[Federal Register Volume 70, Number 184 (Friday, September 23, 2005)]
[Notices]
[Pages 55819-55820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-19001]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. PL05-10-000]


Criteria for Reassertion of Jurisdiction Over the Gathering 
Services of Natural Gas Company Affiliates; Notice of Inquiry

September 15, 2005.
    1. This order institutes a notice of inquiry to evaluate possible 
changes in the criteria set forth in Arkla Gathering Service Co.\1\ 
employed by the Commission in evaluating whether and under what 
circumstances the Commission may invoke its ``in connection with'' 
jurisdiction to guard against abusive practices by natural gas 
companies and their gathering affiliates.
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    \1\ Arkla Gathering Service Co., 67 FERC ]61,257 at 61,871 
(1994), order on reh'g, 69 FERC ]61,280 (1994), reh'g denied, 70 
FERC ] 61,079 (1995), reconsideration denied, 71 FERC ]61,297 (1995) 
(collectively, Arkla), aff'd Conoco Inc. v. FERC, 90 F.3d 536 (D.C. 
Cir. 1996) (Conoco).
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    2. The Arkla test involves a determination that, as a result of the 
concerted action of a pipeline and its gathering affiliate, the 
Commission's effective regulation of the pipeline is circumvented. In a 
recent decision,\2\ the United States Court of Appeals for the District 
of Columbia found that the Commission had misapplied the criteria set 
forth in Arkla. Under Arkla, the Commission's ability to reassert 
jurisdiction is limited to abuses directly related to the affiliate's 
unique relationship with an interstate pipeline, such as tying 
gathering service to the pipeline's jurisdictional transmission service 
or cross-subsidization between the affiliate's gathering rates and the 
pipeline's transmission rates. The court stated that Arkla permits a 
reassertion of jurisdiction in circumstances ``limited to'' abuses 
``directly related to the affiliate's unique relationship with an 
interstate pipeline,'' such as ``tying gathering service to the 
pipeline's jurisdictional transmission service,'' or ``cross-
subsidization between the affiliate's gathering rates and the 
pipeline's transmission rates.'' \3\ The court found that, in the case 
before it, the gathering affiliate's affiliation with the pipeline was 
``utterly irrelevant to its ability to charge high rates, or to impose 
onerous conditions for gathering service.'' \4\ Instead, the affiliate 
``could do these things for one reason only `` because it was a 
recently deregulated monopolist in the North Padre gathering market.'' 
\5\ Accordingly, the court held that the Commission had not met its own 
test under Arkla for reassertion of jurisdiction and vacated and 
remanded the Commission's orders.
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    \2\ Williams Gas Processing Co., L.P. v. FERC, 373 F.3d 1335 
(2004) (Williams Gas Processing).
    \3\ Williams Gas Processing, at 1342.
    \4\ Id. at 1342.
    \5\ Id.
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    3. The Commission is interested in reevaluating both its legal 
authority to reassert jurisdiction and the policy considerations in 
deciding whether to do so. To assist this reevaluation of the Arkla 
test, the Commission is seeking comment on the following questions:
    1. Is there an inherent anti-competitive issue when pipelines spin-
down gathering facilities to affiliates or are concerns about the 
behavior of affiliated gatherers unique to certain specific pipeline/
affiliate relationships, such as those articulated by Shell in its 
request for rehearing in the Shell v. Transco proceeding in Docket No. 
RP02-99-010?
    2. Once a pipeline has spun-down its gathering services into an 
affiliated company, is it common for the affiliated gatherer to seek 
higher rates for its gathering services than the rates charged by the 
pipeline for those services prior to the spin-down?
    a. How do the rates of non-affiliated gatherers compare to the 
rates of affiliated gatherers?
    b. Have the rates charged by affiliated gatherers had an impact on 
well shut-ins?
    3. What factors are relevant in determining whether a gathering 
affiliate is separate from its pipeline affiliate and independent from 
its pipeline affiliate in performing its gathering functions?
    4. Must a gathering affiliate be physically separate and separately 
staffed in order to be independent of its pipeline affiliate?
    5. Because the basis of initially disclaiming NGA section 4 and 5 
``in

[[Page 55820]]

connection with'' rate and service jurisdiction is solely a change in 
ownership of the gathering facilities, is it necessary for the 
Commission to require a showing of collusion or abusive conduct in 
order to reassert jurisdiction, if it is found that the transfer of the 
facilities is a sham and/or there is no real, de facto separate 
corporate ownership?
    6. What kind of conduct should trigger the Commission's reassertion 
of jurisdiction over the gathering services of a pipeline affiliate?
    7. Should the Commission be especially concerned about the actions 
of gathering affiliates when they control access to an essential 
facility in order to gain access to the interstate pipeline grid?
    8. Should a showing of ``concerted action'' by the gathering 
affiliate and the pipeline be required, or should it be sufficient for 
the gathering affiliate alone to have engaged in anticompetitive or 
otherwise objectionable behavior to trigger the Commission's 
reassertion of jurisdiction?
    9. What kind of activities would constitute ``concerted action'' 
between the gathering affiliate and its affiliated pipeline for 
purposes of circumventing the Commission's effective regulation of the 
pipeline?
    10. What incentives do states have to ensure that providers of 
gathering services do not engage in anticompetitive behavior?
    11. Is there a gap between state regulation of gathering services 
and the Commission's regulation of natural gas companies, and, if so, 
what is the nature of that gap?
    12. Should the Commission view the conduct of offshore affiliated 
gatherers differently from onshore affiliated gatherers due to the lack 
of state regulation offshore?
    13. What criteria should the Commission employ in reasserting NGA 
section 4 and 5 ``in connection with'' jurisdiction over gathering 
rates and services following a spin-down of gathering facilities by a 
pipeline to an affiliate?

Procedure for Comments

    4. The Commission invites interested persons to submit comments, 
and other information on the matters, issues and specific questions 
identified in this notice. Comments are due 60 days from the date of 
publication in the Federal Register. Comments must refer to Docket No. 
PL05-10-000, and must include the commentor's name, the organization 
they represent, if applicable, and their address.
    5. To facilitate the Commission's review of the comments, the 
Commission requests that commentors provide an executive summary of 
their position. In addition, the Commission requests that commentors 
identify each specific question posed by the Notice of Inquiry that 
their comments address and to use appropriate headings. Comments should 
be double-spaced.
    6. Comments may be filed on paper or electronically via the eFiling 
link on the Commission's Web site at http://www.ferc.gov. The 
Commission accepts most standard word processing formats and commentors 
may attach additional files with supporting information in certain 
other file formats. Commentors filing electronically do not need to 
make a paper filing. Commentors that are not able to file comments 
electronically must send an original and 14 copies of their comments 
to: Federal Energy Regulatory Commission, Office of the Secretary, 888 
First Street NE., Washington, DC 20426.
    7. All comments will be placed in the Commission's public files and 
may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commentors are not required to 
serve copies of their comments on other commentors.

Document Availability

    8. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. eastern time) at 888 First Street, NE., Room 2A, 
Washington DC 20426.
    9. From the Commission's Home Page on the Internet, this 
information is available in the Commission's document management 
system, eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number (excluding the last three digits) in the docket number field.
    10. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours. For assistance, please contact 
the Commission's Online Support at 1-866-208-3676 (toll free) or 202-
502-6652 (e-mail at [email protected]) or the Public Reference 
Room at 202-502-8371, TTY 202-502-8659 (e-mail at 
[email protected]).

    By direction of the Commission. Commissioner Brownell concurring 
with a separate statement attached.
Magalie R. Salas,
Secretary.
    Notice of Inquiry on Criteria for Reassertion Jurisdiction Over the 
Gathering Services of Natural Gas Company Affiliates.

    BROWNELL, Commissioner, concurring:
    Today we issue a Notice of Inquiry (NOI) to evaluate possible 
changes in the criteria for invoking the Commission's ``in connection 
with'' jurisdiction. I appreciate the need to guard against affiliate 
abuse. However, I think it is important to put the questions proffered 
in the NOI in context.
    In Panhandle, the Supreme Court found that sections 4, 5 and 7 of 
the NGA do not concern gathering and only extend to the interstate 
transportation of gas by their express terms.\1\ In Conoco, the court 
expressly stated that where an activity or entity falls within the 
section 1(b) gathering exemption of the NGA, the other provisions of 
the NGA, including the ``in connection with'' language in sections 4 
and 5 neither expand our jurisdiction nor override the gathering 
exemption.\2\ Therefore, the fundamental question for me is whether any 
new test has a direct nexus to our effective regulation of the 
interstate pipeline, not the gatherer. I am hard pressed to find that 
necessary linkage even if a spun-down entity seeks a higher rate for 
its services or is an essential access point to the interstate grid. In 
either situation, the Commission will continue to employ its section 4 
and 5 NGA authority to ensure that the pipeline's rates remain just and 
reasonable.
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    \1\ Panhandle III, 337 U.S. at 508-09, 69 S.Ct. at 1257-58.
    \2\ Conoco Inc. v. FERC, 90 F.3rd 536 at 552 (D.C. Cir. 1996), 
cert. denied, 519 U.S. 1142 (1997).
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    Since Order 636, the Commission has approved a number of proposals 
to spin-down (as well as spin-off) gathering facilities because such 
transfers eliminated unnecessary costs from interstate rates and the 
stand-alone gatherer could more efficiently utilize the facilities 
involved. There have been very few complaints.
    I urge commenters to consider whether there is a need for a new 
test and, if so, how any new test is consistent with the limits of our 
current statutory authority.

    Dated:
Nora Mead Brownell,
Commissioner.
[FR Doc. 05-19001 Filed 9-22-05; 8:45 am]
BILLING CODE 6717-01-P