THE RELEVANCE OF FERC REGULATION AND REPORTING REQUIREMENTS ON MMS VALUATION ISSUES — A FERC PRACTITIONER'S PERSPECTIVE

• Jurisdiction: United States

Federal & Indian Oil & Gas Royalty Valuation and Management III
(2000)
CHAPTER 13B
THE RELEVANCE OF FERC REGULATION AND REPORTING REQUIREMENTS ON MMS VALUATION ISSUES — A FERC PRACTITIONER'S PERSPECTIVE
Katherine B. Edwards
Grammer Kissel Robbins Skancke & Edwards
Washington, D.C.

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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	)
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)	Docket No. RM99-5-000
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)

ANSWER OF THE OCS PRODUCERS

Pursuant to Rule 213 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission ("FERC" or "Commission"), 18 C.F.R. § 385.213 (1999), the OCS Producers hereby file an answer to the initial comments filed on August 27, 1999, in the above-referenced docket. In particular, the OCS Producers are filing this answer to respond in opposition to certain comments of the Minerals Management Service ("MMS"), which interject some new issues into this proceeding.

This proceeding involves a Notice of Proposed Rulemaking, issued on June 30, 1999,¹ that would require "offshore gas service providers" to file reports with the Commission detailing their corporate organization and the rates, terms and conditions under which they provide service, unless

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such gas service providers qualify under one of three proposed exemptions.²

The OCS Producers filed initial comments in which they demonstrated that the NOPR was unnecessary and unduly burdensome. In order to promote offshore development and maintain stability, the OCS Producers advocate retention of the existing regulatory structure over the Outer Continental Shelf ("OCS"), i.e., continued Natural Gas Act ("NGA") regulation over currently regulated interstate natural gas pipelines on the OCS, and the applicability of complaint procedures over non-NGA regulated pipelines, both as set forth in Order Nos. 509/509-A.³

I. INTRODUCTION

The majority of the commenters were generally critical of the proposed rule, with the exception of certain small and independent producers.⁴ The interstate pipelines and their trade

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association, INGAA, however, argued that if the rule is promulgated, interstate pipelines should be deemed in compliance and the proposed exemptions should be eliminated. As the OCS Producers pointed out in their initial comments, there is no support for either of these proposals. Interstate pipelines are not in compliance with the proposed rule, in that the otherwise applicable reporting required for interstate pipelines does not include the same level of detail as to rates that is included in the proposed regulations.⁵ Thus, there is no basis for "deeming" interstate pipelines to be in compliance. Moreover, if the rule is finalized (which the OCS Producers have argued would be a mistake), it is essential for the Commission to exempt production-related facilities and activities to avoid substantial harm to offshore development, as explained in detail in the initial comments of the OCS Producers.⁶ This latter point is discussed in more detail below.

All of the commenters in opposition to the rule agreed, and stressed, that there is little evidence of abuse on the

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offshore, and insufficient evidence to outweigh the significant burdens that reporting would entail.

However, the MMS has proffered positions that are new to this proceeding, and for that reason, the OCS Producers are filing this answer. The MMS supports the rule as a "minimal approach," but states "concerns" and suggests the following:⁷

(1) The FERC and the MMS should use the same definitions of "gathering."⁸

(2) Reporting should be required for all pipelines and the proposed exemptions should be eliminated.⁹

(3) Where there are no contracts between a shipper and itself or its affiliate, the gas service provider should be required to file a complete description of its costs, as provided in MMS regulations at 30 C.F.R. § 206.157 .¹⁰

The OCS Producers respectfully oppose these suggestions. The comments of the MMS appear to be driven by concerns related to royalty-in-kind ("RIK") issues. The MMS is developing RIK pilot programs for the OCS. Under the proposed OCS RIK pilot program, the MMS would take its royalty share in gas (rather than in the form of a dollar payment) at a facility

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measurement point. The OCS Producers fully support RIK procedures for making royalty payments related to production from federal leases; however, the changes proposed by the MMS in this NOPR proceeding are not necessary to implement that program. Moreover, the FERC has not been delegated the statutory authority to carry out the mission of the MMS.

II. ANSWER

A. The FERC And The MMS Should Not Use The Same Definition Of Gathering.

The MMS defines "gathering" in a manner similar to the description of "feeder lines" in the Outer Continental Shelf Lands Act ("OCSLA").¹¹ The MMS definition of "gathering" is as follows:

Gathering means the movement of lease production to a central accumulation and/or treatment point on the lease, unit or communitized area, or to a central accumulation or treatment point off the lease, unit or communitized area as approved by BLM or MMS OCS operations personnel for onshore and OCS leases, respectively.¹²

The purpose of the MMS' distinction between gathering and transportation is that the costs of MMS-defined "transportation" are deductible from royalties, whereas the costs of MMS-defined

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"gathering" are not.¹³ As the MMS points out, lines that are characterized as "gathering" lines by the FERC may be eligible for a "transportation" allowance under the MMS royalty gas valuation...