The Federal Energy Regulatory Commission, voting on seven cases last week, has set a policy that mostly deregulates U.S. pipelines' gas gathering operations.
Interstate lines and their affiliated gathering companies had urged FERC to decontrol gathering. They argued most of the gathering market was not under FERC's jurisdiction, and controls on that segment no longer made sense in the deregulated Order 636 environment.
Producers argued for continued FERC oversight, fearing gatherers will gain unrestricted power over production and prices (OGJ, Mar. 7, p. 23).
FERC'S FINDINGS
In its orders, FERC ruled it did not have jurisdiction over interstate pipelines' gathering activities that are spun off to others or spun down to subsidiaries. Such gathering companies, it said, are not natural gas companies as defined by the Natural Gas Act.
But FERC said it would assert jurisdiction if a pipeline and an affiliated gatherer acted in concert in a manner that frustrated the commissions's regulation of the interstate pipeline.
Commissioner Donald Santa said the commission's dealings with spun off or spun down gathering companies would be like a biologist's approach to wildlife management: "tag and release."
The commission redefined its "primary function test" for gathering: Facilities located beyond a processing plant generally will be considered jurisdictional lines if they are incidental to the plant's operations.
The FERC policy contained some strong safeguards for producers when gathering functions are spun down or spun off.
Pipelines divesting gathering facilities must ensure that existing customers are not abandoned. The pipeline must submit to FERC contracts between the buyer and the gathering customers to show service will continue.
Or, if buyer and customers can't agree, the selling pipeline must offer customers a "default contract" to ensure they receive terms, conditions, and rates consistent with those that other gatherers offer in the same region.
INDUSTRY REACTION
Pipeline and producer associations reacted guardedly to the gathering policy because the language of the opinions was not immediately available. But both groups appeared satisfied.
The Interstate Natural Gas Association of America said, "It appears that the orders will provide a balanced approach that promotes competition and regulatory certainty in gathering."
And a spokeswoman for the Natural Gas Supply Association said, "Our preliminary read is that there are a lot of safeguards here, and FERC clearly understood our concerns. We will be reading the orders to determine if those safeguards are adequate."
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