FERC reasserts jurisdiction over gas-gathering system off South Texas

Transcontinental Gas Pipe Line Corp. and Williams Field Services "acted in concert" to charge excessive rates for gas-gathering services on Transco's pipeline system in the Gulf of Mexico.

Sep 10th, 2002

By OGJ editors

HOUSTON, Sept. 10 -- Williams Cos. Inc.'s subsidiary Transcontinental Gas Pipe Line Corp. and Williams Field Services, a midstream unit of the Tulsa-based parent, "acted in concert" to charge excessive rates for gas-gathering services on Transco's pipeline system in the Gulf of Mexico off Padre Island along the Texas coast, said officials at the US Federal Energy Regulatory Commission.

Acting on the earlier recommendations of an administrative law judge, FERC reasserted its jurisdiction over that pipeline system and set a "reasonable" rate of 1.69¢/Mcf for the unbundled gathering service. In taking that action, government officials stressed that FERC policies for gas-gathering systems are not to be "used to circumvent or undermine regulation of interstate transportation of gas" under the Natural Gas Act or the open access provision of the Outer Continental Shelf Lands Act.

In July 2001, FERC issued an order authorizing Transcontinental 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, officials at Apache Corp., Houston—one of the affected producers—claimed Williams took advantage of captive producers by "spinning down" to an unregulated affiliate the pipeline system that is the only means of moving gas from North Padre Island properties off Texas to the mainland (OGJ Online, Aug. 16, 2002).

Apache officials said Williams then presented 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."

Another of the affected producers, Shell Offshore Inc., Houston, filed a complaint with FERC on Nov. 30, 2001. On June 4, an administrative law judge (ALJ) recommended that FERC reassert Natural Gas Act jurisdiction over the transferred facilities.

According to FERC officials, Williams Field Services proposed to charge Shell a gathering rate of 8¢/Mcf and an interruptible transportation feeder rate of 8¢/Mcf. FERC found that the Williams units did not offer any additional services to justify the rate increase but "planned all along to operate the facilities in the same way as before and after the transfer." The FERC order also cited the fact that the two companies "only transferred" the pipeline's ownership between them and "did not allow the sale of the facilities on the open market."

Meanwhile, Williams filed suit July 5 in federal court for a "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 claimed in that suit that FERC's expedited hearing schedule prejudiced the case against Williams.

The company later asked the court to put those issues on hold, pending FERC's ruling on Shell's complaint.

However, Apache officials accused Williams of making an "end run" through the court challenge in order to "subvert federal regulators' limited remaining authority to protect consumers from monopoly pricing on Williams's gas pipelines."

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