Apache, Williams exchange charges in gas gathering dispute

Aug. 16, 2002
Apache Corp., Houston, and the Williams Cos. Inc. exchanged swipes this week concerning a nearly year-old dispute over Williams's attempt to transfer ownership of a gas gathering system in South Texas.

By OGJ editors

HOUSTON, Aug. 16 -- Apache Corp., Houston, and the Williams Cos. Inc., Tulsa, exchanged swipes this week concerning a nearly year-old dispute over Williams's attempt to transfer ownership of a gas gathering system in South Texas from a subsidiary regulated by Federal Energy Regulatory Commission (FERC) to an unregulated affiliate.

Apache officials opened with a press release Wednesday in which they accused Williams of making an "end run" through a court challenge to "subvert federal regulators' limited remaining authority to protect consumers from monopoly pricing on Williams's gas pipelines." They said Williams filed suit in a federal court to overturn an unfavorable ruling by an administrative law judge, claiming FERC's expedited hearing schedule prejudiced the case against Williams.

Williams later confirmed that it filed July 5 for a "court review of various procedural and jurisdictional issues in the complaint proceeding in order to preserve its right to argue, as it has at all times, that the gathering facilities at issue should not be regulated."

It also said in that statement, "It is unfortunate that Apache has decided to attempt a debate on the issue in the press. This legal proceeding is part of a larger issue than that alluded to by Apache. It is about Apache's desire to change the FERC's policy, which evolved as a result of court orders, in order to prevent the spin-down of gathering assets."

Williams officials trace the origins of that dispute to July 2001 when FERC issued an order authorizing Williams's Transcontinental Gas Pipe Line subsidiary to transfer some offshore natural gas gathering facilities in the North Padre Island area off Texas to an affiliate, Williams Gas Processing-Gulf Coast Co, effective Dec. 1, 2001.

"The facilities were determined by the FERC to be gathering facilities no longer subject to the FERC's jurisdiction under the Natural Gas Act," said Williams officials.

However, Apache officials claim Williams took advantage of captive producers by "spinning down" to an unregulated affiliate a pipeline system that is the only means of moving gas from the affected North Padre Island properties off Texas to the mainland.

They said Williams then presented Apache and other area gas producers with a contract containing a "nonnegotiable" rate change "that would have tripled the cost of transportation over the 3.8-mile pipeline, required a lifetime commitment of reserves to the gathering system, and prohibited the producers from ever appealing for regulatory relief."

"Williams set up a toll booth and presented us with what they said was a nonnegotiable fee for transporting natural gas for the life of the reserves. They provided no additional services, jacking up the price only because they thought they could get away with it," said Apache Chairman Raymond Plank.

Apache, Shell Offshore Inc., and other affected producers shut in production from North Padre Island and filed a complaint with FERC.

On Nov. 30, 2001, Shell Offshore filed a complaint with FERC regarding natural gas gathering services to be provided utilizing the transferred facilities, said Williams officials. On June 4, an administrative law judge (ALJ) recommended to FERC thatthe agency reassert Natural Gas Act jurisdiction over the transferred facilities.

"Williams believes the actions of Transco and Williams Gas Processing are reasonable and lawful and submitted briefs to the FERC taking exceptions to the initial ALJ decision," said Williams officials. "Last week, Williams asked the court to put these issues on hold until the FERC makes its ruling on Shell's complaint."

FERC commissioners will review the ALJ recommendation and make a decision. Meanwhile, Williams officials said, "Williams acted on a spindown order approved by the FERC and presented its side of the case in the forum provided by the FERC in the complaint proceeding. Williams properly complied with the lawful process to present its position."

Reimposing accountability
However, Plank called on Congress to "reimpose accountability and transparency" in the energy merchant sector. "Their tariffs on their unregulated pipelines are nonpublic, their actions are arbitrary, and they have absolutely no regard for their customers—consumers or producers," he said. "The government has the responsibility to protect citizens from price gouging by monopolies."

Plank said exercise of monopoly power by Williams "and similarly inclined unregulated carriers" could artificially inflate natural gas prices or curtail supplies as producers are forced to shut in production from the Gulf of Mexico, which provides a fourth of the nation's natural gas.

"This is yet another example of an Enron (Corp.) 'clone' trying to manipulate the market any way it can," he said. "The culture of greed that prompted the marketer-speculators to engage in wash trades, off-balance-sheet 'stealth debt' schemes, dishonest financial reporting, and consumer rip-offs is alive and well, despite all the public attention focused on corporate corruption."