FERC JURISDICTIONAL ISSUES RELATED TO ROYALTY VALUATION ISSUES: INDEPENDENT SHIPPERS VIEWPOINT

• Jurisdiction: United States

Federal & Indian Oil & Gas Royalty Valuation and Management III
(2000)
CHAPTER 13D
FERC JURISDICTIONAL ISSUES RELATED TO ROYALTY VALUATION ISSUES: INDEPENDENT SHIPPERS VIEWPOINT
Judith M. Matlock
Davis, Graham & Stubbs LLP
Denver, Colorado

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Proposed Rule

Notice of Proposed Rulemaking: Regulations under the Outer continental Shelf Lands Act Governing the Movement of Natural Gas on Facilities on the Outer Continental Shelf, 64 FR 37718 (Jul. 13, 1999).

The Notice of proposed rulemaking proposed that "Gas Service Providers" on the Outer Continental Shelf file reports with FERC detailing corporate affiliations and the rates, terms and conditions under which service is rendered on the OCS in order to ensure nondiscriminatory and open access transportation. FERC's view is that this will enable shippers who believe they are subject to anticompetitive practices to bring their concerns to the Commission.

Statutory Authority to Prohibit Discrimination

Section 5(e) of the Outer Continental Shelf Lands Act ("OCSLA") requires that gas and oil be transported without discrimination pursuant to standards established by the Commission (FERC).

Regulatory Authority

FERC exercises authority over offshore gas service providers under the Natural Gas Act of 1938 (the "NGA," applicable to interstate pipelines but not gathering facilities as defined under the NGA), the OCSLA, and the Natural Gas Policy Act of 1978.

Entities Covered

"Gas Service Provider" is defined in the proposed regulations as any entity that operates a facility located on the OCS that is used to move natural gas on or across the OCS. §330.1(b). This would include both interstate pipelines and nonjurisdictional gathering facilities (as those terms are used under the NGA).

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Reporting Requirements

18 CFR would be amended by the addition of a new Subchapter O, including part 330. Gas Service Providers would be required to file a declaration of affiliation and their conditions of service. The required reporting requirements would include a description and map of the facilities operated by the Gas Service Provider, denoting the facilities' location, length, and size, and copies of all customer contracts for gas shipments or, alternatively, a statement of the rules, regulations and conditions of service. See proposed §330.2.

Parties Who Commented

OCS Producers — large and mid-size companies involved in offshore exploration, production and development, some of whom own offshore gathering lines and interstate pipelines and others who ship on such lines. The OCS Producers filed comments opposing the proposed rules. A copy of the table of contents of their Initial Comments is attached as a summary of their views.

Independent Shippers — generally supporting the proposed reporting requirements but not as a substitute for the existing NGA regulatory regime of full cost of service protection (applicable to interstate pipelines but not gathering facilities as defined under the NGA). A copy of the Comments of The Independent Petroleum Association of America is attached.

Minerals Management Service — concurring with the premise of the proposed rule but requesting broader applicability, in part so that it would not be required to demand the same information from producers which are its lessees.

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UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

Regulations under the Outer Continental Shelf Lands Act Governing the Movement of Natural Gas on Facilities on the Outer Continental Shelf ) Docket No. RM99-5-000

INITIAL COMMENTS OF THE OCS PRODUCERS

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TABLE OF CONTENTS Page

I. EXECUTIVE SUMMARY	3
II. DESCRIPTION OF THE PROPOSED RULE	7
III. COMMENTS	9
A. The Commission's Jurisdiction And Obligations Under The NGA And The OCSLA Are Different, But Compatible	9
B. The FERC's Intent To Apply A "Light-handed, Uniform" Regulatory Standard To All Offshore Pipelines Is Unlawful And Misguided	15
C. Order No. 509 Adequately Promulgated OCSLA Competitive Principles	19
1. The FERC has not provided sufficient evidence to support changes from the Order No. 509 regulatory regime	19
2. The scope of the reporting that would be required is overly broad and harmful to offshore development	22
D. Compliance With The Proposed Rule Would Be Unduly Burdensome	26
E. If The Commission Proceeds With A Final Rule, It Should Not Do So Without Examining All Of The Issues Fully At A Technical Conference	33
F. Assuming, Arguendo, That The Commission Proceeds With The NOPR, It Should Be Clarified And Modified	35
1. It should be clarified that there is no intent or future plan to dislodge or displace traditional NGA jurisdiction over offshore interstate pipelines	35

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2. It should be clarified that the NGA reporting required for offshore interstate pipelines should contain no less substance or timing differences than the reporting required for offshore gathering facilities under the NOPR	36
3. The exemptions from reporting should be clarified as to scope and mechanics	36
4. The Commission should clarify the standard under which it will determine whether denial of service is justified	40
IV. RESPONSES TO SPECIFIC QUESTIONS IN THE NOPR	43
V. CONCLUSION	48

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UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

)
Regulations Under the Outer Continental Shelf Lands Act Governing the Movement of Natural Gas on Facilities on the Outer Continental Shelf	)
)	Docket No. RM99-5-000
)
)

COMMENTS OF THE INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

David M. Sweet	Richard G. Morgan
Vice President, Natural Gas	Amy L. Sheridan
Independent Petroleum	Elisabeth R. Myers-Kerbal
Association of America	Shook, Hardy & Bacon L.L.P.
1101 16th Street, N.W.	600 14th Street, N.W.
Second Floor	Suite 800
Washington, DC 20036	Washington, D.C. 20005
(202) 857-4722	(202) 783-8400

Counsel for the Independent Petroleum Association of America

Dated: August 27, 1999

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UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION

)
Regulations Under the Outer Continental Shelf Lands Act Governing the Movement of Natural Gas on Facilities on the Outer Continental Shelf	)
)	Docket No. RM99-5-000
)
)

COMMENTS OF THE INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA

Pursuant to the Notice of Proposed Rulemaking ("NOPR") issued on June 30, 1999 by the Federal Energy Regulatory Commission ("Commission" or "FERC") addressing regulation of the transportation of gas on the Outer Continental Shelf ("OCS"),¹ the IPAA submits these comments.

I. BACKGROUND AND INTRODUCTION

The NOPR is the product of the Commission's continuing review of its policy regarding natural gas services on the OCS. The Commission states that it has taken into account the comments submitted by parties last year concerning its Notice of Inquiry in RM98-8.² There, the Commission asked whether it might act under the Outer Continental Shelf Lands Act ("OCSLA")³ to regulate offshore pipeline facilities, either in conjunction with or absent the exercise of any concurrent Natural Gas Act⁴ jurisdiction, without impeding offshore developments or production. IPAA

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submitted comments in that proceeding.⁵ The Commission further states that the NOPR is intended to provide a uniform regulatory regime applicable to all gas service providers on the OCS.⁶

The NOPR is spurred by the Fifth Circuit's decision regarding FERC's jurisdiction over Sea Robin Pipeline Company's OCS facilities, and the Commission's decision on remand.⁷ The Sea Robin Order and the NOPR create considerable regulatory uncertainty for those companies looking to invest in the development of the offshore resource base. According to EIA data, the OCS will be a critical source of new natural gas production needed to satisfy the projected increase in demand. IPAA submits that the regulatory protections and certainty available under the Natural Gas Act are vital to the continued development of the OCS.

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IPAA generally supports the Commission's proposed reporting requirements which reflect FERC's intent to require greater transparency of market information. If, however, FERC intends for these proposed reporting requirements to be a substitute for the existing Natural Gas Act regulatory regime of full cost of service protection, then IPAA respectfully submits that FERC's proposal is misguided and unlawful. In IPAA's view, there is no compelling need to replace the existing regulatory regime with anything else. Such a decision would be unwise and unlawful. If, however, the Commission decides to strip away existing shipper protections and merely require informational reporting, then as discussed below, additional protections are warranted.

II. STATEMENT OF INTEREST

IPAA is a nationwide trade association that represents the interests of independent domestic gas and crude oil producers. IPAA's members are engaged in exploration for, and the production and sale of, natural gas and crude oil both onshore and offshore. IPAA, together with its cooperating associations, represents over 7000 independent producers. Many of IPPA's members are natural gas producers and shippers that utilize pipeline facilities located on the OCS.

Activity by independents on the OCS is quite substantial. In 1995, independents produced 49.4% of all OCS natural gas and 30.8% of the OCS crude oil. Also in 1995, independents owned 33.1% of the primary term acreage in water depths less than 600 feet, as compared to 31.6% owned by major producers and 28.5% owned by other integrated or affiliated companies. Independent producers' role on the OCS has continued to grow, giving independents a crucial role in exploring and developing the OCS.

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III. EXECUTIVE...