations]
[Pages 47294-47305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19426]



[[Page 47294]]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Parts 330 and 385

[Docket No. RM99-5-001; Order No. 639-A]


Regulations Under the Outer Continental Shelf Lands Act Governing 
the Movement of Natural Gas on Facilities on the Outer Continental 
Shelf

Issued July 26, 2000.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Order on rehearing of final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
addressing the requests for rehearing of its final rule, Order No. 639, 
issued on April 10, 2000, implementing regulations under the Outer 
Continental Shelf Lands Act (OCSLA).\1\ The final rule was issued to 
ensure that natural gas is transported on an open and nondiscriminatory 
basis through pipeline facilities located on the Outer Continental 
Shelf (OCS). The regulations require OCS gas transportation service 
providers to make available information regarding their affiliations 
and the conditions under which service is rendered. This information 
will assist the Commission and interested persons in determining 
whether OCS gas transportation services conform with the open access 
and nondiscrimination mandates of the OCSLA. By rendering offshore 
transactions transparent, the regulations' reporting requirements 
should provide a sound basis for implementing the uniformly applicable 
open access and nondiscrimination mandates of the OCSLA, thus resulting 
in greater efficiencies in this marketplace. This order clarifies and 
amends the regulations to grant, in part, the requests for rehearing of 
Order No. 639.
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    \1\ 43 U.S.C. 1301-1356.

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EFFECTIVE DATE: The order on rehearing is effective October 2, 2000.

FOR FURTHER INFORMATION CONTACT:

Marc Poole, Office of Pipeline Regulation, 888 First Street, N.E., 
Washington, D.C. 20426, (202) 208-0482
Gordon Wagner, Office of the General Counsel, 888 First Street, N.E., 
Washington, D.C. 20426, (202) 219-0122

SUPPLEMENTARY INFORMATION:

United States of America

Federal Energy Regulatory Commission

[18 CFR Parts 330 and 385]

[Docket No. RM99-5-001]

    Regulations under the Outer Continental Shelf Lands Act Governing 
the Movement of Natural Gas on Facilities on the Outer Continental 
Shelf.

Order on Rehearing and Clarification

Order No. 639-A
Issued July 26, 2000.

I. Introduction

    On April 10, 2000, the Federal Energy Regulatory Commission 
(Commission) issued a final rule, Order No. 639,\1\ promulgating 
regulations under the Outer Continental Shelf Lands Act (OCSLA) \2\ to 
ensure that natural gas is transported on an open and nondiscriminatory 
basis through pipeline facilities located on the Outer Continental 
Shelf (OCS).\3\ The regulations require OCS gas transportation service 
providers to make available information regarding their affiliations 
and the conditions under which service is rendered. This information 
will assist the Commission and interested persons in determining 
whether OCS gas transportation services conform with the open access 
and nondiscrimination mandates of the OCSLA and will enable shippers 
who believe they are subject to anticompetitive practices to bring 
their concerns to the Commission. The transactional transparency that 
reporting will bring should provide a sound basis for ensuring open and 
nondiscriminatory access offshore and produce greater efficiencies in 
this marketplace. The Order No. 639 regulations do not eliminate or 
modify any existing regulations or Commission policies relating to the 
regulation of offshore facilities pursuant to the Commission's 
authority under the Natural Gas Act (NGA).\4\
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    \1\ 65 FR 20354 (Apr. 17, 2000), FERC Stats. & Regs. para. 
31,514 (2000).
    \2\ 43 U.S.C. 1301-1356.
    \3\ The OCS is defined as ``all submerged lands lying seaward 
and outside of the area of lands beneath navigable waters * * * and 
of which the subsoil and seabed appertain to the United States and 
are subject to its jurisdiction and control.'' 43 U.S.C. 1331(a). 
See also 43 U.S.C. 1301(a)(1), defining ``lands beneath navigable 
waters'' as ``all lands within the boundaries of each of the 
respective States.''
    \4\ 15 U.S.C. 717.
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II. Background

    Requests for rehearing and/or clarification of Order No. 639 were 
filed by Duke Energy Field Services Assets, LLC (Duke); El Paso Energy 
Corporation (El Paso); the Interstate Natural Gas Association of 
America (INGAA); the Independent Petroleum Association of America 
(IPAA); \5\ the Natural Gas Supply Association (NGSA); OCS Producers; 
the Producer Coalition; and the Williams Companies, Inc. (Williams).\6\
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    \5\ Rather than submit separate comments, IPAA states that it 
endorses and adopts the Producer Coalition's submission as its own, 
including the relief specified therein. Accordingly, references to 
the Producer Coalition may be read as including the IPAA.
    \6\ We accept the requests for rehearing pursuant to Rule 713 of 
the Commission's Rules of Practice and Procedure. 18 CFR 385.713.
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    Parties requesting rehearing endorse the expressed aim of the final 
rule--to ensure compliance with the OCSLA's open and nondiscriminatory 
access requirements. Producer interests generally support the 
Commission's means to this end--to require OCS service providers to 
report certain information on their affiliates and transactions--
whereas pipeline interests generally oppose aspects of the new 
reporting requirements. In response to the concerns raised, for the 
reasons discussed below, we modify, clarify, and affirm the OCSLA 
reporting requirements set forth in Order No. 639.

III. Requests for Rehearing and/or Clarification and the 
Commission's Response

A. Commission Authority To Require OCSLA Reporting

1. Requests for Rehearing and/or Clarification
    Duke, El Paso, INGAA, OCS Producers, and Williams claim that the 
Commission has failed to present an adequate legal foundation for 
promulgating new OCSLA reporting requirements. The parties stress that 
since the OCSLA's 1953 enactment, with but a handful of exceptions, the 
Commission has not relied on the OCSLA to ensure that gas is 
transported on or across the OCS on an open and nondiscriminatory 
basis.
    Williams argues that the Commission should have, but did not, 
consult with the Attorney General prior to implementing a new rule.
    Duke insists that other federal agencies--but not the Commission--
can act under the OCSLA to enforce nondiscrimination by instituting a 
civil action in district court; therefore, the Commission's rule and 
its proposed enforcement are without foundation and invalid.
    OCS Producers believe the Commission could employ other, less

[[Page 47295]]

burdensome means to secure the benefits of OCSLA compliance and assert 
the Commission has not demonstrated that reporting is needed for 
effective OCSLA enforcement.
2. Commission Response
    We acknowledge that we have not established an extensive record of 
reliance upon the OCSLA. It was not until 1988 that we found cause to 
issue a rule interpreting the Commission's responsibilities under the 
OCSLA.\7\ Until then, the NGA had appeared fully adequate to the task 
of regulating offshore natural gas facilities and services. As offshore 
exploration and development has evolved, it has grown beyond our 
ability to regulate by relying exclusively on the NGA.
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    \7\ Interpretation of Section 5 of the OCSLA, Order No. 491, 53 
FR 14922 (Apr. 26, 1988), 43 FERC para. 61,006 (1988).
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    Initial offshore construction consisted of gas companies building 
lines out from existing onshore facilities to production areas on the 
shallow shelf close to shore, stepping incrementally further out as 
technological advances led to the development of fields in increasing 
water depths. Typically, these early offshore lines were used to attach 
production from a single well or single platform in a field that 
produced gas for the system supply of a single company. It has proved 
to be the case that where an offshore pipeline serves to provide long-
term, firm transportation for the pipeline's owner, issues of access do 
not arise. Generally, these offshore systems were owned and operated 
by, and used to carry the gas of, interstate pipeline companies. Thus, 
the Commission's NGA jurisdiction over interstate transportation 
extended to these offshore systems, and we consequently found no cause 
to turn to the OCSLA to guarantee open and nondiscriminatory access on 
these pipelines.
    By the late 1980s, the nature of offshore operations had started to 
shift. In 1988, in Order No. 491, we observed that the offshore 
infrastructure consisted of major trunkline systems interconnected via 
a ``proliferation'' of laterals, resulting in a grid with the 
``flexibility to move offshore reserves from a variety of offshore 
locations via a number of pipeline facilities to onshore 
destinations.'' \8\ We recognized that to take advantage of such 
flexibility, shippers were equally dependent on the physical 
capabilities of the facilities and ``the degree of access which 
shippers have to the transportation system.'' \9\ Consequently, in 
order to ensure open and nondiscriminatory access, we required all 
offshore NGA-jurisdictional pipelines to obtain blanket certificates 
under Part 284 of our regulations, authorizing transportation on behalf 
of others on an open and nondiscriminatory basis.\10\
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    \8\ 43 FERC para. 61,006 at 61,030.
    \9\ Id.
    \10\ See Interpretation of, and Regulations Under, Section 5 of 
the OCSLA Governing Transportation of Natural Gas by Interstate 
Natural Gas Pipelines on the OCS, Order No. 509, 53 FR 50925 (Dec. 
19, 1988), FERC Stats. & Regs. para. 30,842 (1988), order on reh'g, 
Order No. 509-A, 54 FR 8301 (Feb. 28, 1989), FERC Stats. & Regs. 
para. 30,848 (1989).
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    At that time, the offshore transportation grid was still largely 
subject to our NGA jurisdiction, so we found no need to implement a 
separate set of regulations under the OCSLA targeted at NGA-exempt OCS 
service providers.\11\ During the past decade, however, the character 
of the offshore environment has again undergone significant change, 
particularly after the 1989 EP Operating Company v. FERC (EP Operating) 
decision,\12\ which led the Commission to reclassify numerous offshore 
facilities from transmission to gathering.
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    \11\ On rehearing of Order No. 509, parties asserted it was 
unreasonable and discriminatory for the Commission to limit its 
actions to NGA-jurisdictional pipelines. They argued for extending 
the Part 284 blanket transportation requirements to NGA-exempt OSC 
service providers as well. In response, we explained that our 
application of the already established NGA open access requirements 
to NGA facilities was a ``starting point'' and that we would look to 
other remedies, as needed, to cover other OCS facilities.
    \12\ 876 F.2d 46 (5th Cir. 1989). The court questioned the 
Commission's rationale for finding a 16-inch diameter, 51-mile long 
line, extending from a floating rig in deep water to a fixed 
platform on the shallow shelf, to be a transmission line. In 
response, the Commission modified the manner in which it determined 
the primary function of facilities located offshore, and 
subsequently found increasingly larger sets of offshore facilities 
to be gathering. See, e.g., Amerada Hess Corporation, 52 FERC para. 
61,268 (1990).
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    Now a more significant portion (approximately half) of the offshore 
gas infrastructure is excluded from NGA oversight, thereby eroding the 
applicability and effectiveness of our earlier OCSLA rule. Further, we 
expect a continuation of the recent trend of pipelines' requesting 
reclassification of existing certificated offshore lines from 
transmission to gathering. We expect a greater portion of new 
construction to qualify as gathering as well.\13\ In view of these 
factors, the OCSLA's competitive principles no longer can be met by 
mandating that offshore NGA pipelines adhere to our Part 284 open 
access requirements. Since we can no longer rely on this scheme of 
regulatory piggybacking, the new OCSLA reporting requirements are 
needed to adequately monitor the dynamic, expanding portion of the 
offshore infrastructure that is not subject to NGA oversight.
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    \13\ Our 1996 Policy Statement established a rebuttable 
presumption that facilities located in deep water of 200 meters or 
more were engaged in production or gathering. Gas Pipeline 
Facilities and Services on the OCS--Issues Related to the 
Commission's Jurisdiction Under the NGA and the OCSLA, 74 FERC para. 
61,222 (1996), reh'g dismissed, 75 FERC para. 61,291 (1996). Given 
that deep water prospects are predicted to provide substantial 
quantities of new offshore gas supplies, we expect additional 
pipeline construction in deep water areas.
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    Williams contends the Commission neglected to consult with other 
federal agencies, as specified in OCSLA section 1334(f)(3),\14\ prior 
to implementing the reporting regulations. This same issue was raised 
in response to the Notice of Proposed Rulemaking (NOPR),\15\ 
referencing the separate but similar consultation requirement specified 
in OCSLA section 1334(e).\16\ In the final rule, we explained our 
belief that the act of requiring reporting under the OCSLA did not 
trigger the consultation requirement, a position we maintain.\17\
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    \14\ Specifically, Williams cites OCSLA section 1334(f)(3), 
which states that:
    The Secretary of Energy and the Federal Energy Regulatory 
Commission shall consult with and give due consideration to the 
views of the Attorney General on specific conditions to be included 
in any permit, license, easement, right-of-way, or grant of 
authority in order to ensure that pipelines are operated in 
accordance with the competitive principles set forth in paragraph 
(1) of this subsection. In preparing any such views, the Attorney 
General shall consult with the Federal Trade Commission.
    \15\ Regulations under the OCSLA Governing the Movement of 
Natural Gas on Facilities on the OCS, 64 FR 37718 (July 17, 1999), 
FERC Stats. & Regs. para. 32,542 (1999).
    \16\ OCSLA section 1334(e) states, in part, that the Commission 
``in consultation with the Secretary of Energy'' may, in certain 
circumstances, determine proportionate amounts of gas to be 
transported.
    \17\ We note that Williams and all federal agencies received 
public notice of this rulemaking proceeding, and but for the 
Department of the Interior's Mineral Management Service (MMS), those 
agencies elected not to comment on either the NOPR or the final 
rule.
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    The OCSLA section 1334(f)(3) consultation requirement applies in 
the event that ``specific conditions'' are ``included in any permit, 
license, easement, right-of-way, or grant of authority.'' The final 
rule's reporting requirements are not such a condition, as demonstrated 
by the fact that the reporting requirements apply not only to NGA-
jurisdictional pipelines to which we have granted certificates, but 
also to NGA-exempt pipelines, to which we have granted no certificate 
or any other ``permit, license, easement, right-of-way, or grant of 
authority.'' Thus, our rule is predicated entirely upon the OCSLA's 
open and nondiscriminatory access requirements, which pertain 
regardless of whether an OCS service provider is operating under 
authority of any permit or certificate. As such, we

[[Page 47296]]

conclude consultation with the Attorney General is not a prerequisite 
for promulgating this reporting rule.
    Williams notes that in the Order No. 509 rulemaking, the Commission 
requested the views of other federal agencies. There is a material 
distinction between that rulemaking and this one: there, we told OCS 
service providers how to operate; here, we merely have OCS service 
providers tell us how they operate.
    In Order No. 509, we imposed specific conditions on service 
providers. Although the conditions were contained in our NGA 
regulations and were applied only to offshore pipelines already subject 
to the NGA, these NGA conditions were applied in fulfillment of the 
OCSLA's transportation requirements, compelling OCS service providers 
to adopt and follow certain business practices as a specific condition 
of complying with the competitive principles of OCSLA section 
1334(f)(1).\18\ In this rule, while we exhort NGA-exempt OCS service 
providers to adhere to the same competitive principles that NGA-
jurisdictional pipelines are subject to under our Part 284 open access 
regulations, the only requirement of Order No. 639 issued under the 
OCSLA is that service providers present information on their business 
practices. We impose no new conditions on those practices.
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    \18\ Specifically, Order No. 509 granted all NGA-regulated OCS 
pipelines Part 284, Subpart G, blanket transportation certificates, 
then mandated these pipelines file tariffs to implement their 
blanket certificates, and pursuant to their certificates, required 
that the offshore lines provide firm and interruptible 
transportation on an open and nondiscriminatory basis to owner and 
nonowner shippers. The rule had no impact on NGA-regulated pipelines 
onshore, as onshore entities retained the option to forego seeking a 
blanket transportation certificate.
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    Duke takes the position that the Commission's authority under OCSLA 
section 1334(f)(3) to impose conditions on OCS service providers ``is 
not an independent grant of authority.'' Rather, Duke argues that 
section 1334(f)(3) only describes ``steps the Commission is required to 
take when exercising its authority under another statute such as the 
NGA.'' \19\ We disagree. Duke reads too much into our decision in Order 
No. 509 to limit the rule's applicability to offshore pipelines already 
subject to the NGA and our reliance on the operating obligations 
contained in our NGA regulations to compel compliance with the 
provisions of the OCSLA.
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    \19\ Duke's Request for Reconsideration and Rehearing at 4 (May 
10, 2000).
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    As we emphasized in the order on rehearing of Order No. 509, ``the 
open-access mandate of the OCSLA applies to all pipeline operations on 
the OCS.'' \20\ We might have gone further and exercised our OCSLA 
authority to impose specific open access regulatory requirements on all 
OCS facilities; instead, on rehearing of Order No. 509, we elected to 
``consider appropriate measures for remedying discriminatory access to 
other [NGA-exempt] OCS facilities on a case by case basis.'' \21\ Thus, 
our approach in Order No. 509 does not indicate, as Duke advocates, 
that our OCSLA authority applies in some derivative manner only after 
we have already first established our jurisdiction by means of another 
statute. We conclude that, though administering and enforcing the OCSLA 
involves coordination and a division of labor among several federal 
entities, the Commission's OCSLA authority stands apart and independent 
from our statutory responsibilities under the NGA.
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    \20\ Order No. 509-A, 54 FR 8301 (Feb. 28, 1989), FERC Stats. & 
Regs. para.; 30,848 at 31,334 (1989).
    \21\ Id.
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    Duke is correct that several federal agencies can institute OCSLA 
enforcement actions. However, this sharing of responsibility does not 
preclude the Commission, as an independent agency, from acting without 
the assistance of other responsible federal agencies to oversee and 
enforce open and nondiscriminatory access. The Commission's capacity to 
compel open and nondiscriminatory access under the OCSLA is discussed 
in Shell Oil Company (Shell).\22\ At issue in Shell was an offshore oil 
pipeline's refusal to serve a new customer. The Commission exercised 
its authority under section 1334(f) of the OCSLA to order the oil 
pipeline to accept and transport the new customer's volumes.\23\ When 
the court issued its decision in Shell, the oil pipeline complied with 
the Commission's order to interconnect. Thus, issues relating to 
cooperative agency action were not reached. We note, however, that if 
the Commission finds it necessary to seek the imposition of monetary 
civil penalties for any OCS service provider's violation of the 
reporting requirements, as opposed to physical remedies to force open 
and nondiscriminatory access, the Commission expects to rely on the 
Secretary of the Interior's authority to ``assess, collect, and 
compromise any such penalty,'' in accordance with section 1350(b) of 
the OCSLA.
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    \22\ 47 F.3d 1186 (D.C. Cir. 1995). We note that in addition to 
enforcement action by federal agencies, OCSLA section 1349 provides 
for citizens suits, and the Shell case was initiated as such by a 
private party. Duke cites this case to stress that Congress granted 
original jurisdiction to the district courts of the United States 
for suits, cases, and controversies arising out of OCS operations. 
We concur, but note that the parties in the Shell case initially 
sought administrative relief from this Commission in Bonito Pipe 
Line Company, 61 FERC para. 61,050 (1992), prior to judicial review.
    \23\ The Commission determined that the oil pipeline had excess 
capacity sufficient to accommodate the maximum projected new 
volumes, and therefore found no need to act under OCSLA section 
1334(e) to adopt an allocation methodology.
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B. Regulatory Conflict and Accord

1. Requests for Rehearing and/or Clarification
    Duke, El Paso, INGAA, and Williams maintain it is inequitable to 
subject separate sets of offshore facilities to separate regulatory 
regimes. They stress that even if the new OCSLA reporting requirements 
diminish the difference between operating under the OCSLA as opposed to 
the NGA, OCS service providers subject exclusively to the OCSLA will 
still retain a competitive advantage over those also subject to the 
NGA.
    INGAA proposes all offshore facilities be declared gathering, i.e., 
exempt from the NGA under section 1(b), thereby leaving all offshore 
facilities and services subject exclusively to the OCSLA. Williams 
implicitly endorses this approach.
    El Paso urges the Commission to rescind the new reporting 
requirements and regulate offshore activities as it has to date, by 
relying on the NGA in conjunction with complaints under the OCSLA.
    OCS Producers caution that exploration, development, and production 
are properly the regulatory domain of the MMS, and the Commission risks 
clashing with MMS if it fails to plainly put these activities beyond 
its reach.
2. Commission Response
    Concerns regarding the impacts of existing laws--e.g., whether the 
statutory regime in place offshore favors one type of entity or 
activity over another--are appropriately directed to Congress rather 
than to this Commission. In the onshore context, we have been 
confronted with analogous allegations of commercial advantage conferred 
as a consequence of operating subject to state versus federal 
regulation. Weighing the comparative benefits and burdens of operating 
under one statute versus another, however, is beyond our purview.
    We are charged with, and our authority extends only to, enforcing 
each statute as it applies; hence, we are

[[Page 47297]]

not at liberty to contemplate the equities and impacts of the existing 
regulatory regime on competitors' operations. We observe that here, if 
anything, the enhanced transactional transparency to be gained by OCSLA 
reporting will diminish the differences between OCS service providers 
now operating under joint NGA/OCSLA jurisdiction and those subject only 
to the OCSLA. We would not characterize the new reporting requirements 
as another layer of regulation, as does INGAA; rather, given the 
OCSLA's applicability to all OCS facilities and services, we view 
reporting as the foundation for implementation of a uniform, light-
handed regulatory regime offshore.
    We will not pursue INGAA's proposal that we find all offshore 
facilities gathering, and thereby remove them from our direct NGA 
oversight, since the application of our test for determining whether 
facilities are performing primary a gathering or transportation 
function \24\ is not at issue in this rulemaking proceeding. However, 
as discussed in the NOPR and final rule, part of our motive for acting 
to enhance the availability of information about offshore operations is 
the development of the Sea Robin proceeding and the guidance offered by 
the court concerning the application of our primary function test to 
offshore facilities. That decision prompted us to review and revise our 
criteria for determining the primary function of offshore facilities, 
resulting in a determination that portions of Sea Robin's system, which 
had always been regulated under the NGA as transmission, should be 
reclassified as gathering.\25\ While this result calls into question 
whether other offshore facilities that have traditionally been 
regulated as NGA transmission lines might be performing primarily a 
gathering function, we believe the proper approach is to examine such 
facilities individually, on a case-by-case basis, in separate 
proceedings.
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    \24\ The Commission's ``primary function'' test was articulated 
in Farmland Industries, Inc. (Farmland), 23 FERC para. 61,063 
(1983).
    \25\ We note that the result of our review was to split Sea 
Robin's system, retaining as transmission a 36-inch diameter, 66-
mile long line to shore, but reclassifying as gathering Sea Robin's 
remaining 372 miles of 4-to 30-inch diameter pipe. 87 FERC para. 
61,384 (1999), reh'g pending.
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    If, in the wake of Sea Robin, additional offshore facilities are 
declared gathering, and are thereby pushed out from under the umbrella 
of the regulatory protections that the NGA provides, the NGA's scope 
will shrink, making it less effective as a means to check market power 
abuses.\26\ Under these circumstances, we expect complaints brought 
under the OCSLA will play an increasingly significant role.
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    \26\ NGSA speculates that the NGA's effectiveness as a means to 
check market power abuses may also diminish if the currently 
applicable NGA reporting requirements are later trimmed back. If and 
when modifications to our NGA regulations are proposed, NGSA, other 
interested parties, and the Commission will have ample opportunity 
to consider the potential impacts on NGA-regulated OCS service 
providers and the implications for monitoring and ensuring 
compliance with the OCSLA. Such a future NGA rulemaking proceeding 
is the appropriate forum to consider these issues.
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    We have recently revised our complaint procedures to permit more 
efficient processing,\27\ and where before a general allegation of 
wrongdoing might be deemed adequate to pursue a complaint, under the 
revised regulations, specific allegations must be presented that 
measure up to a more rigorous minimum criterion before the Commission 
will proceed. As discussed in the final rule, we expect it will be 
difficult for a shipper or service provider to fashion a sustainable 
complaint absent the availability of information about the business 
practices of service providers.
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    \27\ See 18 CFR 385.206, Complaint Procedures, Order No. 602, 64 
FR 17087 (Apr. 8, 1999), FERC Stat. & Regs. para. 31,071 (1999), 86 
FERC para. 61,324 (1999), order on reh'g and clarification, Order 
No. 602-A, 64 FR 43600 (Aug. 11, 1999), FERC Stats. & Regs. para. 
31,076 (1999), 88 FERC para. 61,114 (1999), order on reh'g, Order 
No. 602-B, 64 FR 53595 (Oct. 8, 1999), FERC Stats. & Regs. para. 
32,545 (1999), 88 FERC para. 61,249 (1999).
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    Setting forth the particulars of an alleged OCSLA violation by an 
NGA-regulated service provider can be straightforward, given the wealth 
of information regarding jurisdictional interstate pipelines' actions. 
However, while the NGA's disclosure requirements are arguably adequate 
to allow for a complaint-driven enforcement regime, the same cannot now 
be said regarding possible OCSLA violations by NGA-exempt entities, 
since without the data contained in the new OCSLA reports, we question 
whether a description of alleged violations could be set forth in 
sufficient detail to sustain a complaint. Because we believe the data 
that will be generated by OCSLA reports is necessary to effectively 
monitor NGA-exempt OCS service providers, we reject El Paso's proposal 
to rescind the OCSLA reporting requirement.
    We envision no pending conflict with the MMS. First, offshore, 
traditionally, several federal agencies have simultaneously exercised 
overlapping duties without inducing intractable conflict. Second, as 
discussed below, production facilities are generally exempt from the 
OCSLA reporting requirements.

C. Reporting Requirements

1. Requests for Rehearing and/or Clarification
    Duke, El Paso, OCS Producers, and Williams contend public 
disclosure will reveal commercially sensitive, confidential, and 
proprietary information, to the detriment of the reporting entities.
    The Producer Coalition has the opposite apprehension, expecting 
service providers will request privileged and confidential treatment 
for most of the information they report. Therefore, to ensure 
transactional transparency, the Producer Coalition advocates 
eliminating such treatment and making all data public.
    The final rule directs an OCS service provider to file a report on 
the first day of each quarter, describing its status as of the first 
day of the previous quarter. The Producer Coalition, OCS Producers, and 
NGSA are concerned that the filed report may omit the immediately 
preceding quarter's intra-quarter changes, i.e., a change on October 2 
will be omitted from the January 1 report, and only picked up in the 
April 1 report. The parties suggest this is too long.
    The Producer Coalition proposes requiring that additional details 
be reported regarding rates and conditions of service. For example, the 
Producer Coalition requests we revise Sec. 330.2(b) to clarify that the 
primary receipt and delivery points include both the points listed as 
primary receipt or delivery points in each contract and any other 
receipt or delivery points that are actually used for service under the 
contract during the reporting period. The Producer Coalition explains 
this clarification will discourage the practice of listing primary 
points in contracts, and then in fact flowing gas through other points. 
Further, the Producer Coalition believes it would be easier to find 
receipt and delivery points if the service provider designated them not 
just by meter identification numbers but by geographic location as 
well.
    OCS Producers request clarification concerning events triggering 
the reporting requirement and an itemization of the conditions of 
service to be reported. NGSA notes that the regulations request a 
detailed description of the derivation of non-cost-based rates and ask 
whether it is sufficient to simply state that such rates were derived 
by negotiation.
    OCS Producers suggest the affiliate reporting requirement be 
modified as

[[Page 47298]]

follows: eliminate the need to identify gas consumer affiliates, since 
such affiliates are numerous, change often, and have little impact on 
upstream offshore operations; list only those affiliates that are 
active on the OCS; and add gas gathering affiliates to those that must 
be reported. El Paso would restrict named affiliates to those engaged 
in gas operations within the US and adjacent water bodies.
    NGSA requests that the Commission specify a format, establish 
procedures for electronic filing, and make the filed information 
Internet accessible.
2. Commission Response
    Reporting is not intended to force the revelation of commercially 
sensitive, confidential, or proprietary information immaterial to 
ensuring compliance with the OCSLA. That said, reporting will 
nonetheless compel OCS service providers to make public aspects of 
their operations that they have heretofore been permitted to keep 
private. While we appreciate companies' preference to withhold certain 
information, we note that the wide applicability of the new OCSLA 
reporting requirements, like the wide applicability of the existing NGA 
reporting requirements, serves to place competitors on a more 
consistent regulatory footing.
    We intend to continue the current practice under Sec. 388.112 of 
our regulations of considering requests for privileged treatment of 
information on a case-by-case basis. Because the outcome of each 
request typically turns on the specific facts presented, we are unable 
to make broad declarations on what information qualifies for such 
treatment. Accordingly, we reject the Producer Coalition's proposal 
that we generically declare no information can qualify for privileged 
treatment. However, we do not intend to extend privileged treatment to 
information that is necessary to determine whether service providers 
are operating in accord with the OCSLA, e.g., a Sec. 330.2 report that 
failed to state the actual rates charged would have no utility.
    To date, in the context of exercising our non-OCSLA authority, we 
have been able to give adequate attention to individual requests for 
privileged treatment and expect to be able to do the same with respect 
to requests related to OCSLA reporting. Over time, the Commission has 
determined what types of data might be exempt from the mandatory 
disclosure requirements of the Freedom of Information Act,\28\ and 
these past decisions can be expected to guide our assessment of 
requests for privileged treatment of information in OCSLA reports.
---------------------------------------------------------------------------

    \28\ 5 U.S.C. 552.
---------------------------------------------------------------------------

    If circumstances arise that prompt the Commission, on its own 
initiative, to question a non-reporting OCS service provider's 
conformity with the OCSLA, we may deem it appropriate, initially, to 
permit the service provider to submit information to the Commission 
confidentially. If we subsequently determine the service provider does 
not qualify for an exemption, we would expect to then direct that 
reporting commence pursuant to Sec. 330.2 of the regulations. Duke 
urges we expand upon this by revoking the reporting requirements and 
handling all OCSLA access disputes on a confidential basis. As noted, 
we expect there will be some cases where some portion of the 
information needed to resolve a dispute will be withheld from public 
view. However, because there is now no adequate repository of 
information regarding NGA-exempt OCSLA activities, there is now no 
straightforward means to gauge service providers' adherence to the 
OCSLA. Duke's proposal would preclude establishing a database 
sufficient to this task.
    In the NOPR, we suggested that OCS service providers notify the 
Commission every time a change in affiliates or services took place, 
and to do so within 15 days of any such change. Comments in response 
painted the picture of a large, dynamic OCS service provider, compelled 
to make daily filings to keep the record up to date with ongoing 
changes to its system. To avoid burdening a service provider with 
perpetual filings, we modified our approach, foregoing ongoing updating 
in favor of quarterly reporting.
    Because data's utility is a function of its accuracy, we share the 
concerns expressed that the reported data not be stale. Therefore, we 
will modify Sec. 330.3(c) of the regulations. We will change the 
scheduled reporting date from the first day of a calender quarter to 15 
days after the close of a calender quarter. However, a report must now 
reflect a service provider's status as of the last day of the preceding 
quarter and describe all changes to a service provider's affiliates, 
customers, rates, conditions of service, and facilities that have 
occurred during the course of that quarter. Thus, reports, when 
required, are due on April 15, July 15, October 15, and January 15.
    In the final rule, we set October 1 as the due date for the initial 
Sec. 330.2 reports. We revise that here. Reports will be due on October 
15, 2000, and are to contain a description of activities during the 
third calender quarter of this year. However, because October 15, 2000 
falls on a Sunday, pursuant to Sec. 385.2007 of our rules of Practice 
and Procedure, reports are to be filed on Monday, October 16, 2000. 
This first OCSLA report will set a baseline specifying service 
providers' status; subsequent reports will look back to this baseline 
to determine what future changes merit reporting.
    An exempt OCS service provider may become subject to reporting by 
virtue of taking on another shipper or as a result of a Commission 
decision that a shipper was denied service without good cause. 
Currently, Sec. 330.3(b) gives such a service provider 90 days from the 
date it loses its exemption to file a report. We will modify this time 
frame so that if an exempt service loses its exemption during a 
calender quarter, it must file a Sec. 330.2 report on the 15th day of 
the subsequent quarter. Where an exemption is lost due to serving 
another shipper, the date such service commences will be the date 
exempt status ends.\29\ Where an exemption is lost due to a refusal to 
serve, the date the Commission determines the denial of service was 
unjustified is the date exempt status ends. In reaching such a 
determination, we note we may elect to alter this default date.
---------------------------------------------------------------------------

    \29\ Although we identify service to a new shipper as ending an 
exemption and triggering the requirement to report, we note that for 
an exempt owner-shipper, changes in ownership or shipping rights may 
have the same effect.
---------------------------------------------------------------------------

    In the final rule, we stated that if an OCS service provider's 
operations are identical quarter to quarter, the service provider need 
not submit a report. Concerns were raised that this could entice a 
service provider to make intraquarter changes, while arranging to 
revert to an apparent static state in time to be able to claim no 
quarter-to-quarter change took place. We clarify that although reports 
need only be filed once per quarter, this report is to be a cumulative 
record of all changes that have taken place during the calender quarter 
covered. If there is no change during a given quarter, then there is no 
need to file a report on the 15th day of the subsequent quarter.
    OCS Producers request clarification of Secs. 330.3(a)(1) and (a)(2) 
of the regulations, which state that single-shipper and owner-shipper 
exemptions end when either the service provider agrees to serve another 
customer, or when a new customer requests service, is denied, and the 
Commission determines the denial is unjustified. Discussions with 
prospective shippers do not jeopardize an existing

[[Page 47299]]

exemption.\30\ We are persuaded that the date parties reach an accord 
for future service should not be, as is now, the event that triggers 
the reporting requirement. Precedent agreements for future service may 
schedule long lead times before going into effect; actions that take 
place between the time the agreement is signed and service starts may 
void the agreement. Therefore, rather than make reaching an agreement 
to serve the reporting trigger, we will require actual service, and so 
modify Secs. 330.3(a)(1) and (a)(2) to designate the time the Gas 
Service Provider ``commences service'' as the event that eliminates a 
reporting exemption.
---------------------------------------------------------------------------

    \30\ Similarly, conversations with existing shippers concerning 
possible changes to rates or terms of service may continue in 
private indefinitely. Only when the results of such discussions are 
put into actual practice is the submission of a revised report 
required.
---------------------------------------------------------------------------

    Currently, Secs. 330.3(a)(1) and (a)(2) state that an exempt 
service provider's denial of service can trigger reporting if the 
Commission finds the denial unjustified and the denied shipper objects. 
OCS Producers persuades us that there is little to be gained by 
requiring that the denied shipper contest a refusal to serve. In 
investigating a denial of service, the Commission will have the 
opportunity to weigh the legitimacy and the merits of both the 
shipper's request and the service provider's refusal. Thus, we find no 
need for the denied shipper to present the Commission with the 
circumstances of its denial, again, following a finding that the denial 
was unwarranted. We will modify Secs. 330.3(a)(1) and (a)(2) 
accordingly.
    This is a first effort at obtaining information under the OCSLA. 
Nothing has changed since the final rule, where in response to a 
request for a more detailed OCSLA report we explained that ``[g]iven 
the complexities of offshore operations, the array of entities 
offshore, and the fact that we have not heretofore collected the 
information described in Secs. 330.2 and 330.3(b) and (c), we feel it 
premature to fix the manner of presentation or filing format of an 
OCSLA report at this time.'' \31\ If early rounds of OCSLA reports 
prove the information collected to be deficient, excessive, extraneous, 
redundant, inconsistent, or otherwise ineffective, we may then describe 
a more rigorous format and content for the reports. As is, we 
anticipate the information specified in our OCSLA regulations, as 
modified herein, will be adequate to enable interested parties to 
compare rates, conditions of service, and affiliate treatment among a 
pipeline's various customers and among various pipelines. Therefore, we 
deny rehearing requests to add details to the parameters of the OCSLA 
report.
---------------------------------------------------------------------------

    \31\ 65 FR 20354 at 20366, FERC Stats. & Regs. para. 31,514 at 
31,535.
---------------------------------------------------------------------------

    For reporting to be effective, interested persons must be able to 
compare costs to ship gas between specific points. To address the 
Producer Coalition's apprehension that service providers might post 
rates between primary receipt and delivery points, then actually ship 
gas between other sets of points, we will revise our regulations. 
Sections 330.2(b)(5) and (b)(6), directing service providers to list 
their primary receipt and delivery points, remains unchanged. Section 
330.2(b)(7) is expanded to require service providers to report ``Rates 
between each pair of primary receipt and delivery points and each pair 
of any other points served.''
    We concur with the Producer Coalition that it would be easier to 
find receipt and delivery points if the service provider designated 
them not just by meter identification numbers but by geographic 
location as well. We encourage service providers to do so.
    Section 330.2(b) of the regulations presents two reporting 
alternatives and asks service providers to file either copies of 
contracts or a description of the conditions of service that includes 
an explanation of the rates charged. The Producer Coalition proposes 
that we emphasize the alternative nature of this filing requirement by 
changing the format, but not the substance, of the regulations. We will 
do so, to avoid any possible confusion regarding the information to be 
submitted, as follows.
    Section 330.2(b) is revised to read: ``A Gas Service Provider must 
file with the Commission its conditions of service, consisting of the 
information specified in this paragraph (b), or alternatively, the 
information specified in paragraph (c). Under paragraph (b), a Gas 
Service Provider must submit, for each shipper served * * *.'' Section 
330.2(b)(8) now concludes after ``Gas Service Provider.'' Section 
330.2(b)(9) is redesignated as Sec. 330.2(c) and reads: ``As an 
alternative to the above paragraph (b) requirements, a Gas Service 
Provider may file a statement of its rules, regulations, and conditions 
of service that includes * * *.'' Sections 330.2(b)(9)(i), (ii), (iii), 
and (iv) are redesignated as Sec. 330.2(c)(1), (c)(2), (c)(3), and 
(c)(4), respectively.
    In the final rule, we expressed the expectation ``that, with 
limited exceptions, all filings by regulated entities will be made in 
electronic form.'' \32\ We retain this expectation, but for the reasons 
noted above, believe it would be premature to attempt to establish the 
format, content, and procedural protocol for electronic filing of OCSLA 
reports before the experience of a single round of reporting. The 
reports, filed as paper copies, will be available in the Commission's 
Public Reference Room and may be accessed remotely via the Internet 
through the FERC Home Page (http://www.ferc.fed.us) using the Records 
and Information Management System (RIMS) link or the Energy Information 
OnLine icon.
---------------------------------------------------------------------------

    \32\ Id., note 64.
---------------------------------------------------------------------------

    We will expand the Sec. 330.2(a)(6) definition of affiliate to 
include gathering affiliates and restrict it to affiliates engaged in 
gas operations within the US and adjacent water bodies. The omission of 
gathering affiliates was an oversight. We do not expect foreign 
affiliates will have any significant impact on OCS service providers' 
operations.
    We will not adopt OCS Producers' proposal to further narrow the 
affiliate category to only those doing business on the OCS, as we can 
envision instances where onshore affiliates, e.g., an affiliate owner 
of a processing plant, might influence an OCS service provider to 
modify the volumes or path of gas transported. We will adopt OCS 
Producer's proposal to omit identification of affiliate gas consumers, 
and modify Sec. 330.2(a)(6) accordingly. Given end user's location at 
the far end of the wellhead-to-burnertip gas path, we do not expect 
consumer affiliates to exert an undue influence on upstream offshore 
operations.
    If shippers are charged negotiated rates, NGSA asks whether 
additional information beyond this fact needs to be submitted. Section 
330.2(b) itemizes the reporting requirements. Reports should enable 
interested persons, particularly prospective and existing shippers, to 
compare the rates and terms of service they might receive or are 
receiving, with that of other shippers. Thus, simply stating that all 
rates are negotiated will not do. As noted in NorAm Gas Transmission 
Company, a negotiated rate formula must be stated with ``sufficient 
specificity to permit easy calculation of the actual negotiated rate, 
charge, and rate component for each transaction,'' \33\ to enable a 
shipper to estimate the rate it would be charged to transport gas 
between specific points in

[[Page 47300]]

order to compare its hypothetical rate with the actual rates of other 
shippers.
---------------------------------------------------------------------------

    \33\ 75 FERC para. 61,091 (1996), order on reh'g, 77 FERC para. 
61,011 at 61,037 (1996).
---------------------------------------------------------------------------

D. Reporting Exemptions

1. Requests for Rehearing and/or Clarification
    Williams would lift the single-shipper and owner-shipper reporting 
exemptions, claiming such exemptions make it difficult for a shipper to 
determine if it has been denied access or subject to discrimination. 
Duke is similarly concerned that reporting exemptions will produce an 
``information asymmetry,'' whereby nonreporting OCS service providers 
may exploit the public record to gain a competitive advantage over 
their reporting rivals.
    El Paso urges that all reporting exemptions, other than the 
exemption for offshore pipelines subject to the NGA, be eliminated as a 
means of leveling the regulatory playing field.
    El Paso, OCS Producers, and Williams expect existing effective 
offshore arrangements will be upset as service providers structure 
their business organization and facilities to come within the reporting 
exemptions.
    OCS Producers would expand the reporting exemptions by (1) treating 
affiliates of the same corporate family as if they were one entity; (2) 
considering parties engaged in a common financial transaction, such as 
a sale and leaseback, as a single or joint owner; (3) applying the 
owner-shipper exemption to a jointly-owned pipeline that receives gas 
from multiple fields, even though all pipeline owners do not hold 
interests in each of the attached fields; (4) treating each owner of a 
pipeline with undivided ownership interests as if each were an 
individual pipeline (i.e., a pipe within a pipe); (5) extending the 
shared ownership exemption of a single pipeline crossing multiple 
fields to include multiple pipelines crossing multiple fields; and (6) 
declaring that gas volumes shipped in conjunction with the MMS' 
royalty-in-kind program will not void the single-shipper or shipper-
owner exemptions.
    OCS Producers argue that production platforms, and facilities 
upstream thereof, should be exempt from reporting (effectively 
broadening the ``feeder-line'' exemption). NGSA would establish a 
rebuttable presumption that all production facilities and services 
qualify for the feeder-line exemption.
2. Commission Response
    Adopting proposals to eliminate some or all of the reporting 
exemptions would admittedly meet our aim of producing a broader and 
more complete picture of offshore operations. However, we seek only the 
minimal information necessary to be able to verify that OCS service 
providers are operating in compliance with the OCSLA's open and 
nondiscriminatory access mandates. We continue to believe that an 
entity that serves a single customer, or that transports only its own 
gas, has little opportunity or motive to contravene these OCSLA 
mandates. Thus, we do not find it necessary to employ reporting to 
monitor such entities.
    Given that adding a new customer will void the single-shipper or 
owner-shipper reporting exemption, it seems futile for an exempt 
service provider to offer prospective shippers discriminatory terms, 
since the service provider's first filing following termination of its 
exemption will advertise the disparity between new and existing 
customers' conditions of service and invite action contesting the 
disparity. Similarly, a Commission determination that a denial of 
service is unjustified informs the rejected shipper, without the need 
for any further inquiry, that the rejected shipper has cause to 
complain. Therefore, while a reporting exemption may place a service 
provider at an advantage in negotiating with prospective shippers, 
acting on this advantage will be ultimately self-defeating, since any 
impropriety will come to light in a first filing. In view of the above, 
we do not expect the single-shipper or owner-shipper reporting 
exemptions will be used to exploit shippers, as Williams worries, since 
discrimination or an unwarranted refusal to serve inevitably will be 
revealed and rectified.
    Duke is correct that the cure for ``information asymmetry'' is a 
wider application of the transactional transparency that OCSLA 
reporting provides. However, an exempt service provider that is able to 
make use of the public record to enable it to add a new customer or 
entice one away from a competitor, will lose its reporting exemption by 
adding that shipper. Because reporting will end the ``information 
asymmetry,'' the problem Duke identifies should prove largely self-
correcting. To the extent we find evidence that this is not the case--
i.e., as Duke warns, the partial transparency produced by allowing 
reporting exemptions reduces competition and economic efficiency in the 
OCS marketplace--we will reevaluate the operation and outcome of the 
OCSLA reporting regime.
    Duke asserts that OCS producers, when compared to OCS service 
providers, ``often have superior market knowledge,'' \34\ and thus 
enjoy an advantage when weighing offers for transportation services. 
This advantage, coupled with a producer's capability to construct its 
own gathering and transportation facilities, leads Duke to conclude 
that the ultimate leverage holder and decision maker is the offshore 
producer. We find this assertion unpersuasive. Individual producers are 
compelled to publically disclose to the MMS a significant amount of 
information about their OCS leaseholdings, including their estimates of 
gas and oil reserves, exploration and development plans, information on 
deepwater discoveries, and data on production, existing and planned 
wells, structures, platforms and rigs, geographic mapping, and royalty 
relief. Although some of the producer-specific or lease-specific data 
is not publically available, enough is to permit OCS service providers 
to evaluate OCS producers' ongoing activities. Given this we do not 
expect that requiring some service providers to make certain 
information public to tip the competitive balance between producers and 
the pipelines that carry their gas. Both service providers and 
producers should be positioned to adequately monitor one another and 
reach rational accord on the merits of contracting for capacity versus 
constructing proprietary pipeline facilities.
---------------------------------------------------------------------------

    \34\ Duke's Request for Rehearing, Appendix C, Affidavit at 2 
(May 10, 2000).
---------------------------------------------------------------------------

    El Paso would eliminate the single-shipper, owner-shipper, and 
feeder-line reporting exemptions in the interests of leveling the 
competitive playing field. As discussed, we do not expect the first two 
exemptions to confer any sustainable competitive benefit; therefore, we 
believe these exemptions can be retained without distorting offshore 
operations. With respect to the feeder-line exemption, as discussed in 
the final rule, feeder line facilities are typically owned and operated 
by the same entity that holds the right to produce gas from a 
particular field and are found upstream of a point where gas leaves a 
platform or platforms on its way from a producing field to shore. We do 
not expect issues of access or discrimination to arise with respect to 
such facilities, since where the same entity owns or leases both the 
mineral rights and the facilities necessary to draw gas from its own 
reservoirs.
    OCSLA section 1334(f)(2) states the ``Commission may, by order or 
regulation, exempt from any or all of the [open and nondiscriminatory 
access] requirements * * * any pipeline or class of pipelines which 
feeds into a

[[Page 47301]]

facility where oil and gas are first collected or a facility where oil 
and gas are first separated, dehydrated, or otherwise processed.'' We 
exercised this option, stating in Sec. 330.3(a)(3) of the regulations 
that the reporting requirements would not apply to ``[s]ervices 
rendered over facilities that feed into a facility where natural gas is 
first collected, separated, dehydrated, or otherwise processed.''
    OCS Producers and NGSA stress that the statute provides for an 
exemption for pipelines feeding into facilities where gas is first 
collected or into facilities where gas is first separated, dehydrated, 
or otherwise processed. They argue that because we eliminated the 
``or'' between the point of first collection and the point of first 
separation, dehydration, or other processing, we restrict the exemption 
so that it holds only up to the first point where any of the specified 
activities occurs. OCS Producers maintain this excludes ``the majority 
of production-related facilities'' from qualifying for the feeder-line 
exemption, citing the example of a subsea manifold adjacent to 
wellbores as a potential point of first collection.
    This was not our intention. In fact, we view our regulatory 
exemption as an expansive application of what OCSLA section 1334(f)(2) 
allows. However, to preclude any interpretative ambiguity, we will more 
explicitly follow the wording of the statute, and modify 
Sec. 330.3(a)(3) to read ``[a]ny pipeline or class of pipelines which 
feeds into a facility where gas is first collected or a facility where 
gas is first separated, dehydrated, or otherwise processed.''
    We decline OCS Producers' and NGSA's invitations to categorically 
exempt all production-related facilities. Without reviewing the 
configuration of offshore facilities, we cannot be satisfied that a 
pipeline's location upstream of a processing platform guarantees it 
serves as a feeder line and not as a transportation line, or that a 
platform is being used to support production activities rather than, 
for example, serving to collect, redistribute, and boost the pressure 
of gas already in transit en route to shore. Therefore, we will retain 
the feeder-line exemption, but will not broaden it.
    We recognize that by providing reporting exemptions, we invite OCS 
service providers to organize their operations so as to come within 
these exemptions. For example, Williams anticipates exempt service 
providers, in contemplating expansions, may be motivated to 
deliberately undersize new capacity to be able to claim to be 
physically incapable of serving additional customers.
    In the final rule, in response to this same example, we observed it 
would be economically irrational to reject the receipt of the 
additional revenues that new customers confer in favor retaining a 
reporting exemption. We do not believe the administrative convenience 
of not reporting will outweigh service providers' motivation to 
maximize profit. As we also observed in the final rule, ``[g]iven that 
exempt and non-exempt service providers must ultimately abide by the 
same OCSLA nondiscrimination provisions, we do not expect opting out of 
reporting will confer a noticeable commercial advantage.'' \35\ We do 
not expect legitimate efforts to obtain or retain exempt status will 
impede or distort offshore development, or have any significant adverse 
impact the offshore's competitive transportation markets, or upset 
offshore investments. Therefore, we will permit regulated entities to 
arrange their affairs with an eye to the regulatory impact thereof.
---------------------------------------------------------------------------

    \35\ 65 FR 20354 at 20365, FERC Stats. & Regs. para. 31,514 at 
31,534.
---------------------------------------------------------------------------

    We do not intend, however, to let exempt form trump exempt 
substance, which leads us to reject OCS Producers' proposals to treat 
exemptions expansively. Specifically, our standard practice is to treat 
separate business entities as distinct, regardless of affiliation, and 
we will continue to do so. Thus, for the purposes of applying the 
single-shipper exemption, two affiliated shippers count as two 
shippers, and consequently could not both be served under the single-
shipper criteria. Also, where a pipeline is jointly owned by more than 
one entity, each with an undivided interest in the line, the single-
shipper exemption will only apply as long as one and only one party 
ships its gas through the pipeline.
    In the same manner, we expect to rely on the formalities of 
financial arrangements, and treat entities engaged in a common 
financial transaction as separate parties. Thus, while OCS Producers 
propose treating entities engaged in a sale and leaseback as a single 
or joint owner, we view each participant as a separate actor. 
Accordingly, if individual entities wish to be treated as a collective 
joint owner, they should execute agreements to that effect, and not 
count on this Commission to examine the depth of their financial ties, 
affiliate status, or other indicia of intimacy in order to construe 
them to be a constructive joint owner.
    We clarify that where the same parties own a pipeline and all the 
gas flowing through it, if such parties contract with a third party as 
their agent to operate the pipeline, or manage other transportation 
matters on their behalf, the owner-shipper exemption remains intact. 
This same principle applies to the single-shipper exemption.
    We presume that service providers serving themselves will not deny 
access to or discriminate against themselves, hence the owner-shipper 
exemption. Section 330.3(a)(2) states this exemption applies where a 
service provider's owners hold interests in a pipeline and the gas from 
the ``field or fields connected to a single pipeline.'' OCS Producers 
suggest, and we agree, that the intent is clarified by changing ``a 
single pipeline'' to ``that single pipeline.'' OCS Producers also 
suggest changing the reference from ``that single pipeline'' to ``that 
pipeline or pipelines'' in order to cover a configuration where 
laterals that gather gas from a production area feed into a trunkline. 
We will also adopt this change, but note this owner-shipper exemption 
holds only as long as all the same parties share ownership interests in 
all the pipeline facilities and in all the gas supplies transported by 
those facilities.
    We recognize that, as a practical matter, due to arrangements such 
as production balancing agreements, an owner-shipper pipeline may not 
always flow gas volumes in constant proportion to the ownership 
interests in the production field. We clarify that as long as all the 
same parties share ownership interests in the pipeline and in all 
production attached to that line, the owner-shipper exemption will 
apply.
    OCS Producers would expand the owner-shipper exemption to permit 
parties that are not shippers to hold interests in a pipeline. A 
premise of the owner-shipper exemption is that where all parties share 
the same ultimate interest, the self-dealing of one will be the self-
dealing of all. Introducing non-shipping pipeline owners, introduces 
third parties that do not necessarily share interests in common with 
shipper-owners. This undermines our assumption that parties engaged in 
a single enterprise will have little motive to exploit one another; 
therefore, we will not broaden the shipper-owner exemption in the 
proposed manner.
    We clarify that the fact that upstream laterals and/or extensions 
of a pipeline system qualify for reporting exemptions is not 
determinative of whether the downstream segments of the same pipeline 
system are exempt. For example, consider an offshore pipeline system 
configured in the form of an

[[Page 47302]]

inverted ``Y,'' owned and operated by gas producers A, B, and C. Gas 
flows in separate paths along the left and right legs, merging into a 
single stream that moves along the trunk of the ``Y.'' Assuming the 
legs are the only lines connecting to the trunk, if producer A owns and 
ships all the gas in the left leg, and producers B and C own and ship 
all of the gas in the right leg, then each leg qualifies for a 
reporting exemption. The left leg comes under the single-shipper 
exemption and the right leg under the shipper-owner exemption. In 
addition, because all gas flowing along the trunkline portion of the 
pipeline system is owned by the same parties that own that line, the 
trunkline would also qualify for the shipper-owner exemption. We note 
that if the trunkline were owned by only one or two of the three 
producers, the trunkline could not qualify for this exemption. The legs 
leading into the trunkline retain their exempt status regardless of the 
ownership of the trunkline.
    We clarify that transporting gas on behalf of MMS under its 
royalty-in-kind program will be considered to be service for a separate 
shipper--but only if gas is actually moving under such an 
arrangement.\36\ In theory, MMS royalty-in-kind gas could flow in every 
offshore pipeline. In practice, at present, only minimal amounts of 
such gas are actually flowing. In the final rule, we rejected MMS' 
suggestion that we treat its potential participation as a second 
shipper as voiding the single-shipper and owner-shipper exemptions. 
Here, we reject OCS Producers' contrary suggestion that we carve out an 
exception to retain those same exemptions where MMS participates as a 
shipper. Recognizing the provisional nature MMS' royalty-in-kind 
collection program, we reaffirm the wait-and-see approach of the final 
rule: ``in the event MMS moves beyond its present royalty-in-kind pilot 
program and begins to collect a significant portion of royalty payments 
as gas volumes, we may be inclined to revisit the applicability of the 
reporting exemptions.'' \37\
---------------------------------------------------------------------------

    \36\ This applies regardless of whether MMS holds title to the 
gas or the gas is transported under the name of another shipper on 
behalf of MMS.
    \37\ 65 FR 20354 at 20361, FERC Stats. & Regs. para. 31,514 at 
31,526.
---------------------------------------------------------------------------

E. Rate Regulation

1. Requests for Rehearing and/or Clarification
    Williams urges the Commission to state that it does not intend to 
use the OCSLA to impose cost-based rates.
    Duke and Williams are concerned that potential allegations of rate 
discrimination will create the need to renegotiate existing contracts 
every time a new customer is signed up under different terms.
    Duke and Williams are concerned that the reporting requirements 
will compel pipelines to forego individually-tailored offerings in 
favor of uniform rates and services.
2. Commission Response
    We recognize that the OCSLA contains no provision for the 
imposition of cost-based rates and clarify that it is not our intention 
to apply a full NGA cost-of-service review to non-NGA OCS entities. Our 
focus under the OCSLA is open and nondiscriminatory access, not 
ratemaking methodology. Thus, as long as an OCS service provider 
charges its customers compatible rates, and assuming there is no rate 
inequity, then under the OCSLA we would have no cause for further 
inquiry regarding the rates' derivation. Of course, if an OCS service 
provider is subject to the NGA, its rates would be scrutinized and 
authorized as just and reasonable under the NGA.
    The prospect that OCSLA reporting might place a straightjacket on 
OCS service providers was raised and responded to in the final rule. 
There we rejected such speculation, stating that ``we see no bar to a 
service provider offering different shippers different terms--provided 
the variation in the terms of service either reflect differences in 
costs incurred to provide service or reflect differences among the 
shippers served,'' \38\ a position we reaffirm here. We clarify that 
our review of a service provider that charges a lower rate to one 
customer and a higher rate to another would not necessitate scrutiny of 
the service provider's full cost of service data. Rather, the service 
provider would only need to provide that data and other information 
material to justify the higher rate.
---------------------------------------------------------------------------

    \38\ 65 FR 20354 at 20358, FERC Stats. & Regs. para. 31,097 at 
31,522.
---------------------------------------------------------------------------

    We reiterate that we will neither oblige an OCS service provider to 
offer identical rates and terms to all customers to meet the OCSLA's 
nondiscrimination mandate nor oblige comparable OCS service providers 
to offer identical rates and terms of service. Provided an OCS service 
provider can justify variable conditions of service among its 
customers, we may find such customers are not in fact similarly 
situated. Additionally, if comparable service providers can articulate 
an acceptable reason for differences in their rates and terms of 
service, we may accept the differences as reasonable reflections of 
distinctive business conditions and practices.\39\
---------------------------------------------------------------------------

    \39\ With this in mind, Sec. 330.2(b)(8) solicits ``[o]ther 
conditions of service deemed relevant by the Gas Service Provider.'' 
The Producer Coalition suggests the Commission spell this out, 
maintaining that without requiring specific information, rates and 
terms that superficially appear the same can mask discrimination. As 
an example, the Producer Coalition posits a service provider that 
charges a shipper a rate that includes recovery of costs incurred to 
build new facilities to serve that shipper, and then charges that 
same rate to a second shipper, but differently than the first 
shipper, the second shipper pays upfront for the new facilities 
needed for its service. The Producer Coalition asserts that unless 
the service provider is made to report and display this underlying 
disparity, it appears both shippers are subject to the same rate. 
The Producer Coalition would prevent this by revising 
Sec. 330.2(b)(8) to require reporting of ``other economically and 
operationally material conditions of service, including contract 
volumes, the effective and expiration date of the contract, 
dedication of gas supply, responsibility for construction of 
interconnection facilities, and any other economically or 
operationally material term of service (such as gas quality 
standards, scheduling priorities, imbalance provisions and billing 
and payment) that sets the subject contract apart from other 
contracts on Gas Service Provider's system.'' Although some of the 
itemized information may be relevant to determining whether a 
service provider is complying with the OCSLA, some of it may not. 
Without an explicit need for more data, we are reluctant to increase 
the reporting burden. In the case of the above example, we are not 
convinced the second shipper needs the additional information the 
Producer Coalition proposes to be alerted to the possibility that it 
may not be signing up for service under a rate reflecting the same 
set of conditions as the rate charged the first shipper. 
Accordingly, we place upon the service provider the responsibility 
of determining what information to report as relevant under 
Sec. 330.2(b)(8) while reminding shippers of the need to remain 
alert to signs of service providers' sins of omission.
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    Duke and Williams are correct to suggest that offering service to a 
new customer under terms at odds with those of existing customers may 
give rise to suspicions of discrimination. However, such suspicions may 
be set aside if the service provider demonstrates a legitimate reason 
for such treatment, e.g., a disparity in new and existing customer 
reserve commitments. Thus, while a service provider may seek safe 
harbor by establishing a uniform tariff applicable to all customers, we 
do not interpret the OCSLA as requiring this. To clarify, we do not 
read the OCSLA's nondiscrimination requirement as a most-favored-
nations clause; where an OCS service provider can present an acceptable 
rationale for offering its customers different rates and terms, we can 
find different conditions of service acceptable.
    Duke asserts that reporting will lessen competition by reducing the 
business alternatives now available to offshore service providers, 
which will lead to diminished OCS investment. This conflicts with the 
premise of Order No. 639 that ``the free flow of information

[[Page 47303]]

regarding offshore gas activities is critical to the successful 
creation of a competitive and efficient marketplace.'' \40\ We are 
unclear which particular business practices depend on remaining 
closeted to remain viable. We stress that this new rule imposes no new 
obligations on how OCS service providers conduct business; it is the 
OCSLA that obligates OCS service providers to conduct business premised 
on open and nondiscriminatory access.
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    \40\ 65 FR 20354 at 20364, FERC Stats. & Regs. para. 31,514 at 
31,531.
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    As discussed above, we do not intend for reporting to force all OCS 
service providers to adhere to one rigid tariff. We see no reason that 
the flexibility, variety, and experimentation reflected in existing 
offshore agreements and practices cannot be sustained under this new 
reporting regime, provided these business arrangements conform to the 
OCSLA's longstanding open and nondiscriminatory access requirements. 
Thus, reporting should neither diminish the number of legitimate 
business alternatives nor diminish offshore investments.

F. Gas and Oil Asymmetry

1. Requests for Rehearing and/or Clarification
    Duke points out that the OCSLA applies with equal force to oil and 
gas transportation and asks why the new reporting requirements are 
confined to gas.\41\
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    \41\ Duke also argues that in amending the OCSLA in 1978--an 
amendment that added the nondiscrimination mandate to the existing 
open access requirement--Congress was preoccupied with potentially 
anticompetitive activities of oil companies, not gas. This insight 
into the legislative history of the OCSLA, however, does not alter 
the fact that the plain language of the statute, as Duke points out, 
does not distinguish between oil and gas. Thus, the competitive 
principles of OCSLA section 1334(f) apply with equal force to OCS 
oil and gas service providers.
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2. Commission Response
    Here we are concerned solely with offshore natural gas operations, 
and while this leads us to also consider other statutes' impact on such 
operations (principally the NGA), we find no cause to consider OCSLA 
provisions affecting oil operations. In the final rule, we explained to 
Duke that in this proceeding we have elected to confine our 
considerations to gas matters, given that we have found rates for 
transportation on oil pipelines to be just and reasonable,\42\ but have 
made no such finding for rates for transportation on NGA-exempt OCS gas 
pipelines. Thus, to protect gas shippers using NGA-exempt OCS 
facilities from discriminatory, exorbitant charges, we look to the 
OCSLA. We do not rule out the future implementation of similar 
reporting requirements for offshore oil service providers, but that 
possibility is outside our present purpose.
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    \42\ See Revision to Oil Pipeline Regulations Pursuant to the 
Energy Policy Act of 1992, 58 FR 58753 (Nov. 4, 1993), FERC Stats. & 
Regs. para. 30,985 (1993). Whether this presumption of just and 
reasonable oil rates applies to oil lines located wholly on the OCS 
has yet to be affirmed by judicial review.
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G. Administrative Burdens

1. Requests for Rehearing and/or Clarification
    OCS Producers expect the Commission to be inundated with requests 
for declarations that production-related facilities and services 
qualify for a reporting exemption.
2. Commission Response
    We are unable to predict the number of petitions that might be 
presented with respect to OCSLA reporting status; however, we intend to 
give prudent consideration to the issues raised in each request and 
process all requests as expeditiously as our resources permit. Initial 
uncertainties about how to assess whether exemptions apply should 
recede with each declaratory order addressing the merits of the OCSLA 
exemptions. As discussed in the final rule, we entrust OCS service 
providers with undertaking a good faith analysis of whether they 
qualify for one of the reporting exemptions, i.e., service providers 
need not obtain prior Commission permission in order to lay claim to a 
reporting exemption.
    We expect requests for a review of an entity's OCSLA reporting 
status will follow the pattern we are familiar with for requests of an 
entity's NGA jurisdictional status, namely, the Commission sees 
primarily those cases where the circumstances give rise to doubts about 
results reached. In the far more numerous cases where the facts lead to 
a reasonably unambiguous outcome, unless a company seeks reassurance 
that its own analysis is correct, the Commission's own assessment is 
rarely requested.

H. Offshore Development

1. Requests for Rehearing and/or Clarification
    NGSA suggests that service providers be permitted to reserve 
capacity for their own future use and offer such capacity to third 
parties until needed. NGSA points out that NGA-regulated pipelines can 
reserve capacity for future use, and is apprehensive that unless NGA-
exempt OCS pipelines can do the same, shippers seeking access to a 
service provider's facilities could disrupt a development plan between 
an OCS service provider and producer. NGSA also suggests OCS service 
providers be required to enlarge capacity when prospective shippers 
agree to bear the cost of the expansion.
2. Commission Response
    We endorse the idea of sizing facilities to match anticipated 
transportation needs. Particularly offshore, where developing a 
producing field may entail extensive time and expense, we recognize the 
practicality of coordination, whereby a producer incrementally bringing 
additional volumes on line can be assured that when the field's 
extraction reaches its zenith, pipeline facilities will be in place 
with the capacity to take away and transport all gas volumes. Although 
such coordination, ultimately, is efficient, there can be a period of 
underutilization between the time a large diameter line is completed 
and the field it serves reaches full production.
    Under such circumstances, we believe it is appropriate to compel 
the service provider to allow other shippers to interconnect, at their 
own expense, with the underutilized line. However, given that the 
primary purpose of the new line is to pick up gas at a particular 
production platform, as the volumes available at that production 
platform increase with the development of the field, these other 
shippers may be curtailed. This is appropriate, given that such 
shippers will have elected to enter into contracts for service on an 
interim basis, i.e., between the time the line is placed in operation 
and the time excess capacity on the line is needed by the producer-
shipper. We will permit a service provider to reserve its own capacity, 
as NGSA requests, provided (1) potential shippers' transportation 
requirements are taken into consideration in designing the new line, 
(2) shippers willing to bear the economic costs of moving gas on an 
until-as-needed basis are allowed access to reserved but unused 
capacity, and (3) the service provider does not shift costs associated 
with the underutilization of its own reserved capacity onto other 
customers.
    NGSA requests we mandate expansions. Our authority to do so is 
contained in OCSLA section 1334(f)(2)(B), which states that:

    Upon the specific request of one or more owner or nonowner 
shippers able to provide a guaranteed level of throughput, and on 
the condition that the shipper or shippers

[[Page 47304]]

requesting such expansion shall be responsible for bearing their 
proportionate share of the costs and risks related thereto, the 
Federal Energy Regulatory Commission may, upon finding, after a full 
hearing with due notice thereof to the interested parties, that such 
expansion is within technological limits and economic feasibility, 
order a subsequent expansion of throughput capacity of any pipeline 
for which the permit, license, easement, right-of-way, or other 
grant of authority is approved or issued after the date of enactment 
of this subparagraph [enacted Sept. 18, 1978]. This subparagraph 
shall not apply to any such grant of authority approved or issued 
for the Gulf of Mexico or the Santa Barbara Channel.

    We have yet to exercise our authority under this section of the 
OCSLA, and until we are faced with a case of first impression covering 
our mandatory expansion authority, we believe it would be imprudent to 
speculate on how we might exercise that authority.

I. Applicability of the Rule

1. Requests for Rehearing and/or Clarification
    OCS Producers point to instances where the Commission's applies its 
rule to ``OCS service providers'' and ``facilities'' used to ``move'' 
gas. OCS Producers believes these words designate categories that are 
improperly broad given that the OCSLA, by its own terms, applies to 
``pipelines'' that ``transport'' gas.
2. Commission Response
    The OCSLA, by its own terms, applies to the exploration, 
development, or production of OCS minerals--defining ``production'' to 
include the ``transfer of minerals to shore;'' \43\ ``minerals'' being 
defined as including gas.\44\ This is a broader regulatory sweep than 
the NGA. For example, NGA section 1(b) excludes production and 
gathering facilities, whereas the OCSLA contains no such limitations.
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    \43\ 43 U.S.C. 1331(m). The OCSLA refers to, but does not 
define, ``gathering'' and ``transportation.''
    \44\ 43 U.S.C. 1331(q).
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    For this reason, rather than refer to an OCS ``pipeline,'' which 
risks being associated with the narrower NGA usage, we deliberately 
refer to an OCS ``service provider.'' Similarly, ``transportation,'' as 
a term of art under the NGA, carries connotations and limitations that 
we seek to sidestep. Our reference to facilities that ``move'' gas is 
no more expansive than the OCSLA's section 1331(q) description of 
``transportation,'' which covers everything between a wellhead and 
shore.
    We clarify that we do not intend to cross reference common OCSLA 
and NGA terms. Thus, the OCSLA's use of the terms ``pipeline'' and 
``transportation'' is to be interpreted by exclusive reference to the 
OCSLA. NGA definitions are relevant to the OCSLA only to the extent 
that NGA-regulated interstate transportation facilities are exempt from 
OCSLA reporting.
    OCS Producers request we refine the Sec. 330.1(b) definition of an 
OCS gas service provider to explicitly exclude production and 
explicitly include gathering. The OCSLA contains an expansive view of 
``production,'' quoted above. Rather than attempt to define production 
more rigorously, we find the more prudent approach is to make use of 
our OCSLA authority to exclude feeder line facilities from compliance 
with the competitive principles of section 1334(f). This should have 
the effect of removing the bulk of production activities from the OCSLA 
reporting requirements. All other OCS facilities and services, unless 
they fall under the single-shipper, owner-shipper, or NGA-regulated 
exemption, remain subject to the reporting requirements.

IV. Effective Date

    The amendments to our regulations adopted in this order on 
rehearing will become effective October 2, 2000. As discussed above, 
since October 15, 2000 is a Sunday, OCS service providers' initial 
reports will be due on October 16, 2000.

List of Subjects in 18 CFR 330

    Natural gas, Pipelines, Reporting and record keeping requirements.

    By the Commission.
David P. Boergers,
Secretary.
    In consideration of the foregoing, the Commission denies rehearing 
in part, grants rehearing in part, and clarifies Order No. 639. The 
Commission amends Part 330, Title 18, Code of Federal Regulations, as 
follows.

PART 330--CONDITIONS OF SERVICE REPORTING REQUIREMENTS

    1. The authority for Part 330 continues to read as follows:

    Authority: 43 U.S.C. 1301-1356.

    2. In Sec. 330.2, paragraphs (a)(6), (b) introductory text, (b)(7), 
and (b)(8) are revised; the introductory text of paragraph (b)(9) is 
removed and paragraphs (b)(9)(i), (ii), (iii), and (iv) are 
redesignated, respectively, as paragraphs (c)(1), (c)(2), (c)(3), and 
(c)(4), and paragraph (c) is revised to read as follows:


Sec. 330.2  Reporting requirements.

    (a) * * *
    (6) For all entities affiliated with the Gas Service Provider and 
engaged in the exploration, development, production, processing, 
gathering, transportation, marketing, or sale of natural gas within the 
boundaries of the United States and the water bodies immediately 
adjacent thereto: the names and state of incorporation of all 
corporations, partnerships, business trusts, and similar organizations 
that directly or indirectly hold control over the Gas Service Provider, 
and, the names and state of incorporation of all corporations, 
partnerships, business trusts, and similar organizations directly or 
indirectly controlled by the Gas Service Provider (where the Gas 
Service Provider holds control jointly with other interest holders, so 
state and name the other interest holders).
    (b) A Gas Service Provider must file with the Commission its 
conditions of service, consisting of the information specified in this 
paragraph (b), or alternatively, the information specified in paragraph 
(c) of this section. Under this paragraph (b), a Gas Service Provider 
must submit, for each shipper served:
* * * * *
    (7) Rates between each pair of primary receipt and delivery points 
and each pair of any other points served, and;
    (8) Other conditions of service deemed relevant by the Gas Service 
Provider.
    (c) As an alternative to the requirements in paragraph (b) of this 
section, a Gas Service Provider may file a statement of its rules, 
regulations, and conditions of service that includes:
    (1) The rate between each pair of receipt and delivery points, if 
point-to-point rates are charged;
    (2) The rate per unit per mile, if mileage-based rates are charged;
    (3) Any other rate employed by the Gas Service Provider, with a 
detailed description of how such rate is derived, identifying customers 
and the rate charged to each customer;
    (4) Any adjustments made by the Gas Service Provider to the rates 
charged based on gas volumes shipped, the conditions of service, or 
other criteria, identifying customers and the rate adjustment 
applicable to each customer.

    3. In Sec. 330.3, paragraphs (a)(1), (a)(2), (a)(3), (b), and (c) 
are revised to read as follows:


Sec. 330.3  Applicability of reporting requirements.

    (a) * * *
    (1) A Gas Service Provider that serves exclusively a single entity 
(either itself

[[Page 47305]]

or one other party), until such time as the Gas Service Provider 
commences service to serve a second shipper, or the Commission 
determines that the Gas Service Provider's denial of a request for 
service is unjustified;
    (2) A Gas Service Provider that serves exclusively shippers with 
ownership interests in both the pipeline operated by the Gas Service 
Provider and the gas produced from a field or fields connected to that 
single pipeline or pipelines, until such time as the Gas Service 
Provider commences service to a non-owner shipper, or the Commission 
determines that the Gas Service Provider's denial of a request for 
service is unjustified;
    (3) Any pipeline or class of pipelines which feeds into a facility 
where gas is first collected or a facility where gas is first 
separated, dehydrated, or otherwise processed; and
* * * * *
    (b) A Gas Service Provider that makes no filing pursuant to 
Secs. 330.3(a)(1) or (a)(2) becomes subject to the Sec. 330.2 reporting 
requirements at any time that it no longer meets the Secs. 330.3(a)(1) 
or (a)(2) criteria. A Gas Service Provider that becomes subject to 
reporting during any calender quarter must submit a Sec. 330.2 report 
on the 15th day of the following quarter. Gas Service Providers must 
comply with the Sec. 330.2 reporting requirements as directed by the 
Commission.
    (c) When a Gas Service Provider subject to the Sec. 330.2 reporting 
requirements alters its affiliates, customers, rates, conditions of 
service, or facilities during any calender quarter, it must then file 
with the Commission, on the 15th day of the following quarter, a 
revised report describing all alterations occurring during the previous 
quarter.

[FR Doc. 00-19426 Filed 8-1-00; 8:45 am]
BILLING CODE 6717-01-P