STATE REGULATION OF OIL AND GAS PIPELINES—ROCKY MOUNTAIN STATES AND CALIFORNIA
| Jurisdiction | United States |
(Jan 1995)
STATE REGULATION OF OIL AND GAS PIPELINES—ROCKY MOUNTAIN STATES AND CALIFORNIA
Hinkle, Cox, Eaton, Coffield & Hensley
Santa Fe, New Mexico
TABLE OF CONTENTS
I. Introduction
II. Public Utility Commission Jurisdiction
A. New Mexico
B. Colorado
C. California
D. Utah
E. Wyoming
F. Conclusion
III. Scope of Public Utility Commission Regulation
A. Matters Regulated
B. Service Area
C. Safety
IV. State Reaction to FERC Orders -- Unbundling Transportation Services
A. Bypass
B. Open Access Policies
1. Comprehensive Regulation vs. Case-by-Case Policy
2. Scope of Regulation
3. Common Terms and Conditions
V. State Non-Utility Regulation
VI. Surface Use
A. Federal and Indian Land
B. State Land
C. Eminent Domain
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SPECIAL INSTITUTE ON OIL AND NATURAL GAS PIPELINES:
WELLHEAD TO END USER
I. INTRODUCTION.
All states regulate local gas distribution companies ("LDC's"). Due to FERC's change in policy relating to regulation of gas gathering systems affiliated with or spun-off from interstate pipelines,1 there has been increased interest in state regulation of gathering systems. Several states which previously did not regulate gas gathering are now exploring this issue.2 In addition, states regulate various other types of oil and gas pipelines. This paper gives an overview of state jurisdiction over and regulation of gatherers, transporters3 , and LDC's.
II. PUBLIC UTILITY COMMISSION JURISDICTION.
The extent of state regulation of intrastate pipelines other than LDC's varies from state to state, depending on (a) whether oil or gas is involved, (b) whether the pipeline is a transporter or gatherer, and (c) the pertinent statutes and the state public utility commission's4 interpretation of its statutory authority.
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In addition, different agencies within one state may regulate different types of pipelines.
Western States have generally taken one of two approaches in defining which pipelines are "public utilities" by looking at whether the pipeline: (1) provides service "to or for the general public"; or (2) provides service to "any consumer within the state." The second approach is broad, but may not cover all pipelines. Thus, each state's statutory scheme must be examined to determine what types of pipelines are subject to regulation. (This section of the paper will not examine state jurisdiction over LDC's, since there are few issues5 in that regard.)
A. New Mexico.
New Mexico's commission has jurisdiction over pipelines which provide gas "to or for the public;" it has no jurisdiction over oil pipelines.6 The statute does not specifically cover gas gatherers. Furthermore, a gathering system does not provide service to the public "for light, heat or power." Therefore, the state commission does not regulate gas gathering.
Transporters of gas are subject to regulation if they provide service "to or for the public." This term was defined in the case of Llano, Inc. v. Southern Union Gas Company.7 In Llano, International Minerals and Chemical Corporation bypassed its LDC, Southern Union, when Llano, Inc. built a 28 mile, 6-inch pipeline to transport gas from gas wells in Lea County, New Mexico, operated by Marathon Oil Company, to the plant. Llano was ordered shut down until it gained certification from the commission and submitted to
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its jurisdiction. The state commission declared that, although Llano serviced only one customer with the pipeline, Llano was a public utility. The New Mexico Supreme Court upheld the district court's ruling that the commission erroneously determined Llano to be a public utility. The court noted that the test for determining public status is:
Whether or not such person holds himself out, expressly or impliedly, as engaged in the business of supplying his product or service to the public, as a class, or to any limited portion of it, as contradistinguished from holding himself out as serving or ready to serve only particular individuals.8
Although Llano had constructed two side valves near other industrial sites, and it was "clear from the record that Llano proposed to...furnish service to other customers," the court concluded that the definition of "public utility" did not fit Llano's operation. Further, Llano had none of the characteristics of a public utility in that: (1) The pipeline served only one consumer, not "large numbers of the general public;" (2) financing for the pipeline came from private funds, not "large sums...obtained from many members of the general public;" (3) the service did not directly affect the "general welfare, business and industry of the state;" and (4) the power of eminent domain had not been exercised. While finding Llano to be private, the court refused to rule on whether such would remain the case if Llano began serving other end-users.9
From the foregoing, it appears that in determining the public utility status of a gas transporter, the state commission will consider: (a) Whether the pipeline holds itself out as an entity which will supply transportation service (i) to the public in general, or (ii) only to particular individuals; (b) whether the pipeline will serve a portion of the public who have a legal right
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to demand the service; and (c) whether the pipeline has communicated its interest in serving an indefinite public, rather than certain select individuals.
Although gas gatherers are not regulated by New Mexico's commission, there is potential regulation from a separate state body.10 The New Mexico Constitution provides the State Corporation Commission ("SCC") with jurisdiction over common carriers, including transportation companies.11 Although there is no case law on the subject, the phrase "other transportation and transmission companies and common carriers" is broad enough to cover all types of pipeline systems. However, the constitutional provision must be statutorily implemented, and to date the legislature has not enacted legislation authorizing SCC jurisdiction of gas gathering systems.
The legislature has provided for SCC regulation of intrastate oil pipelines.12 This provision clearly applies to oil
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transportation. However, it is uncertain whether it includes oil gathering. Related statutes indicate otherwise. N.M. Stat. Ann. § 70-3-2 (1987 Repl. Pamp.) provides for license fees for pipelines for the transportation of crude oil and natural gas. However, § 70-3-3 provides that the provisions of § 70-3-2 "shall not apply to gathering lines or systems operated exclusively for the gathering of oil or gas in any field or area; to any gas distribution system; or to pipelines constituting a part of any tank farm, plant facilities of any processing plant, gasoline plant, refinery, carbon-black plant, pressure maintenance, underground storage projects, recycling system or other similar operations." A similar exclusion is contained in the Pipeline Safety Act, N.M. Stat. Ann. §§ 70-3-11 to 70-3-20 (1987 Repl. Pamp.). Thus, the common carrier statute, § 70-3-1 , may be inapplicable to oil gathering systems.
To determine "common carrier" status of oil pipelines, a finding must be made as to whether the pipeline is "for hire."13 The factors set forth above, regarding the potential utility status of a gas transportation pipeline, would generally apply: Whether the service is sold for a profit, and the carrier serves or is willing to serve a substantial portion of the public. However, if the pipeline transports only its own goods, it is not a common carrier.14
B. Colorado.
Colorado's statute is, on its face, similar to New Mexico's.15
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However, it seems to be interpreted more broadly than New Mexico's, leading to greater jurisdiction in the state commission.
As to transporters, no Colorado case exists directly on point with Llano. In one case an interstate pipeline supplying gas to cities on Colorado's eastern slope for resale and directly to 11 major end-users was found not subject to commission jurisdiction.16 Colorado's Gas Transportation Rule,17 in its provision regarding "Applicability" subjects only public utilities to the regulations, while later sections assert authority over Intrastate Wholesale Pipelines serving any person in the state.18 Billy Kwan of the Colorado commission commented that the commission would attempt to bring any intrastate gas pipeline servicing more than one user within its control.19 Therefore, the state of the law in Colorado is uncertain.
As in New Mexico, there is no specific grant of jurisdiction over gas gatherers, and Colorado currently has no regulations covering gas gathering.
The foregoing discussion also applies to oil pipelines, due to the Colorado commission's jurisdiction over "pipeline corporations." See Footnote 15. There are only two or three intrastate oil pipelines in Colorado. Regulation is limited to transportation rates. See Footnote 19.
C. California.
California's statutes could be construed to make any oil or gas gatherer or transporter a public utility.20 However, the
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courts have required that pipeline facilities be "dedicated to public use" for regulation by the California commission.21 Commission decisions also look for this requirement before imposing regulation.22 However, in a recent decision,23 California's commission found that a subsidiary of Dow Chemical Co. acted as a public utility because it had, in effect, dedicated its system to public use by delivering large amounts of gas to several industrial users. Therefore, Great Western, Dow's subsidiary, was ordered to halt service to those industrial customers in PG&E's service area and file for a certificate of public convenience and necessity. The commission noted that dedication to public use, a traditional requirement for determining utility status, can consist of service offered to...
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