Appendix — Amoco Energy Trading Corp. v. Federal Energy Regulatory Commission
Supreme Court brief1997
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TABLE OF CONTENTS
Appendix A - Conoco Inc. v. Federal Energy
Regulatory Commission,
90 F.3d 536 (D.C. Cir. 1996) ...1
Appendix B - Amendment to
Conoco Inc. v. Federal Energy
Regulatory Commission,
90 F.3d 536 (D.C. Cir. 1996) .. 34
Appendix C - Arkla Gathering Services Company,
67 F.E.R.C. (CCH) 4 61,257
4 Berar ras ee berate 36
Appendix D - Arkla Gathering Services Company,
69 F.E.R.C. (CCH) 7 61,280
EP IN eI eee 104
Appendix E - Section 1 of the Natural Gas Act
15 US.CS. § 717 (1996) .... 1717
Appendix F - Section 4 of the Natural Gas Act
15 U.S.C.S. § 717¢ (1996) ... 174
Appendix G - Section 5 of the Natural Gas Act
15 U.S.C.S. § 717d (1996) ... 178
Appendix H - Section 7 of the Natural Gas Act
15 U.S.CS. § 717f (1996) ... 180
Ne ens OF ee ee ee
l
APPENDIX A
Gnited States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 16, 1996 Decided August 2, 1996
No. 94-1724
Conoco Inc,
PETITIONER
Vv.
FEDERAL Enercy Recu.atory ComMISSION,
RESPONDENT
Vesta ENERGY CoMPANY, ET AL..
INTERVENORS
Consolidated with
94-1726, 94-1729, 94-1730, 94-1731, 94-1732,
94-1735, 95-1007, 95-1013, 95-1080,
95-1172, 95~1342 & 95-1364
On Petitions for Review of Orders of the
Federal Energy Regulatory Commission
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
Gordon Gooch argued the cause for petitioners and interve-
nors in support of petitioners Conoco Inc., et al. Maria M.
Seidler argued the cause for pétitioner Arkansas Royalty
Membership. With them on the briefs were Dena E. Wig-
gins, Emery J. Biro, III, Bruce A. Connell, Mickey J.
Lawrence, David M. Sweet, Steven R. Hunsicker, Randall S.
Rich and Christopher J. Bernard. Mario M. Garza, Susan
B. Dyer, Elisa J. Grammar, Monique L. Penn-Jenkins and
Cheryl J. Walker entered appearances.
Richard D. Avil, Jr. argued the cause for petitioners and
intervenors NorAm Gas Transmission Company, et al., with
whom James E. Gauch, Charles L. Pain, Craig R. Rich and
Mari M. Dugger were on the briefs.
Patricia L. Weiss, Attorney, Federal Energy Regulatory
Commission, argued the cause for respondent, with whom
Jerome M. Feit, Solicitor was on the brief. Timm L. Aben-
droth, Attorney, entered an appearance.
John i. Cheatham, III, Richard C. Green, Kenneth M.
Minesinger, Charles L. Pain, Craig R. Rich, Mari M. Dug-
ger, Richard D. Avil, Jr. and James E. Gauch, filed the brief
on behalf of inventors Interstate Natural Gas Association of
America, et al. Jean E. Sonneman entered an appearance.
Daniel F. Collins entered an appearance for intervenor
ANR Pipeline Company. Peter G. Esposito entered an ap-
pearance for intervenor Natural Gas Clearinghouse. Law-
rence G. Acker and Brian D. O’Neill entered an appearance
for intervenors Trunkline Gas Company and Panhandle East-
ern Pipe Line Company. Judy A. Johnson entered an ap-
pearance for intervenor El] Paso Natural Gas Company.
David S. Berman entered an appearance for intervenor NJR
Energy Corporation. Steven A. Weiler entered an appearance
for intervenor for respondent NOARK Pipeline System.
Gordon J. Smith entered an appearance for intervenor Pan-
Energy Gas Services, Inc.
Patricia A. Curran entered an appearance for amicus
curiae Cabot Oil & Gas Corporation.
3
Before: Buckxiey, Senre.ie and Rocers, Circuit Judges.
Opinion for the Court filed by Cireuit Judge Rocers.
Rocers, Circuit Judge: In these consolidated petitions for
review of five orders of the Federal Energy Regulatory
Commission,’ the principal issue is whether a jurisdictional
exemption was properly granted to an affiliate of an inter-
state pipeline for its gathering? service, which had formerly
been operated by the pipeline itself, so long as the affiliate’s
gathering service functioned independently of the pipeline’s
transportation service, and so long as the affiliate provided
the pipeline’s existing customers contract protection during a
two-year transition period. Producer petitioners (“the Pro-
ducers”) * challenge the Commission’s determination that the
facilities to be transferred were exempt gathering facilities
under § 1(b) of the Natural Gas Act, 15 U.S.C. § 717(b)
1 Arkla Gathering Services Co., 67 F.E.R.C. 461,257 (1994)
(“Arkla I”), order on reh'g, Arkla Gathering Services Co., 69
F.E.R.C. 161,280 (1994) (“Arkla II”); reh’g denied, Arkla Gather-
ing Services Co., 70 F.E.R.C. 161,079 (1995) (“Arkla IV"); recon-
sideration denied, Arkla Gathering Services Co, 71 F.E.R.C.
161,297 (1995) (“Arkla V”). Arkla Gathering Services Co., 70
F.E.R.C. 161,018 (1995) (“Arkla IIT”), order on reh’g, Arkla IV,
order on reh’g, Arkla V.
s Gathering is the process of taking natural gas from the wells
and moving it to a collection point for further movement through a
pipeline’s principal transmission system. Northwest Pipeline Corp.
v. FERC, 905 F 2d 1408, 1404 n.1 (10th Cir. 1990).
% Producer petitioners are Amoco Energy Trading Corporation,
Amoco Production Company, Anadarko Petroleum Corporation, Ar-
kansas Royalty Membership, Conoco Inc., Independent Petroleum
Association of America, Marathon Oil Company, Oklahoma Inde-
pendent Petroleum Association, Texaco Inc. and Texaco Natural
Gas Inc.; producer intervenors are Exxon Corporation, Commis-
sioner of Public Lands for the State of New Mexico, New Mexico
Energy, Minerals and Natural Resources Department and Vesta
Energy Company.
4
(1994). The pipeline and gathering petitioners (“the Pipe-
lines”) ® challenge the Commission’s authority to require de-
fault contracts as a condition of the transfer. We conclude
that there is substantial evidence to support the Commission’s
application of its primary function test * in determining that
the gathering activity fell within the NGA § 1(b) exemption.
We also conclude, however, that the Commission has not
identified any source of authority to condition the transfer on
Commission-prescribed default contracts with the pipeline’s
existing customers. Accordingly, we grant the Pipelines’
petitions and deny the Producers’ petitions, and we remand
the cases to the Commission.
These appeals arise in the wake of major regulatory
changes in the natural gas industry. Beginning in 1978, when
Congress enacted the Natural Gas Policy Act, 92 Stat. 3350,
15 U.S.C. §§ 3301 et seq., to deregulate some wellhead price
controls, market forces began to play a greater role in
determining the supply, demand and price of natural gas.
Transcontinental Gas Pipe Line Co. v. State Oil & Gas Bd,
474 U.S. 409, 422 (1986) (“Transco”). Following suit, the
4 Natural Gas Act (“NGA” or “the Act”), 15 U.S.C. §§ 717-
717w (1994).
5 The pipeline and gathering petitioners are NorAm Field
Services Corporation (“NorAm Field”), NorAm Gas Transmission
Company (“NorAm Gas”) and GPM Gas Corporation; pipeline and
gatherer intervenors are Interstate Natural Gas Association of
America, a pipeline trade association, and Williams Field Services
Co., a gathering affiliate. At the time of the Commission’s initial
order, NorAm Field was know as Arkla Gathering Services Compa-
ny, and NorAm Gas was known as Arkla Energy Resources Compa-
ny. For ease of reference we refer to NorAm Field and NorAm
Gas in this opinion.
6 See Amerada Hess Corp., 52 F.E.R.C. 161,268 at 61,987-88
(1990); see also infra n.14.
PROT hereon,
5
Commission, in 1985, promulgated Order No. 436,’ which
established a program of open-access, nondiscriminatory
transportation by which gas distribution companies and in-
dustrial end-users could buy natural gas directly from gas
merchants other than pipelines and ship that gas on inter-
state pipelines. See Associated Gas Distributors v. FERC.
824 F.2d 981, 996 (D.C. Cir. 1987), cert. denied, 485 U.S. 1006
(1988). Then, in 1992, the Commission again altered the
regulatory scheme in Order No. 6362 by mandating the
unbundling of gas sales and interstate transportation that
Order No. 436 simply encouraged, in order to give pipeline
customers unimpeded access to the competitive wellhead mar-
ket and to permit all gas sellers to compete on an equal basis.
See 18 C.F.R. §§ 284.8(a)(1) & 284.9(a)(1)(1995); United Dist.
Companies v. FERC, __ F.3d —__ (D.C. Cir. July 16, 1996).
After Order No. 436, the Commission began to develop its
policy regarding affiliate gatherers. See Natural Gas Gath-
ering Services Performed by Interstate Pipelines and Inter-
state Pipeline Affiliates—Issues Related to Rates and Terms
7 Order No. 436, Regulation of Natural Gas Pipelines After
Partial Wellhead Decontrol, (Regs. Preambles 1982-85] F.E.R.C.
Stats. & Regs. (CCH) 130,665, order on reh’g, Order No. 436-A,
(Regs. Preambles 1982-85] F.E.R.C. Stats. & Regs. (CCH) 430,675
(1985), order on reh'g, Order No. 436-B, (Regs. Preambles 1986-
90} F.E.R.C. Stats. & Regs. (CCH) 130,688, order on reh’g, Order
No. 436-C, 34 F.E.R.C. 161,404, order on reh’g, Order No. 436-D,
34 F.E.R.C. 161,406, order on reh’g, Order No. 436-E, 34 F-E.R.C.
161,403 (1986), aff'd in part and vacated and remanded in part sub
nom. Associated Gas Distributors v. FERC, 824 F 2d 981 (D.C. Cir.
1987), cert. denied, 485 U.S. 1006 (1988).
® Order No. 636, Pipeline Service Obligations and Revisions to
Regulations Governing Self-Implementing Transportation Under
part 284 of the Commission's Regulations, and Regulation of Natu-
ral Gas Pipelines After Partial Wellhead Decontrol, III F.E.R.C.
Stats. & Regs. (CCH) 4 30,939, order on reh’g, Order No. 636~A, III
F.E.R.C. Stats. & Regs. (CCH) 130,950, order on reh’g, Order No.
636-B, 61 F.E.R.C. 161,272 (1992), reh'g denied, 62 F.E.R.C.
161,007 (1993), affd in part and vacated and remanded in part,
a i i
6
and Conditions of Service, 65 F.E.R.C. 161,136 at 61,689
(1993) (“Gathering Service Policy”). Although gathering is
exempted from Commission jurisdiction by NGA § 1(b), the
Commission required interstate pipelines that directly per-
formed gathering services to file statements of their gather-
ing rates as part of Order No. 436 enforcement.’ After Order
No. 636, the Commission did not require pipelines to include
in their tariffs a gathering rate schedule, specifying the terms
and conditions of the gathering services to be provided, but
required the pipelines to file their separately stated gathering
rates. Gathering Service Policy, 65 F.E.R.C. 161,136 at
61,689. In addition, as part of their Order No. 636 tariffs,
pipelines must file statements that their gathering services
are non-discriminatory, not. unduly preferential, and not in- :
consistent with the terms and conditions of the Part 284
certificates authorizing them to provide interstate transporta-
tion. Id
The Commission also found that it had jurisdiction to
regulate gathering services provided by pipeline affiliates in
connection with the pipelines’ interstate transportation in
some circumstances. The Commission noted that it had
taken the position that it had jurisdiction under NGA §§ 4 &
5, 15 U.S.C. §§ 717c, 717d (1994), to determine the justness
and reasonableness of the rates, terms, and conditions under
which gathering service is performed in connection with
interstate transportation. It cited Northern Natural Gas
Co., 48 F.E.R.C. 161,473 (1988), reh’g. denied, 44 F.E.R.C.
161,384 (1988), and Northwest Pipeline Co, 59 F.E.R.C. j
761,115 (1992) (“Northwest Pipeline I”), reh’g. denied, 60 |
F.E.R.C. 161,213 (1992) (“Northwest Pipeline IT”), petitions ;
for review dismissed, Williams Gas Processing Co. v. FERC,
17 F.3d 1320 (10th Cir. 1994). In Northwest Pipeline I],
[t]he Commission expressed the view that the traditional
form of regulation was not needed to address the mere
potential for affiliate abuse, and that it would only regu-
United Dist. Companies v. FERC, —— F.3d —— (D.C. Cir. July 16,
1996).
CU BK eS voifin
Dinka stant es
® Order No. 436, at 42,493, 18 C.F.R. § 284.7(d) (1990), cited in
Northern Natural Gas Co. v. FERC, 929 F.2d 1261, 1264 & n.12
(8th Cir. 1991).
;
late gathering rates of pipeline affiliates if shown by a
complaint that more extensive Commission regulation is
necessary to invalidate an unjust and unreasonable rate
or to correct an unduly discriminatory practice in order
to preserve its primary grant of authority over interstate
transportation or sales.
Gathering Service Policy, 65 F.E.R.C. 961,136 at 61,690
(citing 60 F.E.R.C. 161,213 at 61,729). Thus, interstate
pipeline affiliates are not required to file with the Commission
their gathering rates, conditions of service, or any other
statements. Jd.
The Commission acknowledged that there were differing
views as to how (and even whether) gathering should be
unbundled from interstate pipeline transportation. The Com-
mission noted, for example, that under bundled firm-to-the-
wellhead "* rate design, “it is difficult for producers connected
to other pipelines to compete.” Jd. On the other hand, some
argued, “such rates are a logical extension of the Commis-
sion’s requirement for SFV rates” mandated by Order No.
636, because firm-to-the-wellhead rate design removes fixed
costs from usage rates in the production area and thus
removes distortions in the choice among production connected
to different pipelines." Jd By early 1994, in an attempt to
address new issues including those arising from proposals of
interstate pipelines to “spin down” their gathering services to
corporate affiliates or “spin off’ their gathering services to a
non-related corporate entity, the Commission convened a
10 Shippers who pay a firm-to-the-wellhead rate receive the
right to firm transportation from the wellhead to their market
delivery points. Gathering Service Policy, 65 F.E.R.C. 961,136 at
61,690.
1! In straight fixed/variable (SFV) rate design, fixed costs are
allocated to the reservation or demand charge for firm transporte-
tion capacity, while variable costs are allocated to the usage or
commodity charge for the actual transportation of gas. Order No.
636 adopted SFV rate design in place of modified fixed/variable
(MF) rate design, in which some fixed costs are allocated to the
usage charge. United Dist. Companies, __ F.3d. at ___ & nn.24—
25.
8
public conference to explore, among other things, the extent
to which it should exercise its NGA §§ 4 & 5 authority over
the rates, terms, and conditions of gathering services. /d
Ultimately, the Commission decided to address many of the
issues with regard to gathering service performed by a
pipeline affiliate on a case-by-case basis. Arkla Il, 69
F.E.R.C. at 62,078 n.5.
In late 1993, NorAm Gas Transmission Company (“NorAm
Gas”) sought to “spin down” to a separate affiliate, NorAm
Field Services (“NorAm Field”), gathering facilities located at
105 sites in Arkansas, Louisiana, Oklahoma and Texas.
NorAm Gas wanted its gathering facilities to operate on a
level playing field with those of independent gatherers unreg-
ulated by the Commission. NorAm Field, the affiliate, peti-
tioned the Commission for a declaratory order disclaiming
jurisdiction over the affiliate’s gathering facilities, services
and rates. NorAm Field contended that its gathering ser-
vices would be exempt pursuant to NGA § 1(b) and itself, as
a non-natural gas company, exempt from the Act. In its
petition, NorAm Field stated that NorAm Gas had classified
all the facilities that would be transferred as gathering facili-
ties, and that, upon acquisition of these facilities, NorAm
Field would continue to provide the same gathering services,
but “conduct its business organizationally separate from
{NorAm Gas’}.” On this basis, NorAm Field maintained that
after acquisition the facilities should be exempt from Commis-
sion jurisdiction under NGA § 1(b).
The Commission made a preliminary determination that
the facilities to be transferred were gathering facilities within
the NGA § 1(b) exemption. Arkla I, 67 F.E.R.C. 161,257 at
61,866. The Commission relied on NorAm Field’s represen-
tation that it would operate the gathering systems in essen-
tially the same manner as had NorAm Gas, and on the
nature, size, and configuration of the facilities themselves.
The Commission declined, however, to declare NorAm Field’s
facilities exempt without assurances against affiliate abuse
and protection for NorAm Gas’ existing gathering service
customers. NorAm Gas was, therefore, required to include
9
non-discriminatory and equal-access provisions in its tariff.!2
In light of what the Commission found were reasonable
expectations of NorAm Gas’ existing gathering customers
that their service would not be arbitrarily terminated in the
event of a spin-down or spin-off, or offered only at unreason-
able terms, conditions, and rates, NorAm Field was required
to show that it negotiated private contracts with NorAm Gas’
existing customers. If NorAm Field could not negotiate a
contract with a customer, it must offer the customer a
“default contract” containing terms not inconsistent with
those currently offered by independent gatherers in the
particular region.
The Commission pointed out that it had previously regulat-
ed rates for gathering services provided by interstate pipe-
lines such as NorAm Gas as part of its review of the pipelines’
bundled gathering and interstate transportation rates. Arkla
I, 67 F.E.R.C. 161,257 at 61,872. In the Commission’s view,
“The pipelines’ historical obligation to [their] gathering cus-
tomers and the Commission’s later requirement for open-
access transportation created an expectation that the relation-
ship between the pipelines and producers connected to their
gathering systems would be governed by regulation, not
private contract.” Jd. The Commission expressed concern
that “in instances like the one here, where a pipeline is
proposing to transfer its gathering operations to a non-
pipeline entity, the existing customers could find themselves
unable to contract for service of the pipeline’s successor in
interest.” Jd. With these concerns in mind, the Commission
concluded that a “transition mechanism” was needed to en-
sure that “existing customers will not have their gathering
service arbitrarily terminated,” Arkla II, 69 F.E.R.C. 161,280
12 Specifically, the Commission required NorAm Gas to file
tariff provisions with assurances that it would (1) provide non-
discriminatory access, and not give any preference to customers of
NorAm Field over customers of nonaffiliated gatherers, in schedul-
ing, transportation, storage or curtailment and (2) not condition or
tie its agreement to provide transportation service to an agreement
by the producer, customer, or shipper relating to any service
provided by its gathering affiliate. The Pipelines do not challenge
the non-discriminatory, open-access conditions.
10
at 62,091-92, or “only offered [at] undue unreasonable terms,
conditions and rates.” Arkla I, 67 F.E.R.C. 961,257 at
61,872.
On rehearing, the Commission clarified that “when a pipe-
line seeks to transfer gathering facilities it must file under
section 7 for abandonment authorization for any facilities that
are certificated, and under section 4 to terminate service for
both certificated and uncertificated facilities.” Arkla II, 69
F.E.R.C. 161,280 at 62,083. The Commission also deter-
mined that the contract requirements for NorAm Gas’ exist-
ing customers could be fulfilled by either NorAm Gas or
NorAm Field, and specified that the new contracts must
provide NorAm Gas’ existing gathering customers two years’
continued service at the same rate currently charged the
customer for similar service, and at terms and conditions
consistent with existing contracts or service. Jd. at 62,092-
94.
Thereafter, the Commission preliminarily accepted NorAm
Gas’ abandonment request, finally determined that the facili-
ties were exempt gathering facilities, and provided further
direction on the default contract issues. Arkla III, 70
F.E.R.C. 161,018 at 61,074-75. The Commission denied re-
hearing of its decision in Arkla IJ, and subject to a further
default contract provision, granted abandonment and the
request for a declaratory order. Arkla IV, 70 F.E.R.C.
161,079 at 61,223. Finally, the Commission denied rehearing
of its order in Arkla IV, except as to the default contract
issue, ordered a final revision to the contact, and issued its
declaratory order contingent on the directed revision being
made. Arkla V, 71 F.E.R.C. 161,297 at 62,170.
Il.
Under the NGA, the Commission has jurisdiction over the
interstate transportation of natural gas, but not over the
gathering of natural gas."* The line between jurisdictional
18 Section 1(b) of the NGA provides that the Act
shall apply to the transportation of natural gas in interstate
commerce, to the sale in interstate commerce of natural gas for
1]
transportation and nonjurisdictional gathering is not always
clear. To draw that line, the Commission employs the “pri-
mary function test,” which examines various factors to deter-
mine whether a facility is primarily devoted to gathering or to
interstate transportation. The Producers contend that the
Commission erred in three ways in conditionally granting
NorAm Field’s request for a declaratory order and NorAm
Gas’s request for permission to abandon the services. First,
they contend that the Commission misapplied the primary
function test, and that the finding that the spun down facili-
ties are devoted to gathering was not supported by substan-
tial evidence. Second, they maintain that even if the facilities
provide gathering service, § 1(b) exempts only the physical
activity of gathering from Commission regulation, and the
Commission misinterpreted the NGA in declining to exercise
authority over gathering rates. Finally, the Producers argue
that the Commission’s orders are internally inconsistent; if,
as the Commission found, it would have jurisdiction to regu-
late NorAm Field’s gathering services in the event of anti-
competitive collusion between NorAm Field and NorAm Gas,
say the Producers, then NorAm Field’s services must be
jurisdictional and cannot fall within the § 1(b) exemption.
We are not persuaded by any of these arguments.
The primary function test is a set of factors that tend to
indicate whether a facility is devoted to the collection of gas
from wells—gathering—or to the further (“downstream”)
long-distance movement of gas after it has been collected—
interstate transportation. The test requires the Commis-
resale for ultimate public consumption for domestic, commer-
cial, industrial, or any other use, and to natural-gas companies
engaged in such transportation or sale, but shall not apply to
any other transportation or sale of natural gas or to the local
distribution of natural gas or to the facilities used for such
distribution or to the production or gathering of natural gas.
15 U.S.C. § 717(b) (1994) (emphasis added).
4 The primary function test was articulated by the Commission
in Farmland Industries, Inc., 23 F.E.R.C. 161,063 at 61,143 (1983),
and later modified in Amerada Hess Corp., 52 F.E.R.C. 161,268 at
12
sion to “assess and weigh all of the specific facts and circum-.
stances present in a given system.” West Texas Gathering
Co., 45 F.E.R.C. 961,386 at 62,221 (1988). Several criteria
are relevant, particularly the physical, geographical, and op-
erational aspects of the facilities, but no factor is determina-
_ tive, nor do all factors apply in every situation. Northwest
Pipeline Corp. v. FERC, 905 F.2d 1403, 1408 (10th Cir. 1990);
Farmland Industries, 23 F.E.R.C. 161,063 at 61,143; see
also Arkla I, 67 F.E.R.C. 9 61,257 at 61,867.
The Producers fault the Commission’s application of the
primary function test in this instance. The Producers main-
tain that the Commission went astray because it “denied
parties the opportunity to develop a full and specific record,”
“examined only superficially the various ... factors” of the
primary function test, and failed to examine the function of
individual facility segments “as part of an integrated
whole.” “ The Commission, the Producers assert, further
misapplied the primary function test with respect to three
criteria: the compressors; the central point in the field test;
and the web-like configuration of many of the facilities.
61,987-88 (1990). Louisiana Intrastate Gas Corp. v. FERC, 962
F.2d 37, 42-43 (D.C. Cir. 1992). The parties to these proceedings
fault only the Commission’s application of the test, and do not
dispute that the primary function test is a reasonable construction
of the Commission’s authority under NGA § 1(b) and merits defer-
ence under Chevron U.S.A. Inc. v. Natural Resources Defense
Council, 467 U.S. 837 (1984).
15 The Producers’ contention that the Commission erred in
denying them an evidentiary hearing to develop a full record in
support of their position that the facilities function as an integrated
part of the transmission system is meritless. The Commission
concluded that there were no disputed material issues of fact that
could not be resolved on the written record, Arkla II, 70 F.E.R.C.
161,079 at 61,221, and the Producers have not shown the contrary.
The court has repeatedly held that the Commission “is required to
hold hearings only when the disputed issues may not be resolved
through an examination of written submissions.” Environmental
Action v. FERC, 996 F.2d 401, 413 (D.C. Cir. 1993) (citations
omitted).
wht es, «sd ec bee
13
Specifically, the Producers contend that the Commission did
not develop a record to examine whether the compressors
functioned to further downstream transportation, failed to
specify those areas to which it found the central point in the
field test applicable or adduce record evidence showing that
the test was satisfied, and ignored how the facilities in
different areas operated interdependently to further inter-
state transportation.
The Producers’ complaints notwithstanding, we find that
the Commission’s determination that the facilities are primar-
ily devoted to gathering is supported by the record. The
Commission examined six factors.* It found, first, that the
pipelines were generally short in length and small in diame-
ter, which is indicative of gathering usage. Arkla IJ, 67
F.E.R.C. 961,257 at 61,867. All except 15 of the 3,138
pipeline segments to be transferred are less than 8 miles in
length; ninety percent of the pipelines are less than 6 inches
in diameter and, except for pipelines at one location, all are
less than 10 inches in diameter. Id. Second, the Commission
found that many of the subject areas satisfy the central point
in the field test." The few exceptions are small fields with
limited well connections and small diameter pipelines, or
16 The six factors are: (1) the length and diameter of the
relevant lines; (2) the extension of the facility beyond the central
point in the field; (3) the lines’ geographic configuration; (4) the
location of compressors and processing plants; (5) the location of
wells along all or part of the facility; and (6) the operating pressure
of the lines. The first five factors were relied on by the Commis-
sion in Farmland Industries, Inc., 23 F.E.R.C. 161,063, and West
Texas Gathering Co, 45 F.E.R.C. 961,386; the sixth factor was
considered in Amerada Hess Corporation et al, 52 F.E.R.C.
4 61,268.
17 Gathering generally involves the collection of gas from sepa-
rate wells at a single point, the “central point in the field.” There,
it is delivered into a single line for interstate transportation. The
central point in the field test examines whether the facilities in
question are upstream of this single point, in which case they are
likely to be gathering facilities, or downstream, in which case they
are likely to be transportation facilities.
T4
pipelines forming backbone-type structures. Third, the Com-
mission observed that the facilities’ three types of geographic
configuration, particularly the web-like configuration, are con-
sistent with a gathering determination. Fourth and fifth, the
Commission noted that the minimal compression used and the
location of numerous wells along the facilities are also consis-
tent with gas gathering. Jd at 61,867.* Last, the Commis-
sion found that the majority of subject areas operate at low
pressure, which is similarly indicative of gathering. /d at
61,868. From these findings, the Commission concluded that
all 105 systems qualified as exempt gas-gathering systems
under NGA § 1(b). Jd at 61,869.
The Commission may not “disregard those facts or issues
that prove difficult or inconvenient” or “refuse to come to
grips” with certain evidence in applying the primary function
test. See Tenneco Gas v. FERC, 969 F.2d 1187, 1214 (D.C.
Cir. 1992). The record reflects that the Commission, in fact,
“treat{ed] fully ‘each of the pertinent factors,’” see id. (quot-
ing Public Serv. Comm'n of New York v. FPC, 511 F.2d 338,
345 (D.C. Cir. 1975)), and made specific findings with respect
to the location of compressors upstream of processing plants,
the applicability of the central point test to some areas, and
the system’s web-like geographical configuration. 67
F.E.R.C. 961,257 at 61,867-69. Unlike Louisiana Intrastate
Gas, 962 F.2d at 42-43, where the court remanded because
the Commission’s decision was not based on the primary
function test and lacked reasoned consideration, the Commis-
sion here gave reasoned consideration to each of the pertinent
factors of the primary function test, articulating conclusions
based on factual findings. The Producers identify no critical
evidence that would undermine the Commission’s decision.
In evaluating and balancing the several factors under the
primary function test, the Commission brings to bear its
18 The facilities at issue consist of approximately 2,775 miles of
pipelines that are attached to approximately 3,900 active wells, 2,000
additional wells that flow gas through interconnections with third-
party gatherers, and another 1,300 wells that are presently either
inactive or split connected and producing into competitors’ gather-
ing systems. Jd at 61,864.
3
eg
15
considerable expertise about the natural gas industry. See
Universal Camera Corp. v. N.L.R.B., 340 U.S. 474, 488
(1951); Motor Vehicle Manufacturer's Ass’n of the United
States v. State Farm Mutual Automobile Ins. Co., 463 US.
29, 42-43 (1983); Marsh v. Oregon Natural Resources Coun-
cil, 490 U.S. 360, 377 (1989). Consequently, in view of the
substantial evidence to Support the Commission’s findings,
there is no basis for the court to substitute its judgment for
that of the Commission.
The Producers next contend that the Commission incor-
rectly expanded the scope of the § 1(b) gathering exemption
to deregulate the rates, terms, and conditions for gathering
service, contrary to prior Supreme Court decisions that held
§ 1(b)’s exclusion applicable only to the physical activities of
gathering. The Commission’s interpretation of § 1(b) is enti-
tled to Chevron deference. Oklahoma Natural Gas Co. v.
FERC, 28 F.3d 1281, 1283-84 (D.C. Cir. 1994) (citing Chevron
U.S.A. Inc. v. NRDC, 467 U.S. 837 (1984)). The Supreme
Court decisions cited by the Producers have addressed the
Commission’s jurisdiction over gathering rates charged only
by interstate pipelines, and thus do not control the question
whether the Commission may regulate rates charged by
independent or pipeline-affiliated entities. Further, the stat-
ute itself does not clearly resolve the question one way or the
other, and the Commission’s interpretation is a permissible
resolution of the ambiguity.
The Producers rely on several Supreme Court decisions
and a decision from the Eighth Circuit for the proposition
that § 1(b)’s exemption should be restrictively construed to
apply only to the physical activities of gathering.’® The
Supreme Court “has consistently held that ‘production’ and
19 Phillips Petrcieum Co. v. Wisconsin, 347 U.S. 672, 678
(1954); Colorado Interstate Gas Co. v, FPC, 324 US. 581, 600-02
(1945); Interstate Natural Gas Co. v, FPC, 331 U.S. 682 (1947);
Northern Natural Gas Co. v. FERC, 929 F.2d 1261 (8th Cir. 1991),
cert. denied, 502 US. 856 (1991). But see FPC v. Panhandle
Eastern Pipe Line Co., 337 US. 498, 506-07 (1949) (“Panhandle
IT”).
16
‘gathering’ are terms narrowly confined to the physical acts of.
drawing the gas from the earth and preparing it for the first
stages of distribution.” Northern Natural Gas Co. v. Kansas
Corp. Comm’n, 372 U.S. 84, 90 (1963). However, in each case
in which the Court has applied this narrow definition of
“production” and “gathering” to uphold the Commission’s
jurisdiction, the regulated entity was engaged in jurisdictional
activity. Thus, when a natural gas company provided bun-
died sales and interstate transportation from its own wells to
consumers and distributors, the Commission could properly
include the company’s production and gathering costs in its
rate base for the bundled service. Colorado Interstate, 324
U.S. at 603. That holding expressly depended upon the
company’s jurisdictional sales, however; the case does not
stand for the proposition that the Commission can regulate
the rates charged by any gatherer. Similarly, the Court held
that the Commission could regulate an independent produc-
er’s gas sales, but did so because the producer was engaged
in a jurisdictional activity, namely sales for resale, not be-
cause the Commission has general rate-making authority over
producers. Phillips Petroleum, 347 U.S. at 682. The Court
has also held that the Commission may regulate curtailment
of gas deliveries by interstate pipelines, even to direct-sales
customers apparently excluded by another of § 1(b)’s exemp-
tions, because of the Commission’s authority over the pipe-
lines’ jurisdictional transportation. FPC v. Louisiana Power
& Light Co., 406 U.S. 621, 642-47 (1972).
What the Court has not done is to recognize Commission
jurisdiction over entities performing neither jurisdictional
sales nor jurisdictional transportation. The Commission was
confronted in the instant case with two questions that the
Court has not answered: (1) Does the Commission have
jurisdiction over the rates charged by a gatherer that does
not transport gas interstate nor engage in jurisdictional
sales? and (2) If not, does the Commission nonetheless have
jurisdiction if the gatherer is affiliated with a jurisdictional
pipeline? The decisions relied on by the Producers predate
the massive reorganization of the industry occasioned by
Orders Nos. 436 and 636, and the Court has not yet ad-
OS tn ciate tines ae Sit ae Area o
17
dressed many of the jurisdictional issues governing this re-
structured system.
The Supreme Court introduced the concept of the “physi-
cal” activity of gathering when pipelines bundled together
jurisdictional and nonjurisdictional activities. Under these
circumstances, the Court upheld the reach of federal rate-
making regulatory jurisdiction to include both activities, fo-
cusing on the fact that the activity was a part of interstate
transportation or sale by a natural gas company.” In this
context the Court defined “gathering” narrowly, as limited to
activities preceding sales for resale. Phillips Petroleum, 347
U.S. at 678 (citing Colorado Interstate, 324 US. at 598). The
Commission did not reject the physical/nonphysical distinction
made by the Court in the context of bundled service, but
simply declined to apply it in a different factual and regulato-
ry situation not contemplated by the Court’s prior rationale.
The Supreme Court has to date recognized only the Commis-
sion’s authority to consider gathering costs “for the purposes
of determining the reasonableness of rates subject to its
jurisdiction.” Colorado Interstate, 324 U.S. at 603; see also
Panhandle III, 337 U.S. at 506 (“[tJhe use of such data for
rate making is not a precedent for regulation of any part of
production or marketing.”). The Producers did not ask the
Commission to regulate derivatively and merely “tak{fe] into
account the production properties and gathering facilities of
natural gas companies when it fixes their (bundled) rates.”
Colorado Interstate, 324 U.S. at 604. Rather, they sought to
have the Commission directly regulate unbundled gathering
rates charged by a non-natural gas company. Consequently,
we find no inconsistency between the Supreme Court prece-
dents and the Commission’s determination that the gathering
services at issue fall within NGA § 1(b)’s exemption.
2 See Colorado Interstate, 324 US. at 602-03; Public Util.
Comm'n of Colorado v. FERC, 660 F2d 821, 826 (1981) (“[TJhe
Supreme Court on numerous occasions has held that FERC ...
may take into consideration nonjurisdictiona! items when setting
jurisdictional rates.”), cert. denied, 456 U.S. 944 (1982).
18
The Producers’ reliance on Northern Natural, 929 F.2d
1261, is no more availing" In that case, the Eighth Circuit
upheld the Commission’s jurisdiction to enforce the Order No.
436 requirement that interstate pipelines separately identify
their costs attributable to bundled gathering services. As
that court recognized, such jurisdiction was indistinguishable
from the rate-setting authority recognized in Colorado Inter-
state. Id. at 1269. The only difference was that after Order
No. 436, the gathering service was no longer bundled with
jurisdictional sales, the jurisdictional “hook” relied on in
Colorado Interstate. Gathering was still bundled with inter-
state transportation, however, and because “[sjection 1(b)
grants jurisdiction over interstate transportation and over
interstate sales in the same words,” there was no reason to
come to a different result. Jd.
The Producers rely on dictum in Northern Natural in an
attempt to extend its holding—and that of Colorado Inter-
state—to cover the instant case. The Eighth Circuit conclud-
ed that the Commission “[mJay ... under the NGA’s §§ 4
and 5, regulate rates charged for gathering on the pipeline’s
own gathering facilities in connection with jurisdictional inter-
state transportation, notwithstanding the explicit § 1(b) ex-
clusion of gathering from the act.” Jd A footnote earlier in
the decision defined “ ‘gathering facilities owned by the pipe-
line’ and all substantially similar expressions ... to include
such facilities owned or operated directly or indirectly by a
pipeline or its parent, affiliate, subsidiary or lessors.” Jd at
1263 n.2 (emphasis added). The Producers thus take the
position that the Commission’s cozclusion here, that it lacks
jurisdiction over NorAm Field’s gathering facilities, conflicts
with Northern Natural and is in error. Because the Eighth
Circuit did not have before it a situation like the one that
confronts us in the instant case, it did not have to consider
21 The Producers, in support of their Northern Natural argu-
ment, refer to the Tenth Circuit’s decision in Colorado Interstate
Gas Co. v. FERC, 83 F.3d 1298 (10th Cir. 1996). Because the Tenth
Circuit’s decision involves the Commission’s authority over gather-
ing services performed by an interstate pipeline, not an affiliate, it
is distinguishable for the same reasons as is Northern Natural
ee
tet
19
the full ramifications of its footnote. It did not discuss the
issue of the jurisdictional status of affiliate-run gathering
service, and it thus provides little persuasive authority on that
issue. The court noted that “[tJhe question is not before us of
whether gathering performed by producers or independent
gatherers for transportation in interstate commerce by an
interstate pipeline is sufficiently connected to interstate
transportation to justify rate regulation under §§ 4&5.” Id
at 1274. Hence, the language in Northern Natural cannot be
construed to indicate that the Eighth Circuit intended its
dictum in footnote two, referring to an “affiliate,” to apply to
an independently operated gathering affiliate. Instead, the
support for the Producers’ position to be found in Northern
Natural lies in the fact that the rationale underlying the
Eighth Circuit’s decision—namely, the perceived danger that
unregulated pipeline gathering rates might pose to effective
regulation of transportation rates—is reflected in the Com-
mission’s orders under review.“ In light of such concerns,
the Commission determined that NorAm Gas’ gathering affili-
ate would be exempt from NGA jurisdiction only so long as
the affiliate maintains an independent, arms-length relation-
ship with the interstate pipeline. But Northern Natural
provides no direct support for the Producers’ more expansive
claim that the Commission can regulate the gathering activi-
ties of the independent affiliate.
Thus, the Commission had some leeway in construing the
NGA’s jurisdictional provisions in the first instance, as there
was no controlling judicial precedent. Cf Louisiana Power,
406 US. at 631-36 & n.12 (considering efficacy of state
2 The Eighth Circuit stated that:
Permitting a pipeline to manipulate the otherwise unregulated
charges for gathering services performed over its own facilities
in connection with jurisdictional interstate transportation,
would, in effect, permit the pipeline to establish rates for
interstate transportation. Thus the pipeline could grant for-
bidden preferences in interstate transportation for its own gas,
to the disadvantage of third-party shippers.
929 F.2d at 1270.
20
regulation in construing Commission’s jurisdiction and noting
differing regulatory interests of gas-producing and gas-
consuming states); Northern Natural Gas Co. v. Kansas
Corp. Comm’n, 372 U.S. at 90 (noting limitation of production
and gathering exemption to physical acts). Having deter-
mined that the gathering facilities fell within § 1(b)’s gather-
ing exemption, the Commission concluded that it has no
jurisdiction over an affiliate gatherer so long as the affiliate
operates independently of the interstate pipeline and per-
forms only non-jurisdictional activities. Arkla I, 67 F.E.R.C.
961,257 at 61,870; Arkla II, 69 F.E.R.C. 161,280 at 62,086-
87. The Commission found that “[a] pipeline affiliate that
does not itself provide any jurisdictional sales or transporta-
tion services, is not a natural gas company under the NGA.”
Arkla IT, 69 F.E.R.C. 961,280 at 62,086. Indeed, a company
is not a “natural gas company” within the meaning of NGA
§ 2(6), 15 U.S.C. § 717a(6) (1994), and hence not subject to
the provisions of NGA §§ 4, 5 and 7, 15 U.S.C. §§ 717c, 717d,
and 717f, unless the company either transports gas in inter-
state commerce or makes sales in interstate commerce of
such gas for resale. It was within the scope of Chevron
deference for the Commission to conclude that the NGA
“shall not apply” to rates charged by a company providing
only gathering services. Section 1(b) contemplates that some
measure of authority over gathering should be reserved to
the states, and jurisdiction over companies whose sole busi-
ness is gathering is a permissible place to start.
Finally, the Producers challenge the Commission’s conclu-
sion that an independently operated affiliate, solely providing
gathering services, would be exempt from the Commission’s
NGA §§ 4 & 5 authority to review rates, even though the
Commission also reserved the right to exercise such authority
% Section 2(6) defines “natural gas company” to mean:
a person engaged in the transportation of natural gas in
interstate commerce, or the sale in interstate commerce of such
gas for resale.
15 U.S.C. § 717a(6).
21
if the affiliate should engage in anticompetitive behavior.“
The purposes of the NGA would be subverted, the Producers
contend, if an interstate pipeline could avoid NGA jurisdiction
over the rates, terms, and conditions of its gathering service
simply by spinning down its gathering facilities to an affiliate.
According to the Producers: “the Commission cannot have it
both ways. Either it has jurisdiction over the gathering
service spun down to the affiliate or it does not. By asserting
the potential of future exercise of jurisdiction, the Commis-
sion is acknowledging that it has jurisdiction.” ~
* Section 4(a) provides that:
All rates and charges made, demanded, or received by any
natural-gas company for or in connection with the transporta-
tion or sale of natural gas subject to the jurisdiction of the
Commission, and al] rules and regulations affecting or pertain-
ing to such rates or charges, shall be just and reasonable, and
any such rate or charge that is not just and reasonable is
declared to be unlawful.
15 U.S.C. § 717c(a) (1994). Section 5(a) provides in relevant part
that:
Whenever the Commission, after a hearing ... shall find that
any rate, charge, or classification demanded, observed,
charged, or collected by any natural-gas company in connection
with any transportation or sale of natural gas, subject to the
jurisdiction of the Commission ... is unjust, unreasonable,
unduly discriminatory, or preferential, the Commission shall
determine the just and reasonable rate, charge, classification,
rule, regulation, practice, or contract to be thereafter observed
and in force and shall fix the same by order.
15 U.S.C. § 717d(a) (1994).
% The Producers further contend that the Commission’s deci-
sion is inconsistent with its later holdings that jurisdiction cannot be
defeated where affiliated companies operate as one interstate pipe-
line. See KansOk Partnership v. Williams Natural Gas Co., 73
F.E.R.C. 161,160 (1995), order granting stay in part, 73 F.E.R.C.
161,293 (1995); Louisiana Gas System Inc. v. Panhandle Eastern
Corp. 73 F.E.R.C. 161,161 (1995). In KansOk and Louisiana Gas,
the Commission exercised jurisdiction over chains of interconnected
intrastate affiliates that collectively functioned as interstate pipe-
22
In its answer to protests filed in opposition to its petition
for a declaratory order of exemption from NGA §§ 4 & 5
regulation, NorAm Field proposed, as an alternative, that the
Commission only apply light-handed regulation of the affili-
ate’s rates and services through future complaint mecha-
nisms, if necessary. Arkla I, 67 F.E.R.C. 461,257 at 61,865.
This, in effect, is what the Commission has done. /d at
61,871; Arkla II, 69 F.E.R.C. 161,280 at 62,089-90. Recog-
nizing that purportedly independent affiliates could circum-
vent the purposes of the NGA, the Commission took two
preventive steps. First, “to guard against the risk of affiliate
abuse, and to ensure an arms length relationship” between
NorAm Gas and NorAm Field, it required NorAm Gas to add
open-access, non-discrimination, and anti-tying provisions to
its tariff. See supra n.12. Second, the Commission noted
that certain types of “affiliate abuses”—including the giving
of preferences and discounts to the affiliate’s benefit, and
other anticompetitive activity—would “trigger the Commis-
sion’s authority to disregard” the affiliate’s separate corpo-
rate structure. Arkla I, 67 F.E.R.C. 961,257 at 61,871.
Such circumstances, the Commission concluded, would em-
power it to “treat the pipeline and gatherer as a single
entity,” and thereby “regulate the gathering activities as it
would if the gathering facilities were owned directly by an
interstate pipeline.” Jd”
lines. By contrast, the Commission found NorAm Field exempt
from NGA jurisdiction because it will engage in nonjurisdictional
gathering. Hence, we find no inconsistency. As the Producers
admit, “[i]t is one thing to argue that a non-jurisdictional affiliate
can be created to perform non-jurisdictional activities,” as NorAm
Field seeks to do, and “it is another thing to allow a jurisdictional
activity ... to become a non-jurisdictional activity through the
creation of an affiliate,” as the Commission refused to allow in
KansOk and Louisiana Gas.
2% The Commission explained in its initial decision:
While the Commission generally does not have jurisdiction over
affiliated gatherers because affiliates are not natural gas com-
panies under the NGA, the Commission can exert control over
the gathering activities of affiliated gatherers in particular
23
In sum, the Commission’s position is that notwithstanding a
gatherer affiliate’s separate status under state corporation
law, the affiliate may lose its status as an independent entity
for purposes of the Act if it engages in anti-competitive
activity with its affiliated pipeline. In a prior case involving a
similar spin-down to a pipeline’s subsidiary, the Commission
had relied on
[t]he general rule ... that an agency may disregard the
corporate form in the interest of public convenience,
fairness, or equity. This principle of allowing agencies to
disregard corporate forms is flexible and practical in
nature. Corporations may be regarded as one entity for
the purposes with which the agency is immediately con-
cerned even though they are legitimately distinct for
other purposes.
Northwest Pipeline I, 59 F.E.R.C. 161,115 at 61,435 (quoting
Opinion No. 255, 37 F.E.R.C. 161,149 at 61,356 (1986)). In
the instant case, the Commission similarly concluded that
while it has
no authority to regulate an affiliated gatherer because it
is not a natural gas company under the NGA ... if
circumstances develop that would allow the pipeline and
its affiliated gatherer to engage together in anticompeti-
tive activity, the Commission will exert jurisdiction over
circumstances where such action is necessary to accomplish the
Commission’s policies for the transportation of natural gas in
interstate commence. More specifically, if an affiliated gather-
er acts in concert with its pipeline affiliate in connection with
the transportation of gas in interstate commerce and in a
manner that frustrates the Commission’s effective regulation of
the interstate pipeline, then the Commission may look through,
or disregard, the separate corporate structures and treat the
pipeline and gatherer as a single entity, ie, a single natural
gas company. In so doing, the Commission would regulate the
gathering activities as it would if the gathering facilities were
owned directly by an interstate pipeline.
Arkla I, 67 F.E.R.C. 161,257 at 61,871.
24
the gathering service to the extent needed to preserve
the Commission’s statutory mandates under the NGA.
Arkla II, 69 F.E.R.C. 161,280 at 62,087 (citing Northwest
Pipeline I, 59 F.E.R.C. 961,115 at 61,435-36). In other
words, while the Commission believes it has no jurisdiction
over gathering provided by a truly independent affiliate, it
also holds that its jurisdiction over interstate transportation
obligates it to ensure that there is no collusion between the
interstate pipeline and the gatherers to manipulate the inter-
state market by determining who will have access to it. As
with its treatment of the physical/nonphysical distinction, the
Commission has rejected the Producers’ request to regulate
gathering rates directly and continuously, but has distin-
guished exceptional situations in which its regulation of inter-
state transportation would include regulation of gathering
rates. In this sense, the Commission’s position on this issue,
far from being inconstant with its overall analysis, parallels
its treatment of gathering in general. For instance, while the
Commission does not believe it has the general authority to
regulate gathering rates, it has never renounced its authority
under Colorado Interstate to include gathering costs in the
rate base for bundled sales or interstate transportation ser-
vice. Thus, the Commission consistently maintains that when
gathering is intertwined with jurisdictional activities, the
Commission’s regulation of the latter may necessarily im-
pinge on the former.
It is in this light that we interpret the Commission’s
suggestion in its brief to the court that its exercise of
jurisdiction over gathering affiliates is a discretionary matter
entitled to judicial deference.” The Commission, if its juris-
dictional analysis is correct, must determine in each instance
whether the affiliate’s behavior calls for federal intervention.
As an abstract matter, we have no reason to doubt the
27 The Commission states in its brief that the “regulation of
gathering rates is a matter delegated to the Commission to be
determined in its discretion, and in this case, the Commission
reasonably concluded that jurisdiction over [NorAm Field’s} gather-
ing rates is currently not called for.”
EEE
25
Commission’s conclusion that a nonjurisdictional entity could
act in a manner that would change its status by enabling an
affiliated interstate pipeline to manipulate access and costs of
gathering, the precise concern of the Eighth Circuit in North-
ern Natural, 929 F.2d at 1270, supra n.22. Furthermore, we
are not in a position to evaluate this question other than as an
abstract matter because the Commission has yet to assert its
jurisdiction over a gathering affiliate. Both here and in
Northwest Pipeline I & II, the Commission concluded that its
stand-by jurisdiction was not called for under the circum-
stances. As suggested by the Tenth Circuit’s decision to
dismiss for want of a case or controversy the affiliate’s
petition in Northwest Pipeline, we cannot speculate about
what circumstances might develop in the future that would
cause the Commission to invoke the authority it seeks to
reserve in the instant case. Williams Gas Processing Co. v.
FERC, 17 F.3d 1320, 1321-22 (10th Cir. 1994). For now we
conclude only that, as a conceptual matter, the Commission’s
position is not internally contradictory.
Accordingly, we deny the Producers’ petitions challenging
the Commission’s determination that the gathering facilities
at issue are exempt under NGA § 1(b).
III.
The Pipelines, in turn, attack the default contract condition,
contending that the Commission exceeded the scope of “the
express jurisdictional limitation on its powers contained in
§ 1(b) of the NGA.”
Originally, the Commission found the authority to impose
the default contract condition in its NGA § 7(b) power to
determine whether the abandonment of facilities under its
jurisdiction is in the public convenience and necessity.“ The
% Section 7(b) provides that:
No natural-gas company shall abandon all or any portion of its
facilities subject to the jurisdiction of the Commission, or any
service rendered by means of such facilities, without the per-
mission and approval of the Commission first had and obtained,
26
order in Arkla | differed from the later orders in imposing
the condition directly on NorAm Field, rather than NorAm
Gas. Twenty percent of the gathering facilities that NorAm
Gas proposed to transfer to NorAm Field had been certificat-
ed pursuant to NGA § 7(c) when NorAm Gas included the
facilities in year-end budgetary certificate reports.” Arkla
IT, 69 F.E.R.C. 161,280 at 62,085. See also Arkla I, 67
F.E.R.C. 961,257 at 61,872. The Commission required
NorAm Gas to file an abandonment application pursuant to
§ 7(b), despite NorAm Gas’ protestation that the “mistaken-
ly” certificated facilities were nonjurisdictional and hence not
subject to the Commission’s abandonment authority.” The
after due hearing, and a finding by the Commission that the
available supply of natural gas is depleted to the extent that
the continuance of service is unwarranted, or that the present
or future public convenience or necessity permit such abandon-
ment.
15 U.S.C. § 717f(b) (1994).
29 As a precondition to operation, a natural gas company must
receive a certificate of public convenience and necessity from the
Commission. Section 7(c)(1)A) provides:
No natural-gas company ... shall engage in the transportation
or sale of natural gas, subject to the jurisdiction of the Com-
mission ... or acquire or operate any such facilities or exten-
sions thereof, unless there is in force with respect to such
natural-gas company a certificate of public convenience and
necessity issued by the Commission authorizing such acts or
operations.
15 U.S.C. 717f(c)(1)(A) (1994).
30 On rehearing, the Commission affirmed the § 7(b) filing
requirement, notwithstanding NorAm Gas’ objection that it had
mistakenly included nonjurisdictional facilities in its year-end bud-
get certificate reports. Arkla II, 69 F.E.R.C. 161,280 at 62,085.
The Commission reasoned that in so reporting these facilities, and
benefitting from “the advantages bestowed by ... certification,”
such as the ability to attract customers through the stability of
service implied by a certificate and the possibility of including the
facilities’ costs in NorAm Gas’ bundled-service rate base, NorAm
27
Commission also ordered NorAm Gas to include specific non-
discrimination standards in its interstate transportation tariff,
and required NorAm Field to demonstrate that it had negoti-
ated private contracts with NorAm Gas’ existing gathering
customers or offered them default contracts.
On rehearing, the Commission modified its approach in two
respects. First, the Commission shifted the default-contract
filing requirement from NorAm Field to NorAm Gas, disa-
vowing any intention to impose a standard of conduct or
otherwise regulate a non-jurisdictional entity.
(W]e will require that either NorAm [Gas] or [NorAm
Field] demonstrate that [NorAm Field] has negotiated
private contracts with [NorAm Gas’) existing customers.
If such a demonstration cannot be made ... NorAm
[Gas] may submit a “default contract” or pro forma
agreement which [NorAm Field] has offered to [NorAm
Gas’) existing customers.
Arkla IT, 69 F.E.R.C. 161,280 at 62,083. While continuing to
find the public convenience and necessity dependent on deal-
ings betweer. NorAm Field and gathering service customers,
the Commission placed the onus of warranting those dealings
on NorAm Gas. Second, the Commission concluded that the
condition was required not only by § 7(b) as it applied to the
twenty percent of the facilities that were certificated, but also
to all of the facilities, certificated or not, pursuant to NGA
§§ 4 & 5. Id at 62,082-83. Specifically, the Commission
found that NorAm Gas’ plan to cease providing gathering
service in connection with its interstate transportation service
constituted a “change in service,” thus requiring a § 4(d)
filing." In § 4(e), the Commission found the authority to
Gas had committed itself to seeking Commission authority to aban-
don them. Id; Arkla V, 71 F.E.R.C. 161,297 at 62,164-65.
81 Section 4(d) provides:
Unless the Commission otherwise orders, no change shall be
made by any natural-gas company in any such rate, charge,
classification, or service, or in any rule, regulation, or contract
relating thereto, except after thirty days’ notice to the Commis-
28
impose conditions necessary to make the proposed change
just and reasonable.“ The Commission concluded that an
sion and to the public. Such notice shall be given by filing with
the Commission and keeping open for public inspection new
schedules stating plainly the change or changes to be made in
schedule or schedules then in force and the time when the
change or changes will go into effect. The Commission, for
good cause shown, may allow changes to take effect without
requiring the thirty days’ notice herein provided for by an
order specifying the changes so to be made and the time when
they shall take effect and the manner in which they shall be
filed and published.
15 U.S.C. § 717c(d) (1994).
3 Section 4(e) provides, in pertinent part:
Whenever any such new schedule is filed the Commission
shall have authority, either upon complaint of any State, munic-
ipality, State commission or gas distributing company, or upon
its own initiative without complaint, at once, and if it so orders,
without answer or formal pleading by the natural-gas company,
but upon reasonable notice, to enter upon a hearing concerning
the lawfulness of such rate, charge, classification or service;
and, pending such hearing and the decision thereon, the Com-
mission, upon filing with such schedules and delivering to the
natural-gas company affected thereby a statement in writing of
its reasons for such suspension, may suspend the operation of
such schedule and defer the use of such rate, charge, classifica-
tion or service, but not for a longer period than five months
beyond the time when it would otherwise go into effect; and
after full hearings, either completed before or after the rate,
charge classification, or service goes into effect, the Commis-
sion may make such orders with reference thereto as would be
proper in a proceeding initiated after it had become effective.
If the proceeding has not been concluded and an order made at
the expiration of the suspension period, on motion of the
natural-gas company making the filing, the proposed change of
rate, charge, classification, or service shall go into effect....
At any hearing involving a rate or charge sought te be in-
creased, the burden of proof to show that the increased rate or
charge is just and reasonable shall be upon the natural-gas
company, and the Commission shall give to the hearing and
29
abrupt change in the regulatory status of NorAm Gas’ gath-
ering services would be unreasonable and unjust under §§ 4
and 5 because it would immediately eliminate NGA price and
access protection upon which customers had come to depend.
Id, at 62,082. In so concluding the Commission relied as well
on “well established continuity of services principles.” Jd.
at 62,083. For it to find in the § 7(b) proceeding that the
facilities abandonment was in the public convenience and
necessity, and that the termination of service in the § 4
proceeding was just and reasonable, the Commission required
NorAm Gas to “demonstrate that its existing customers will
be guaranteed service after the facilities are transferred.”
Arkla IV, 70 F.E.R.C. 161,079 at 61,219.
The Commission rejected the Pipelines’ argument that it
was beyond the scope of NGA jurisdiction to require NorAm
Field, a nonjurisdictional entity, to execute gathering agree-
ments with NorAm Gas’ existing customers. Arkla II, 69
F.E.R.C. 161,280 at 62,081. The Commission’s principal
response was that permitting NorAm Gas to terminate its
gathering services without adequate protection would frus-
trate the policy of promoting a competitive market, and that
the Commission could use its § 4 authority to regulate nonju-
risdictional activities performed “in connection with” jurisdic-
tional service to prevent that outcome. The Commission
noted that one of the goals of Order No. 636, namely to
“ensure that all shippers have meaningful access to the
pipeline transportation grid” in order to promote “competi-
tive, national market” transactions, would be advanced by its
assertion of “in connection with” authority in light of the
decision of such questions preference over other questions
pending before it and decide the same as speedily as possible.
15 U.S.C. § 717c(e) (1994).
%@ Although these principles were developed in connection with
assessing the public convenience and necessity of § 7(b) abandon-
ment of certificated facilities and services, the Commission conclud-
ed that similar principles must apply when addressing the termi-
nation of non-certificated jurisdictional services. Arkla II, 69
F.E.R.C. 161,280 at 62,083 n.42.
30
Eighth Circuit’s decision in Northern Natural, 929 F.2d 1261.
Id. at 62,081 (citations omitted). As the Commission itself
had concluded on another occasion:
the section 4 and 5 grant of authority to regulate activi-
ties “in connection with” interstate transportation gives
the Commission the discretion to regulate other aspects
of the natural gas industry where necessary to make
effective the Commission’s primary jurisdiction over in-
terstate transportation.
Northwest Pipeline II, 60 F.E.R.C. 161,213 at 61,729 (quot-
ing Northwest Pipeline I, 59 F.E.R.C. 961,115 at 61,435-36
(quoting NGA §§ 4 and 5)). Or, as the Commission argues in
its brief to the court, although “the physical gathering activi-
ties which [NorAm Field] will perform are exempt from the
Commission’s jurisdiction under § 1(b) ... that is not to say
they are also free of the Commission’s term and rate authori-
ty under §§ 4 and 5.” Brief for Respondent at 19 (citing
Northern Natural, 929 F.2d at 1263). Applying the reason-
ing in Northern Natural, the Commission further concluded
that failing to review the termination of gathering services
here would create potential obstacles to open-access transpor-
tation by providing pipelines with the opportunity to grant
undue preferences or advantages, and enable pipelines, in
effect, to assume the Commission’s congressionally-assigned
role in determining whether rates are fair and just and
whether proposed action by a pipeline is in the public inter-
est. Arkla II, 69 F.E.R.C. 161,280 at 62,082.
The Commission had several other responses to the Pipe-
lines’ objection. In its view, “a natural corollary to the
requirement to file ... gathering rates is a requirement to
submit for Commission review any proposal to change—or in
this case to terminate—some or all of the rates or services
embodied in the rates.” Jd. at 62,081-82. Also, concluding
that “the states are not in a position to protect the expecta-
tions of existing customers at the point the pipeline decides to
exit from the market for gathering,” the Commission sought
to avoid a “regulatory gap” contrary to congressional intent in
enacting the NGA. /d. Finally, in the Commission’s view, it
31
was not engaged in continuing regulation of NorAm Field,
since once the gathering facilities were transferred and the
contracts for continuity of service were in place, the Commis-
sion’s involvement in these proceedings would be over. Arkla
IV, 70 F.E.R.C. 161,079 at 61,219.
We conclude that the Commission has not identified any
source of authority to impose the default contract condition.
Granting the Commission’s statutory interpretation due def-
erence, the statute forecloses what appears to be the principal
justification offered by the Commission: that the phrase “in
connection with” in § 4 permits it to regulate facilities that it
has expressly found are not within its § 1(b) jurisdiction.
Where an activity or entity falls within NGA § 1(b)’s exemp-
tion for gathering, the provisions of NGA §§ 4, 5 and 7,
including the “in connection with” language of §§ 4 and 5,
neither expand the Commission’s jurisdiction nor override
§ 1(b)’s gathering exemption. In language no less applicable
here, the Supreme Court held in Panhandle III, 337 U.S. at
508-09, that
[sJections 4, 5 and 7 do not concern the producing or
gathering of natural gas; rather, they have reference to
the interstate sale and transportation of gas and are so
limited by their express terms. Thus §§ 4(a), (b), (c),
5(a) and 7(c) speak of “transportation or sale of natural
gas subject to the jurisdiction of the Commission” while
§ 7a) and (b) refer respectively to “transportation facili-
ties” and “facilities subject to the jurisdiction of the
Commission.” Nothing in the sections indicates that the
power given to the Commission over natural-gas compa-
nies by § 1(b) could have been intended to swallow all
the exceptions of the same section and thus extend the
power of the Commission to the constitutional limit of
congressional authority over commerce.
See also Colorado Interstate, 324 U.S. at 602-03. Because
the Commission concluded that the facilities to be transferred
by NorAm Gas were exempt under § 1(b) as gathering
facilities, and that NorAm Gas’ independently operated affili-
ate gatherer was not a “natural gas company” subject to the
32
NGA, the Commission cannot simply assert authority over
the Reciitties and the affiliate by invoking other sections of the
Act.
Nor are the Commission’s other explanations for asserting
§§ 4 & 5 authority adequate. Although a § 4(d) change-in-
service filing may seem a “natural corollary” to the require-
ment to file gathering rates, what is natural may not always
be part of the Act, and the Commission must explain how the
NGA effectuates this corollary. The “regulatory gap” argu-
ment, depending on the inability of the states to protect
existing customers, finds support in Supreme Court authority.
E.g., Louisiana Power, 406 U.S. at 631. Nonetheless, the
Commission did not explain why the states would be unable to
protect NorAm Gas’ customers, nor why the purported gap
would be a two-year problem. Finally, the fact that the
Commission’s involvement would end once the contracts be-
tween NorAm Field and the NorAm Gas customers were
signed does not explain why the Commission has the jurisdic-
tion to be involved in the first place.
Likewise, there are difficulties with the Commission’s reli-
ance on § 7(b). As previously discussed, §§ 4, 5, & 7 do nut
expand the Commission’s § 1(b) jurisdiction. Section 7(b)
requires approval for abandonment of “facilities subject to the
jurisdiction of the Commission, or any service rendered by
means of such facilities.” This provision is no more an
% Our concern with the Commission’s statutory interpretation
is reenforced by Northwest Central Pipeline v. State Corp.
Comm'n, 489 U.S. 493 (1989) (finding no preemption of a state law
regulating natural gas production). There, the Court, observing
that Congress “carefully divided up regulatory power over the
natural gas industry” so as to “expressly reservie) to the States the
power to regulate ... gathering,” id at 509-514, held that “[t]o find
preemption of [a state’s] regulation merely because purchasers’
costs and hence rates might be affected would be largely to nullify
that part of NGA § 1(b) that leaves to the States contro] over
production,” id. at 514. The Court expressly cautioned once again
against interpreting the Commission’s powers over transportation
and sales to include those areas reserved to the states. Jd at 512
(quoting Panhandle ITI, 337 U.S. at 513-14).
ee ee ee)
ASAE Ren Pat Ree aoe REN ~
oe
5
Ed
2
2
+
,
33
expansion of jurisdiction than is the “in connection with”
language of § 4. In any event, while the record is not
absolutely clear on the point, it appears that only twenty
percent of the facilities to be transferred by NorAm Gas were
ever certificated. As the Commission itself recognized, even
if the abandonment authority could be invoked, it could apply
to only that portion of the facilities. Arkla J, 67 F.E.R.C.
4 61,257 at 61,872.
Although we conclude that the Commission did not ade-
quately explain its jurisdiction to condition approval of the
spin-down of gathering facilities on a default contract mecha-
nism, the Commission’s options for assuring continuity of
service and reasonable rates for gathering customers are not
necessarily exhausted. There may be other alternatives that
the Commission has not as yet explored, and we do not pre-
judge whatever efforts or determinations it may make in the.
future to address the spin-down phenomenon. In the orders
under review, the Commission relied on an impermissible
statutory interpretation to impose the default contract condi-
tion. Accordingly, we grant the Pipelines’ petitions, deny the
Producers’ petitions, and remand the cases to the Commis-
sion.
34
APP B
UNITED STATES COURT OF APPEALS
For The District Of Columbia Circuit
No. 94-1724 September Term, 1995
Conoco Inc.,
Petitioner,
Vv.
Federal Energy Deedee Commission,
Respondent.
Vesta Energy Company, et al.,
Intevenors
Consolidated with 94-1726, 94-1729, 94-1730,
94-1731, 94-1732, 94-1735, 95-1007, 95-1013,
95-1080, 95-1172, 95-1342, 95-1364
BEFORE: Buckley, Sentelle and Rogers, Circuit Judges
ORDER
It is Ordered, by the Court, that the opinion filed
herein on August 2, 1996, is amended, as follows:
ee eS ee
wid Bos eee 2
;
<
j
4
“4
;
35
At page 5, footnote 8, line 8
delete the words
and vacated
BY:
Per Curiam
FOR THE COURT:
Mark J. Langer, Clerk
Robert A. Bonner
Deputy Clerk
36
APPENDIX C
Arkla Gathering Services Company,
67 F.E.R.C. (CCH) ¥ 61257 (1994)
Arkla Gathering Services Company
Docket No. CP94-36-000
FEDERAL ENERGY REGULATORY
COMMISSION
Preliminary Determination on Jurisdictional Status of
Facilities
May 27, 1994
PANEL:
Before Commissioners: Elizabeth Anne Moler,
Chair; Vicky A. Bailey, William L. Massey, and Donald F.
Santa, Jr.
OPINION:
On October 21, 1993, Arkla Gathering Services
Company (Gathering Company) filed a petition for
declaratory order requesting a determination that certain
facilities that Gathering Company intends to acquire from
Arkla Energy Resources Company (AER), its affiliate, will
be gathering facilities exempt from the Commission’s
jurisdiction under section 1(b) of the Natural Gas Act
(NGA). We find that the facilities will be exempt
eee
37
gathering facilities under NGA section 1(b) upon their
acquisition by Gathering Company, contingent on AER
and Gathering Company meeting the additional conditions
discussed below. |
I. Background and Proposal
Gathering Company states that it intends to
acquire the on-shore gathering systems, related metering
and other appurtenant equipment currently owned and
operated by AER. The subject facilities are located in 105
areas in Arkansas, Louisiana, Oklahoma, and Texas.
Gathering Company’s pleadings and responses to
data requests include maps and information that set out
for each area: (1) the geographic configuration of the
systems; (2) the diameter and length of pipelines in the
systems; (3) the compressors; (4) the pressure of the lines;
(5) the custody transfer points of the gas; and (6) the
number of wells attached to the pipelines in each area.
Gathering Company states that the combined
facilities consist of approximately 2,775 miles of pipelines
that are attached to approximately 3,900 active wells.
Approximately 2,000 additional wells are flowing gas into
the subject facilities through interconnections with
third-party gatherers. In addition, another 1,300 wells are
presently either inactive or split connected and producing
into competitors’ gathering systems. The subject facilities
are described in greater detail in Appendix A to this
order.
38
Gathering Company points out that: 11 of the
subject areas have 100 or more wells connected to them;
34 have between 20 and 99 wells; 36 areas have between
four and 19 wells; and 24 have fewer than four wells.
Gathering Company states that of the 24 areas with fewer
than four wells, 64 of a total of 67 pipelines in the areas
are between 2 and 6 inches in diameter.
Gathering Company also points out that almost 90
percent of the pipelines in the 105 subject areas are 6
inches or less in diameter, and that approximately 98
percent of the lines are 8 inches or less. It also states that
any compression performed in the subject areas is
necessary to move low-pressure gas through the fields.
Gathering Company states that all of the subject
facilities currently are classified by AER as gathering,’
and that none of the facilities is certificated under NGA
section 7(c). However, Gathering Company points out
that some of the facilities may have been reported in
AER’s year-end budgetary certificate reports. It claims,
however, that those facilities were not constructed under
AER’s budget-type certificate and that the reports were in
‘Arkansas Royalty and Indicated Shippers maintain that AER
has claimed in prior rate cases that some of the subject facilities are
transmission in nature. However, the Commission has indicated that
the criteria for determining how particular facilities are treated for
purposes of rate cases are different from those for determining
whether the same facilities are jurisdictional under NGA section 1(b).
See Arkla Energy Resources, 63 FERC 61,265, at 62,719 n.25 (1993);
Trunkline Gas Company, 58 FERC 61,240, at 61,792 (1992).
39
error.’ Gathering Company also states that after the
facilities are transferred, it intends to perform the same
gathering functions that AER is currently performing
except that it will conduct its business separate from
AER’s. Therefore, Gathering Company claims that the
facilities should continue to be exempt from Commission
jurisdiction under NGA section 1(b) upon its acquiring
them.
In its petition for declaratory order, Gathering
Company argued that its prospective gathering rates and
services also should be declared exempt from the
Commission’s jurisdiction. Gathering Company contended
that the Commission’s treatment of similar rates and
conditions and/or terms of service in Northwest Pipeline
Corp. (Northwest)’ and Panhandle Eastern Pipe Line Co.
(Panhandle)* would be unjustified here. In those cases,
the Commission determined that it had the discretion to
exert jurisdiction over the rates and terms and conditions
*In response to a data request, Gathering Company lists
approximately 600 of the subject pipelines that were identified in
AER’s year-end budget reports.
*Northwest Pipeline Corp., 59 FERC 61,115, reh’g denied, 60
FERC 61,213 (1992), appeal dismissed sub nom. Williams Gas
Processing Co. v. FERC, No. 92-9553 (10th Cir., Feb. 28, 1994). In
dismissing the appeal of the Commission’s decision, the court ruled
that there was no case or controversy because the Commission had
not asserted jurisdiction or implied that it had jurisdiction over
Williams Gas Processing Co. at the present time.
‘Panhandle Eastern Pipe Line Co., 62 FERC 61,027, reh’g
denied, 65 FERC 61,167 (1993).
40
of service of gathering activities of a pipeline affiliate
when those activities were performed in connection with
interstate transportation of gas by the pipeline. However,
the Commission found it unnecessary to exert jurisdiction
over the pipeline affiliate unless the affiliate used its
relationship with the pipeline to engage in anticompetitive
activities. In a subsequent filing, however, Gathering
Company requests that the Commission grant it the same
treatment applied in Northwest, Panhandle, and other
recent ordets.°
II. Procedural Matters
A. Interventions
Notice of the petition for declaratory order was
published in the Federal Register on November 1, 1993
(58 Fed. Reg. 58,333). Numerous motions to intervene
and notices of intervention were filed. Timely unopposed
motions to intervene and notices of intervention are
granted by operation of Rule 214 of the Commission’s
regulations.° n6 Texaco Gas Marketing Inc. and Williams
Field Services Mid-Continent Region Company tendered
untimely, unopposed motions to intervene. They have
shown an interest in this proceeding, and their
participation, we find, will not delay the proceeding or
prejudice the rights of any other party. Accordingly, for
“See Mid Louisiana Gas Co., 65 FERC 61,166 (1993); KN
Energy, Inc. (KN Energy), 65 FERC 61,168 (1993), reh’g denied, 66
FERC 61,171 (1994).
*18 C.F.R. 385.214 (1993).
41
good cause shown, we will grant the late motions to
intervene. Appendix B to this order lists all intervenors.
B. Protests and Answers
Protests to the petition were filed by Arkansas Gas
Consumers (Arkansas Consumers), the Arkansas and
Louisiana Public Service Commissions, jointly (the State
PSCs), Arkansas Royalty Membership (Arkansas Royalty),
Indicated Shippers, Phillips Petroleum Company and
GPM Gas Corporation, jointly (Phillips), Samson
Resources Company and Oklahoma _ Independent
Petroleum Association, jointly (Samson), and Sonat
Marketing Company (Sonat).
Gathering Company filed a motion for leave to file
an answer to the protests. It claims that its answer is
warranted in order to correct and complete the record.
Upon reviewing the notice convening a public conference,
issued in Docket No. RM94-4-000,’ Gathering Company
states that it determined that the Commission may be
hesitant to grant its original request that its prospective
rates and services be declared non-jurisdictional.
Therefore, its answer "proposes a more reasoned and
"Natural Gas Gathering Services Performed By Interstate
Pipelines and Interstate Pipeline Affiliates -- Issues Related To Rates
and Terms and Conditions of Service, issued October 28, 1993. The
public conference took place on February 24, 1994, and explored the
extent to which the Commission should exercise its rate and tariff
jurisdiction, under NGA sections 4 and 5, over the rates and/or terms
and conditions for gathering services performed by interstate pipelines
and their affiliates.
42
reasonable approach" by requesting that the Commission
only apply light handed regulation over Gathering
Company’s rates and services through future complaint
mechanisms, if necessary. Gathering Company states that
it is not withdrawing its original request for a
determination that it would be exempt from the
Commission’s sections 4 and 5 jurisdiction. It requests
that the Commission grant its revised request now, and
then review its original request after the court issues its
opinion in the Northwest proceeding and after the
Commission completes the process initiated in Docket No.
RM94-4-000.
Indicated Shippers and Arkansas Royalty filed
answers opposing Gathering Company’s motion for leave
to file an answer to the protests. They point out that the
answer is forbidden by the Commission’s rules. Indicated
Shippers argues that the answer actually is an amendment
to the petition for declaratory order and violates the
protestants’ right to be heard in response. Similarly,
Arkansas Royalty contends that the parties have been
denied adequate time to submit a thorough response.
Both parties request that Gathering Company’s motion be
denied. Alternatively, Indicated Shippers requests
additional time to respond.
On January 19, 1994, the Commission issued a
Notice of Extension of Time for parties to respond to
Gathering Company’s answer. Indicated Shippers filed an
answer, but Arkansas Royalty did not.
‘Gathering Company’s answer to the protests, at p. 2.
43
Vesta Energy Company (Vesta) also tendered for
filing an answer to the protests. It adopts and supports
the protests filed by Arkansas Consumers, Sonat, and
Arkansas Royalty, as well as comments filed by Oryx Gas
Marketing Company (Oryx).’? Noark Pipeline System,
Limited Partnership (Noark) also tendered for filing an
answer to the protests in support of Gathering Company’s
petition.
While our rules do not permit answers to
protests,’ we may, for good cause, waive a rule.’ We
find good cause to do so in this instance. In its answer,
Gathering Company provides additional, relevant
information concerning the subject facilities, and it
modifies its position concerning the Commission’s
jurisdiction over its prospective rates and services.
Accordingly, we will accept Gathering Company’s answer
to the protests, noting the opportunity given to all parties
to respond to it. Similarly, to achieve a complete and
accurate record, we will accept all pleadings tendered to
date for filing.
On March 21, 1994, Arkansas Royalty filed a
motion requesting that the Commission require Gathering
*Although Oryx did not file a protest, in its motion to
intervene it requests that the Commission carefully.consider the
practical and policy ramifications that Gathering Company’s proposal
will have on the objectives of Order No. 636. Arkansas Royalty,
Indicated Shippers, and Samson express similar concerns.
See 18 C.F.R. 385.213(a)(2) (1993).
18 C.F.R. 385.101(e) (1993).
44
Company to supplement its petition for declaratory order
with certain additional information. Specifically, Arkansas
Royalty requests that Gathering Company file additional
information including: (1) more specific maps; (2)
evidence that Gathering Company will provide access to
other interstate pipelines; (3) the net book value of each
of the facilities to be transferred; and (4) evidence on how
Gathering Company will determine its gathering rates in
the areas where no competition exists. Oklahoma
Independent Petroleum Association and Producer-Market
Transportation Group Gathering Coalition (filing jointly),
Indicated Shippers, and Vesta filed answers in support of
Arkansas Royalty’s motion. Finally, Gathering Company
filed an answer in opposition to the motion.
We will deny Arkansas Royalty’s motion. The
motion merely reiterates arguments alleging insufficient
information that Arkansas Royalty presented in its
protest. As discussed below, we find that the existing
record is sufficient to enable the Commission to reach a
fully informed decision in this preliminary determination.
a Request for Joinder of Parties
Indicated Shippers contends that the true facts
cannot be established unless the Commission joins
additional parties to this proceeding. Specifically,
Indicated Shippers requests that the Commission join
AER, Arkla Pipeline Group, Texas Eastern Transmission
Corporation (Texas Eastern), and ANR Pipeline Company
(ANR) as parties to this proceeding. Indicated Shippers
states that AER and Arkla Pipeline Group are affiliated
45
with Gathering Company and that Texas Eastern and
ANR have proceedings currently pending before the
Commission that pertain to certain of the gathering
facilities.* Indicated Shippers argues that the Texas
Eastern and ANR proceedings involve issues relevant to
the Commission’s determination here.
We will deny Indicated Shippers’ request. We find
that the existing record is sufficient to resolve fully all
issues in this preliminary determination, and that nothing
would be gained by granting Indicated Shippers’ request.
We note, however, as discussed below, AER will need to
file an application to abandon any certificated facilities.
Further, we note that Texas Eastern’s application in
Docket No. CP93-598-000 was withdrawn on November
16, 1993.
D. Requests for Hearing And/Or _ Technical
Conference
In their protests, several parties request a full
evidentiary hearing and/or technical conference.”
Arkansas Royalty, Indicated Shippers, and Phillips argue
that Gathering Company has not provided sufficient
"Indicated Shippers cites Docket No. CP93-598-000, in which
Texas Eastern proposed to acquire a leasehold in certain AER
gathering facilities, and Docket No. CP89-2195-002, in which ANR
proposed to acquire an interest in certain AER transmission (but not
gathering) facilities.
'3 Arkansas Royalty, Indicated Shippers, Phillips, Samson, and
the State PSCs.
46
information for the Commission to determine if the
subject facilities are exempt as gathering under NGA
section 1(b).
The requests are denied. An evidentiary trial-type
hearing is necessary only where material issues of fact are
in dispute that cannot be resolved on the basis of the
written record.'* No such material issues of fact are
present here. By accepting all tendered pleadings
discussed above, the Commission has achieved a complete
record for this preliminary determination and given all
parties an adequate opportunity to be heard. For the
same reasons, we find no need to convene a technical
conference.
III. Discussion
A. Jurisdictional Status of the Facilities
Under section 1(b) of the NGA, the Commission
has jurisdiction to regulate the transportation and sale for
resale of natural gas in interstate commerce and any
natural gas company engaged in such transportation or
sale. At the same time, section 1(b) exempts from
Commission jurisdiction the "production or gathering of
See, e.g., Southern Union Gas Co. v. FERC, 840 F.2d 964,
970 (D.C. Cir. 1988); Cerro Wire & Cable Co. v. FERC, 677 F.2d 124
(D.C. Cir. 1982); Citizens for Allegan County, Inc. v. FPC, 414 F.2d
1125, 1128 (D.C. Cir. 1969).
47
natural gas." The courts have narrowly construed the
section 1(b) gathering exemption to apply to the physical
activities of gathering.”°
The primary function test articulated in Farmland
Industries, Inc.,’’ as modified in Amerada Hess
Corporation, et al.,’* is the standard used to determine
whether specific facilities are gathering or transmission in
nature. Among other things, the primary function test
considers the following factors: (1) the length and
diameter of the lines; (2) the extension of the facility
beyond the central point in the field; (3) the lines’
geographic configuration; (4) the location of compressors
and processing plants; (5) the location of wells along all or
part of the facility; and (6) the operating pressure of the
lines. No one factor is determinative, nor do all factors
necessarily apply to all situations.”
Applying the primary function test to the facts of
this case, we conclude that the facilities will perform
*18 U.S.C. 717(b).
Transcontinental Pipe Line Corp. v. State Oil & Gas Bd.,
474 U.S. 409, 418 (1986) (quoting Northern Natural Gas Co. v. State
Corp. Comm’n, 372 U.S. 84, 90 (1963)). See also Northwest Central
Pipeline Corp. v. State Corp. Comm’n, 489 U.S. 493, 510 (1989).
"Farmland Industries, Inc., 23 FERC 61,063 (1983).
'’Amerada Hess Corp., 52 FERC 61,268 (1990).
9 Arkla’s facilities are not located on the Outer Continental
Shelf (OCS). A separate analysis is necessary for facilities on the
OCS. See EP Operating Co. v. FERC, 876 F.2d 48 (Sth Cir. 1989).
48
primarily a gathering function upon their acquisition by
Gathering Company, and, accordingly, will be exempt
from the Commission’s jurisdiction under NGA section
1(b). In reaching our conclusion, we rely on the facts
surrounding AER’s operation of the facilities, and
Gathering Company’s representation that it will operate
the systems in essentially the same manner.
: Length and Diameter of the Lines
The petition for declaratory order lists 3,138
segments of pipeline to be transferred. Generally, the
pipelines are short in length and small in diameter, which
is consistent with a gathering determination.
Most of the pipelines range in length from a few
hundred feet to a few miles. All but 15 of the 3,138
pipeline segments are less that 8 miles in length.” Each
of the pipeline segments that is longer than 8 miles forms
the backbone or spine of a system. As backbone
pipelines, they collect gas from numerous feeding lines
along their entire length. This type of backbone pipeline
is consistent with a gathering determination.”
The diameters of the pipelines in all but one of the
areas range in size from 2 to 10 inches. Ninety percent of
the pipelines are 6 inches or less in diameter, and 98
“Fourteen of these pipeline segments are between 8 and 13.6
miles in length. The Waskom Area contains the longest pipeline,
approximately 26 miles long, but it is only 3 inches in diameter.
“Northwest, 59 FERC at 61,434.
49
percent of the lines are 8 inches or less. These smaller
diameter pipelines are consistent with a gathering
determination. There are 14 pipelines that are 10 inches
in diameter. These 10-inch pipelines form the backbones
of their systems. Numerous smaller pipelines feed into
them. The largest diameter pipeline is in the Mathers
Ranch Area, which consists of one 4.7 mile segment of
12-inch pipeline. The pipeline currently is attached to one
well, but has numerous tap locations for connections to
producer owned lines. A short pipe that is only attached
to one or a few wells is indicative of a gathering
pipeline.”
2. ~ Central Point in the Field
The second criterion of the primary function test
requires consideration of whether the facilities extend
beyond a central point in the field. The central point in
the field test is based on the idea that gathering involves
the collection and movement of fatural gas through
various lines to a central point where the gas is delivered
into a single line for transmission. Any facilities located
upstream of the central point are considered
non-jurisdictional gathering facilities. This test is usuaily
considered in situations where no processing plant is
included in the system configuration.” The central point
2See KN Energy, 65 FERC at 61,852-853.
3 See Tennessee Gas Pipeline Co., 47 FERC 61,029 (1989);
Shell Oil Company and Chapparo Gathering Co., 24 FERC 61,371
(1983).
50
in the field test applies to many, or portions of many, of
the subject areas.
On the other hand, as discussed, several of the
areas consist of pipelines that form a backbone-type
structure, or short pipelines that are attached to one or a
few wells. The central point in the field test does not
apply to these types of facilities.
3. Geographic Configuration
The subject facilities generally fall into three types
of geographic configurations. One is the web-like
configuration commonly found in field gas gathering
systems. Many of the subject facilities display this type of
configuration.
The second configuration involves _ the
backbone-type structure, which consists of a pipeline that
connects to numerous feeding lines along its entire length.
The Amber and Sickles Areas in Oklahoma are examples
of this type of system.
The third type of configuration, found in several of
the smaller systems, consists of short, small diameter
pipelines that connect a few wells directly into the
transmission system. The Buffalo Wallow Area is an
example of this type of system. Generally, all three types
of configurations are consistent with a gathering
determination.
sa atl Sait iia i i i ied
51
Although many of the subject areas consist of only
one type of configuration, several of the areas contain
combinations of all three. For example, gas in the Enid
Area is delivered to five custody transfer points on AER’s
transmission system. One transfer point is connected to
a central compressor facility into which feed several
pipelines connected to many wells. Two custody transfer
points are connected to backbone-type structures. The
final two transfer points are connected to one or two
small pipelines that connect one or two wells directly to
the transmission system.
4. The Location of Compressors and
Processing Plants
Twenty-eight of the areas contain 71 field
compressors. According to Gathering Company, the
compression performed by these facilities is necessary to
boost low-pressure gas from the field. This type of
minimal compression is consistent with a primary function
of gathering.“ We note that there are no gathering
facilities downstream of any processing plants.
5. Location of Wells
This criterion, which requires that wells be located
along all or part of the facilities, is satisfied for each area.
There are 3,977 wells attached to pipelines in 103 of the
areas. Two areas are listed as having no wells attached to
“See Manchester Pipeline Corp., 46 FERC 36,356 (1989).
52
the pipelines. These areas are currently inactive.”
Additionally, Gathering Company has stated that an
estimated 2,000 additional wells are flowing gas into the
subject facilities through interconnections with third-party
gatherers. Another 1,300 wells are either inactive or split
connected and producing into competitors’ gathering
systems.
As stated, 11 of the areas have 100 or more wells
connected to them. Thirty-four have between 20 and 99,
and 36 have between four and 19 wells. Twenty-four
areas” have less than four wells. Of these 24 areas, 21
consist of very small diameter pipelines, usually 2 to 6
inches, that connect to each well. The Deer Creek and
Mayflower Areas have 4-inch pipelines attached to the
wells and 8-inch backbone-type pipelines to collect the
gas.
6. Operating Pressure of the Lines
“Attachment A to Gathering Company’s answer to the
protests lists three areas, the Canute, Holdenville, and Lillie Areas,
with no well connections. In response to a data request, however,
Gathering Company states that there are currently three wells in the
Canute Area.
Ada, Ames, Athens, Bloomington, Braman, Canute, Cedar
Springs, Chitwood, Geary, Gotebo, Holdenville, Indianapolis, Jesse,
Lillie, Mayfield, Metcalf, Missionary Lake, Oakman, Peek, Quitman,
and Stigler. The last of the 24 areas is Mathers Ranch, which is a
short pipeline attached to one well. Under the location of wells
criterion, we conclude that all of the systems are indicative of
gathering.
53
A majority of the areas operate at pressures below
500 psig. Thirty-six operate at pressures below 400 psig.
Fight of these 36 areas operate at less than 150 psig.”’
Forty of the areas operate at pressures above 500 psig.
Eighteen of these 40 operate up to or over 900 psig.”
Ten areas are currently inactive.” In response to a data
request, Gathering Company states that the higher
pressure systems do not have central point compression,
and that the operating pressures are determined by the
wellhead pressures of the wells. In other situations,
Gathering Company states that the producers have
installed individual wellhead compressors. These facts
are consistent with a gathering determination. In sum, we
conclude that all of the subject areas satisfy this criterion
of the primary function test.
7. Observations and Conclusions
All of the 105 systems, except for the Mathers
Ranch Area, are comprised of pipeline segments smaller
that 10 inches in diameter. Ninety percent of the
pipelines are 6 inches or less in diameter. Most of the
” Bradley, Calhoun, Carthage, Deek Creek, Gragg, Jefferson,
Jesse, and Metcalf.
“Apache, Buffalo Wallow, Butler, Chickasha, Hinton,
Indianapolis, Indian Rock, Leedy, Mayfield, Midway, Oakman,
Panola, Red Oak, Sickles, Stiles Ranch, Strong City, Tatum, and
Weatherford.
*Ada, Braman, Hamon-Locke sub-area, Holdenville,
Jerusalem, Lillie, Mayflower, Peek, Terryville, and Whelan.
54
pipelines also are short in length. The longer ones are
backbone-type pipelines that collect gas from numerous
feeding lines. Many of the areas connect to more than a
few wells, are web-like in configuration, and are located
upstream of a central point in the field. The few
exceptions consist mainly of small fields with limited well
connections and small diameter pipelines, or of
backbone-type pipelines. The compressors found in 28 of
the areas primarily aid in moving otherwise low-pressure
gas through the systems. Finally, the areas that operate
at high pressures do so primarily because they are
connected to high pressure wells.
Accordingly, we conclude that all 105 systems
qualify as gathering systems under the primary function
test. Therefore, once the preconditions discussed below
are satisfied, and upon the transfer of the subject facilities
to Gathering Company, the facilities will be exempt from
the Commission’s jurisdiction under NGA section 1(b).
B. Jurisdiction Over Gathering Company’s Prospective
Rates and Services
B The Parties’ Arguments
Several parties” argue that, under the court’s ruling
* Arkansas Royalty, Arkansas Consumers, Indicated Shippers,
and th e State PSCs.
Ee eee a eee ae Pee eee ee ee
55
in Northern Natural Gas Company (Northern Natural),”!
the Commission has a statutory mandate to exert full
NGA sections 4 and 5 jurisdiction over the rates charged
by Gathering Company "in connection with" AER’s
jurisdictional interstate transportation, to assure just and
reasonable rates. The parties claim that the Commission’s -
regulation under the NGA is mandatory and not
discretionary, and that anything less than full regulation of
Gathering Company’s rates would be an unlawful
abdication of the Commission’s responsibility under the
NGA.
Several parties” also argue that if the Commission
does not regulate Gathering Company’s rates and services,
Gathering Company and AER will use their substantial
market and monopoly power to frustrate open-access to
AER’s interstate transmission system through Gathering
Company’s gathering rates and/or terms and conditions of
service. Indicated Shippers argues that a Federal Trade
Commission (FTC) finding® that certain markets in the
"929 F.2d 1261 (8th Cir. 1991), cert. denied, 112 S.Ct. 169
(1991).
* Arkansas Royalty, Indicated Shippers, Phillips, Samson, and
Sonat.
*In 1986, Arkla, Inc. (Arkla) acquired an interstate pipeline
that roughly parallelied its mainline in central and western Arkansas.
The FTC initiated an investigation of the acquisition that resulted in
Arkia’s entering into a
settlement, without acknowledging or disclaiming the FTC’s
allegations, to divest itself of certain assets, some of which included
gathering facilities. See In the Matter of Arkla, Inc., 112 FTC 509
eS
56
Arkoma Basin in Arkansas are highly concentrated is
evidence of a lack of competition in that area and of the
potential for Gathering Company to behave in an
anticompetitive manner.
Arkansas Royalty claims that Gathering Company
will shift costs to captive supplies to compete better where
there are other service alternatives. It contends that less
attractive wells with no competitive alternatives will face
increasingly higher rates and may be abandoned
prematurely. Sonat and Samson advance similar
arguments.
Phillips, Indicated Shippers, and Arkansas Royalty
argue that Gathering Company has not demonstrated that
the potential for abuse of the affiliate relationship does
not exist. Indicated Shippers states that AER should be
required to add to its tariff a guarantee of access to its
mainline facilities for all gatherers. Similarly, Phillips
states that the Commission should consider some
appropriate limitation to protect parties against
discrimination in favor of the affiliated gatherer. All of
these parties, and the State PSCs, request that the
Commission require Gathering Company to show
evidence of sufficient competitive alternatives from
wellhead to transmission interconnect for each gathering
area.
Arkansas Royalty, Indicated Shippers, Orxy, and
(1989).
57
Samson argue that the proposed transfer would frustrate
the Commission’s Order No. 636 competitive objectives.
Arkansas Royalty argues that the operational and physical
interrelationship of the gathering facilities and mainline
transmission system is such that the two cannot be
operated independently without threatening the goals of
Order No. 636. Indicated Shippers maintains that AER’s
Order No. 636 compliance orders imposed access
conditions on gathering that AER will simply walk away
from by transferring the facilities.
Several parties argue that Gathering Company
should be required to honor prior contractual and/or
regulatory obligations. Specifically, Samson states that an
integral part of the rate settlement in Docket No.
RP93-3-000 was an agreement that AER would charge a
gathering rate no higher than 14.17 cents per MMBtu. It
argues that AER must not be able to evade that bargain
by transferring the facilities to a non-jurisdictional
company. The State PSCs request that the Commission
cap Gathering Company’s maximum gathering rates at the
level approved in Docket No. RP93-3. Samson also argues
that Gathering Company should be required to honor
AER’s contracts for discounted transportation.
“Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation; and Regulation of
Natural Gas Pipelines After Partial Wellhead Decontrol, 57 Fed. Reg.
13,267 (April 16, 1992), III FERC Stats. and Regs. 30,939 (April 8,
1992); order on reh’g, Order No. 636-A, 57 Fed. Reg. 36,128 (August
12, 1992), III FERC Stats. and Regs. 30,950 (August 3,
1992); order on reh’g, Order No. 636-B, 57 Fed. Reg. 57,911
(December 8, 1992), 61 FERC 61,272 (November 27, 1992).
58
Arkansas Royalty argues that many lines were paic
for.by producers as “aid-in-construction," and that the
have relied on Commission regulation to ensure that AE
will not double recover costs. Arkansas Royalty also,
points out that some producers are getting free gatherin
services as non-cash consideration under take-or-pay at
buydown settlements, and it is concerned about the status
of those agreements after the transfer.
In its answer to the protests, Gathering Company,
claims that the involved facilities are subject to substantial
competition. Specifically, it points out that in a response,
to a data request it provided a list of over 400 gatherers
operating in the same areas where the subject facilities are,
located. It also states that sections 7 and 8 of the,
Transfer Agreement between Gathering Company and,
AER provide that both companies will observe principles.
of open-access and refrain from acting in an unduly,
discriminatory manner. Sections 7 and 8 of the Transfer.
Agreement read as follows:
7.1 In providing any services to each other,
Transferee and Transferor will provide such
services in a manner not inconsistent with
principles of open-access.
7.2 Transferee and Transferor will refrain from
charging prices or imposing terms and conditions
for services which are intended to discourage or
deny any shipper access to any transmission system
and will operate their businesses in a manner.
consistent with applicable laws requiring conduct
59
which is not unduly discriminatory.
8.1 After transfer of the Assets to Transferee,
Transferor will take no unreasonable action or
make no unreasonable change to its currently
existing operating practices, at any existing or
future receipt point between its facilities and the
gathering facilities of Transferee acquired
hereunder, that would deny the receipt of gas into
Transferor’s system.*
Furthermore, in its answer to the protests,
Gathering Company states that it will honor all long-term
commitments, including any which deal with contributions
in aid-in-construction and discounts.
Arkansas Royalty challenges Gathering Company's
statement that the Transfer Agreement provides
open-access and non-discriminatory protection.
Specifically, Arkansas Royalty states that the Transfer
Agreement only creates rights between Gathering
Company and AER, and expressly provides that it is not
intended to create any third-party beneficiary rights.”
Similarly, Indicated Shippers states that the Transfer
Agreement does not alleviate any concerns of potential
Petition for declaratory order, Appendix A at pp. 7 and 8.
*Section 11.2 of the Transfer Agreement states that: "Nothing
in the Transfer Agreement is intended or will be construed to confer
upon or give any person or entity other than the parties hereto any
rights or remedies under or by reason of the Transfer Agreement of
any transaction contemplated hereby."
discrimination.
Arkansas Royalty and Indicated Shippers disagree
with Gathering Company’s contention that there is
substantial competition in the subject areas. Arkansas
Royalty claims that Gathering Company’s information is
unreliable and should be discounted.
Noark, in comments supporting Gathering
Company's petition, states that it will compete with
Gathering Company for supply in Arkansas. Noark agrees
with the protestants that there is currently minimal
competition in the subject gathering areas. However, it
contends that this is the result of past regulation, and that
deregulation is necessary to attract the capital that is
needed to modernize existing systems and meet
production needs.
12. Commission Response
First, we address those protestants who argue that
Commission regulation of a pipeline gathering affiliate is
mandatory. Section 1(b) of the NGA gives the
Commission jurisdiction over (1) the transportation of
natural gas in interstate commerce, (2) the sale in
interstate commerce of natural gas for resale, and (3)
natural gas companies engaged in such transportation or
sale. Section 2(6) of the NGA defines "natural gas
company” as a person engaged in the transportation of
natural gas in interstate commerce or the sales of such gas
in interstate commerce for resale. Interstate pipelines are
61
natural gas companies, and the Commission’s jurisdiction
to regulate pipeline activities includes gathering.
Although, the Commission’s mandate under the NGA and
its primary rate jurisdiction is with respect to interstate
transportation. not gathering, in Northern Natural the
U.S. Court of Appeals for the Eighth Circuit confirmed
that under NGA sections 4 and 5 the Commission may
regulate rates charged for gathering services provided by
natural gas companies (i.¢e., pipelines) "in connection with"
the pipelines’ jurisdictional interstate transportation.
However, companies that perform only a gathering
function, whether they are independent or affiliated with
an interstate pipeline, are not natural gas companies
because they neither transport natural gas in interstate
commerce, nor sell such gas in interstate commerce for
resale. Therefore, the Commission does not have
jurisdiction over such companies whether they are
independent or affiliated with an interstate pipeline.
While the Commission generally does not have
jurisdiction over affiliated gatherers because affiliates are
not natural gas companies under the NGA, the
Commission can exert control over the gathering activities
of affiliated gatherers in particular circumstances where
such action is necessary to accomplish the Commission’s
policies for the transportation of natural gas in interstate
commerce. More specifically, if an affiliated gatherer acts
in concert with its pipeline affiliate in connection with the
transportation of gas in interstate commerce and in a
manner that frustrates the Commission’s effective
regulation of the interstate pipeline, then the Commission
62
may ook through, or disregard, the separate corporate
structures and treat the pipeline and gatherer as a single
entity, 1.e., a single natural gas company. In so doing, the
Commission would regulate the gathering activities as it
would if the gathering facilities were owned directly by an
interstate pipeline.”
The types of affiliate abuses which would trigger
the Commission’s authority to disregard the corporate
form would be limited to abuses arising specifically from
the in‘errelationship between the pipeline and its affiliate.
That is, a complainant would have to allege that the
pipeline would benefit by certain actions taken by the
affiliate in conjunction with its affiliated pipeline. Such
actions might include the affiliate’s giving preferences to
market affiliate gas or tying gathering service to the
pipeline’s jurisdictional transmission service; the pipeline’s
giving transportation discounts only to those utilizing the
affiliate’s gathering service; and actions resulting in
cross-subsidization between the affiliate’s gathering rates
and the pipeline’s transmission rates. -Although an
"The Eight Circuit held in Northern only that the
Commission may regulate pipeline-owned gathering that is "in
connection with" the pipeline’s jurisdictional transportation.
Notwithstanding the footnote in that case that might be construed to
the contrary, the issue of whether the Commission has similar
jurisdiction over pipeline-affiliated gatherers was not before that
Court. We do not believe that section 4 and 5 of the NGA nor the
holding in Northern support the view that the Commission has
jurisdiction over rates for gathering services that are "in connection
with" interstate gas transportation if those services are not provided
by a "natural gas company."
63
affiliate could undertake other types of anti-competitive
activities, the Commission’s jurisdiction would be
implicated only where the abuse is directly related to the
affiliate’s unique relationship with an interstate pipeline.
Except where the Commission finds that a pipeline and its
gathering affiliate should be treated together as a single
"natural gas company," the affiliated gatherer would be
subject to state, not Federal jurisdiction.
Moreover, to guard against the risk of affiliate
abuse, and to ensure an arms length relationship between
the pipeline and an affiliated gathering company, we
believe the pipeline must include in its tariff the following
standards:
(a) AER will provide nondiscriminatory access to
all sources of supply in accordance with Part 284 of
the Commission’s regulations and will not give
shippers of its gathering affiliate undue preference
over shippers of nonaffiliated gatherers or other
customers in scheduling, transportation, storage or
curtailment priority.
(b) AER will not condition or tie its agreement to
provide transportation service to an agreement by
the producer, customer, end-user, or shipper
relating to any service by any gathering affiliate,
any services by it on behalf of its gathering
affiliate, or any services in which its gathering
affiliate is involved.
We will condition the abandonment authorization
64
discussed below in section C.2. upon AER’s filing tariff
provisions containing the standards of conduct described
above.
Accordingly, we disagree with the protestants who
urge that the Commission must regulate all affiliate
gathering. The Commission’s jurisdiction to regulate
affiliate gatherers is indeed limited, as discussed above.
Some protestants argue that in the absence of
competition for gathering, the Commission must regulate
an affiliated gatherer. We disagree. As we discuss in
more detail in Mid Louisiana Gas Company, et al., (Mid
Louisiana)* which the Commission is considering
concurrently with the instant case, the presence or
absence of gathering competition in a particular area has
no bearing on the Commission’s authority to regulate
affiliated gatherers. As discussed above, an affiliate is not
a natural gas company. Moreover, as we also discuss in
Mid Louisiana, it would be unreasonably burdensome and
time consuming to attempt to gage the level of
competition for the gathering services at issue in this
proceeding.
Nevertheless, we recognize that in the past, the
Commission has fully regulated gathering by interstate
*In Docket No. CP93-79-001, the Commission is acting on a
request for rehearing of its order in Docket No. CP93-79-000 in which
the Commission permitted Mid Louisiana Gas Company to abandon
gathering facilities by transfer to its affiliate, Fairbanks Gathering
Company.
65
pipelines under a cost-based regime. The pipelines’
historical obligation to its gathering customers and the
Commission’s later requirement for open access
transportation created an expectation that the relationship
between the pipelines and producers connected to their
gathering systems would be governed by regulation, not
private contract. Because of the current absence of
comprehensive contracts, in instances like the one here,
where a pipeline is proposing to transfer its gathering
operations to a non-pipeline entity, the existing customers
could find themselves unable to contract for service of the
pipeline’s successor in interest. We agree that existing
customers have a reasonable expectation that their service
will not be arbitrarily terminated in the event of a
spin-down or spin-off or only offered undue unreasonable
terms, conditions and rates.
Therefore, as a precondition to a final
determination that the subject facilities will be exempt
from our jurisdiction, Gathering Company must
demonstrate that it has negotiated private contracts with
AER’s existing customers. If Gathering Company is
unable to reach agreement with AER’s existing customers
(or where most producers have entered into contracts, but
there are a few holdouts), Gathering Company may
submit a "default contract" or pro forma agreement which
has been offered to existing customers. The terms for
service should not be inconsistent with the terms,
conditions and rates for various services currently offered
by independent gatherers in the particular region. If we
conclude that the "default contract" meets this standard,
we will issue a final declaratory order. Existing customers
66
who choose not to take service under these terms,
conditions and rates will not be guaranteed continuation
of service. By giving AER’s existing customers an
opportunity to negotiate contracts with Gathering
Company prior to issuance of a declaratory order and
providing a default standard for such contracts where the
parties cannot otherwise devise mutually agreeable terms,
conditions and rates, the Commission eliminates to the
extent possible any advantage Gathering Company has
over captive gathering customers.
as Other Matters
1. Valuation Issue
Gathering Company indicates that the facilities will
be transferred at net book value. Phillips is concerned
that AER will charge its customers for stranded gathering
costs. Phillips also argues that transferring the facilities
at net book value may not be adequate to represent the
true market value of the assets. It states-that this may
give Gathering Company an unfair advantage because the
depreciated value of the facilities may be artificially low.
Phillips recommends that the Commission require "AER
to hold an ’open season’ to bid for the facilities . . . [and
to] require AER to accept the highest bid for the
facilities."”
We will deny Phillips’ request. As we stated in Mid
Louisiana Gas Co., et al.,
*Phillips’ protest, at p. 7.
a ee a eS OO Fy ey ee ee, ee ae ee o- —
ee
67
[A] pipeline might seek to spin off
facilities that have a market value higher
than their book value, while retaining and
seeking to recover stranded investment
costs for gathering facilities with a market
value lower than their book value.
Pipelines should be aware that if they seek
to recover stranded investment costs for
gathering facilities, the Commission will
consider all the pipeline’s gathering
transactions, including the transfer of assets
to an affiliate, when assessing the
recoverability of such stranded costs.”
2. Budget-Type Certificate Issue
Finally, we note that Gathering Company has
stated that some of the facilities may have been reported
in AER’s year-end budgetary certificate reports. Because
many of the facilities are certificated, AER must file an
application under NGA section 7(b) to abandon those
facilities. We will condition the abandonment
authorization on AER’s demonstrating that there is in
place a regime of private contracts that were negotiated
by Gathering Company with AER’s existing customers.
The Commission orders:
(A) Upon their acquisition by Gathering Company,
the subject facilities will be exempt from Commission
“65 FERC 61,166, at 61,643 (1993).
68
jurisdiction under section 1(b) of the NGA.
(B) The finding in Ordering Paragraph (A) is
conditioned on Gathering Company’s demonstrating that
there is in place a regime of private contracts with AER’s
existing customers, in accordance with the discussion in
the body of this order.
(C) The finding in Ordering Paragraph (A) is
conditioned on AER’s filing an application to abandon
any facilities that may have been built under its
budget-type certificate, as discussed above. The
abandonment authorization will be conditioned on AER’s
demonstrating that there is in place a regime of private
contracts that were negotiated by Gathering Company
with AER’s existing customers, and on AER’s filing tariff
provisions containing the standards of conduct, as
discussed in the body of this order.
(D) The requests for hearing are denied.
(E) The late motions to intervene are granted.
(F) Gathering Company’s motion for leave to file
an answer to the protests is granted.
(G) Arkansas Royalty’s motion to supplement
petition for declaratory order is denied.
(H) All tendered pleadings, as discussed above,
are accepted into the record.
69
(1) Indicated Shippers’ request to join additional
parties to this proceeding is denied.
APPENDIX:
Appendix A
Oklahoma
1. Amber Area - The Amber Area consists of: ten
4-inch pipelines, ranging in length from approximately 36
feet to 3.4 miles; and one 6-inch pipeline, approximately
2 miles long. The pipelines connect to 16 wells and
operate near 800 psig. The gas is dehydrated prior to
delivery to two custody transfer points on AER’s
transmission system.
2. Ames Area - The Ames Area consists of: four
2-inch pipelines, ranging in length from approximately 123
feet to one mile; one 3-inch pipeline, approximately 0.8
miles long; and three 4-inch pipelines, approximately 0.5
to 1.6 miles long. The pipelines connect to three wells and
operate at 350 psig. The gas is dehydrated before delivery
into one custody transfer point on AER’s transmission
system.
3. Apache Area - The Apache Area consists of:
three 4-inch pipelines, two approximately 1.5 miles long
and one approximately 4.1 miles long; and one 8-inch
pipeline approximately 4.6 miles long. The pipelines
connect to six wells and operate at 700-900 psig. The gas
is dehydrated prior to delivery to three custody transfer
70
points on AER’s transmission system.
4. Ashland Area - The Ashiand Area consists of:
five 2-inch pipelines, ranging in length from approximately
120 feet to one mile; three 3-inch pipelines, approximately
193 feet to 0.8 miles long; and 17 4-inch pipelines,
approximately 382 feet to 1.9 miles long. The pipelines
connect to 29 wells and operate near 750 psig. The gas is
dehydrated prior to delivery to two custody transfer points
on AER’s transmission system.
5. Binger Area - The Binger Area consists of:
twelve 4-inch pipelines, ranging in length from
approximately 93 feet to 2.4 miles; and one 6-inch
pipeline, approximately 4.8 miles long. The pipelines
connect to nine wells and operate at 800-850 psig. The gas
is dehydrated downstream of five custody transfer points
on AER’s transmission system.
6. Bloomington Area - The Bloomington Area
consists of one 4-inch pipeline approximately two miles
long. The pipeline connects to one well and operates
near 350 psig. The producers dehydrate the gas at the
wellhead and it is delivered to a custody transfer point on
AER’s transmission system.
7. Bokoshe Area - The Bokoshe Area consists of:
four 3-inch pipelines, ranging in length from
approximately 0.3 to 0.9 miles; twelve 4-inch pipelines,
approximately 0.7 to 1.6 miles long; and two compressors
totaling 470 horsepower. The pipelines connect to 15
wells and operate at 250-400 psig. The gas is dehydrated
71
and compressed upstream of delivery to a custody transfer
point on AER’s transmission system.
8. Bradley Area - The Bradley Area consists of:
five 4-inch pipelines, ranging in length from approximately
346 feet to 0.8 miles; and two 8-inch pipelines, one 3.3
miles and one 4.6 miles long. The pipelines connect to
seven wells and operate near 100 psig. The gas is
dehydrated upstream of two custody transfer points on
AER’s transmission system.
9. Braman Area - The Braman Area consists of
one 439-foot, 2-inch pipeline that connects to two wells,
and a 42 horsepower compressor. The Braman Area is
currently inactive. When producing it delivers gas into
AER’s transmission system after it is dehydrated and
compressed.
10. Butler Area - The Butler Area consists of: one
3-inch pipeline, approximately 0.3 miles long; and five
4-inch pipelines, ranging in length from approximately 0.7
to 2.3 miles. The pipelines connect to six wells and
operate at 800-900 psig. The gas is dehydrated upstream
of delivery to two custody transfer points on AER’s
transmission system.
11. Canute Area - The Canute Area consists of:
one 3-inch pipeline, approximately 0.8 miles long; and one
4-inch pipeline, approximately 0.4 miles long. The
pipelines connect to three wells and operate at 700 psig.
This is a dry gas system that delivers gas to a custody
transfer point on AER’s transmission system.
72
12. Carlton Area - The Carlton Area consists of:
seven 2-inch pipelines, ranging in length from
approximately 28 feet to 0.8 miles; six 3-inch pipelines,
approximately 560 feet to three miles long; and 17 4-inch
pipelines, approximately 0.2 to 3.4 miles long. The
pipelines connect to 30 wells and operate at approximately
350 psig. The gas is dehydrated upstream before delivery
into 13 custody transfer points on AER’s transmission
system.
13. Carpenter Area - The Carpenter Area consists
of: two 3-inch pipelines, ranging in length from
approximately 0.7 and 1.6 miles; nine 4-inch pipelines,
approximately 117 feet to 3 miles long; and one 6-inch
pipeline, approximately 1.2 miles long. The pipelines
connect to seven wells and operate near 700 psig. The
gas is dehydrated prior to delivery to six custody transfer
points on AER’s transmission system.
14. Carter Area - The Carter Area consists of: six
4-inch pipelines, ranging in length from approximately 25
feet to one mile; and one 6-inch pipeline, approximately
4.9 miles long. The pipelines connect to six wells and
operate at 700 psig. The gas is dehydrated prior to
delivery to a custody transfer point on AER’s transmission
system.
15. Centrahoma Area - The Centrahoma Area
consists of: seven 2-inch pipelines, ranging in length from
approximately 19 feet to 0.5 miles; three 3-inch pipelines,
approximately 467 feet to 0.6 miles long; eleven 4-inch
pipelines, approximately 569 feet to 1.2 miles long; and
ba = a eal a
73
three 6-inch pipelines, approximately 0.4 to 1.3 miles long.
The pipelines connect to 35 wells and operate near 700
psig. The gas is dehydrated upstream of three custody
transfer points on AER’s transmission system.
16. Chickasha Area - The Chickasha Area consists
of: one 2-inch pipeline, 636 feet long; one 2.5-inch
pipeline, approximately 0.2 miles long; eight 3-inch
pipelines, ranging in length from approximately 174 feet
to 1.5 miles; 34 4-inch pipelines, approximately 58 feet to
1.5 miles long; seven 6-inch pipelines, approximately 0.3
to 1.5 miles long; two 8-inch pipelines, approximately 0.2
and 0.3 miles long; and two 10-inch pipelines,
approximately 1.2 and 3.1 miles long. The pipelines
connect to 55 wells and operate at 300-950 psig. The gas
is dehydrated upstream of delivery to 24 custody transfer
points on AER’s transmission system.
17. Chitwood Area - The Chitwood Area consists
of: three 4-inch pipelines, one 210 feet, one 164 feet, and
one 0.8 miles long; and one 6-inch pipeline, approximately
1.5 miles long. The pipelines connect to two wells and
cperate at 700 psig. The gas is dehydrated prior to
delivery to a custody transfer point on AER’s transmission
system.
18. Custer Area - The Custer Area consists of:
seven 2-inch pipelines, ranging in length from
approximately 189 feet to three miles; three 3-inch
pipelines, approximately 0.7 to 1.2 miles long; and 25
4-inch pipelines, approximately 39 feet to 5.2 miles long.
The pipelines connect to 31 wells and operate near 350
A
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psig. The gas is dehydrated prior to delivery to eight
custody transfer points on AER’s transmission system. Gas
on a few lines is dehydrated by the producers prior to
receipt by Gathering Company.
19. Deer Creek Area - The Deer Creek Area
consists of: five 4-inch pipelines, ranging in length from
approximately 179 feet to 1.1 miles; and one 8-inch
pipeline, approx mately ten miles long. The pipelines
connect to two wells and operate generally at less than
100 psig. The gas is either dehydrated prior to delivery to
AER’s transmission system or delivered to Western Gas
Resources for processing prior to delivery to AER’s
transmission system.
20. Eagle City Area - The Eagle City Area consists
of five 4-inch pipelines, approximately 912 feet to 3.3
miles long. The pipelines connect to five wells and
operate at approximately 350 psig. The gas is dehydrated
upstream of delivery to three custody transfer points on
AER’s transmission system.
21. Enid Area - The Enid Area consists of: seven
2-inch pipelines, ranging in length from approximately 212
feet to 0.7 miles; 19 3-inch pipelines, approximately four
feet to 2.7 miles long; ten 4-inch pipelines, approximately
566 feet to 1.1 miles long; one 8-inch pipeline,
approximately 5.1 miles long; and one 90 horsepower
compressor. The pipelines connect to 20 wells. Most of
the lines are currently inactive. However, when active,
they operate at approximately 300-350 psig. The gas is
dehydrated prior to delivery to AER’s transmission system
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at five custody transfer points.
22. Erick Area - The Erick Area consists of: one
2-inch pipeline, 902 feet long; six 4-inch pipelines, ranging
in length from approximately 0.3 to 0.8 miles; and one
6-inch pipeline, approximately 1.6 miles long. The
pipelines connect to six wells and operate at
approximately 300 psig. This is primarily a dry gas system
with producers providing dehydration at the wellhead.
The gas is delivered to two custody transfer points on
AER’s transmission system. Most of the lines are
currently inactive.
23. Geary Area - The Geary Area consists of:
three 4-inch pipelines, two approximately 0.6 miles long
and one approximately 8.5 miles long. The pipelines
attach to three wells and operate at 400 psig. The gas is
dehydrated and delivered to a custody transfer point on
AER’s transmission system.
24. Gerty Area - The Gerty Area consists of: one
2-inch pipeline, 164 feet long; one 3-inch pipeline,
approximately 0.4 miles long; and ten 4-inch pipelines,
ranging in length from approximately 464 feet to 3.4
miles. The pipelines connect to 13 wells and operate
near 800 psig. The gas is dehydrated prior to delivery to
six custody transfer points on AER’s transmission system.
25. Gotebo Area - The Gotebo Area consists of:
one 4-inch pipeline, approximately 1.6 miles long; and one
6-inch pipeline, approximately 1.3 miles long. The
pipelines connect to one well. When producing, it
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delivers gas to Natural Gas Pipeline of America’s
transmission system.
26. Hinton Area - The Hinton Area consist of:
one 3-inch pipeline, approximately 0.2 miles long; 14
4-inch pipelines, ranging in length from approximately 118
feet to 2.4 miles; and two 6-inch pipelines, one 465 feet
long and one 10.3 miles long. The pipelines connect to 19
wells and operate near 900 psig. The gas is dehydrated
upstream of two custody transfer points on AER’s
transmission system.
27. Holdenville Area - The Holdenville Area
consists of: one 3-inch pipeline, approximately 0.5 miles
long; and one 4-inch pipeline, approximately 0.6 miles
long. The area is currently inactive. When it is
producing, the gas is delivered dehydrated to two custody
transfer points on AER’s transmission system.
28. Indianapolis Area - The Indianapolis Area
consists of two 4-inch pipelines, approximately 957 feet
and 0.2 miles long. The pipelines connect to two wells
and operate at approximately 900 psig. The gas is
dehydrated upstream of delivery to two custody transfer
points on AER’s transmission system.
29. Jesse Area - The Jesse Area consists of three
2-inch pipelines that total approximately 1.2 miles. The
pipelines attach to one well and operate at 50 psig. The
gas is delivered at two custody transfer points to Koch Oil
Plant.
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30. Kinta Area - The Kinta Area consists of: nine
2-inch pipelines, ranging in length from approximately
eight feet to 0.7 miles; 37 3-inch pipelines, approximately
254 feet to 3.6 miles long; 53 4-inch pipelines,
approximately 47 feet to 2.1 miles long; four 6-inch
pipelines, approximately one mile to 3.3 miles long; one
8-inch pipeline, approximately 8.1 miles long; and one 700
horsepower compressor. The pipelines connect to 163
wells and operate at 400-800 psig. The gas is compressed
and dehydrated prior to delivery to four custody transfer
points on AER’s transmission system.
31. Kiowa Area - The Kiowa Area consists of:
three 2-inch pipelines, ranging in length from
approximately ten feet to 0.9 miles; 38 4-inch pipelines,
approximately 130 feet to 1.7 miles long; 14 6-inch
pipelines, approximately 169 feet to 3.4 miles long; and
two 8-inch pipelines, one 3.4 miles and one 5.7 miles long.
The pipelines connect to 85 wells and operate at 600-800
psig. The gas is dehydrated immediately upstream of a
custody transfer point on AER’s transmission system.
32. Lacy Area - The Lacy Area consists of: twelve
2-inch pipelines, ranging in length from approximately 315
feet to 1.4 miles; 15 3-inch pipelines, approximately 65
feet to 1.6 miles long; 25 4-inch pipelines, approximately
l6lfeet to 2.9 miles long; four 6-inch pipelines,
approximately 1.3 to 7.9 miles long; and one 530
horsepower compressor. The pipelines connect to 36
wells and operate at approximately 350 psig. The gas is
dehydrated prior to delivery into AER’s transmission
system at six custody transfer points.
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33. Leedy Area - The Leedy Area consists of: 31
4-inch pipelines, ranging in length from approximately 613
feet to 1.8 miles; one 6-inch pipeline, approximately 1.2
miles long; and one 10-inch pipeline, approximately 6.4
miles long. The pipelines connect to 40 wells and operate
mostly at 350-400 psig. A few isolated lines operate at
900 psig. The gas is dehydrated upstream of delivery to
AER’s Leedy Compressor Station on its transmission
system.
34. Marlow Area - The Marlow Area consists of:
eight 2-inch pipelines, ranging in length from
approximately one foot to 0.7 miles; eight 3-inch pipelines,
approximately 330 feet to one mile long; 21 4-inch
pipelines, approximately 67 feet to 3 miles long; six 6-inch
pipelines, approximately 0.4 to 6 miles long; and one
8-inch pipeline, approximately 0.6 miles long. The
pipelines connect to 38 wells and operate at 250-350 psig.
The gas is dehydrated upstream of delivery to eleven
custody transfer points on AER’s transmission system.
35. Mayfield Area - The Mayfield Area consists of:
two 4-inch pipelines, each approximately 0.5 miles long;
and one 6-inch pipeline, approximately 5.1 miles long.
The pipelines attach to three wells and operate near 950
psig. The gas is dehydrated at the wellhead by the
producers and delivered to a custody transfer point on
AER’s transmission system.
36. Mayflower Area - The Mayflower Area
consists of: one 4-inch pipeline, approximately 2.6 miles
long; and one 8-inch pipeline, approximately 4.8 miles
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long. The pipelines connect to two wells. The area is
currently inactive. When producing, it delivers dehydrated
gas to a custody transfer point on AER’s transmission
system.
37. McAlester Area - The McAlester Area consists
of: one 2-inch pipeline, 142 feet long; one 3-inch pipeline,
approximately 4.7 miles long; eleven 4-inch pipelines,
ranging in length from approximately 107 feet to 1.2
miles; one 6-inch pipeline, approximately 0.4 miles long;
and two 8-inch pipelines, approximately 0.7 and 3.1 miles
long. The pipelines connect to 22 wells and operate at
600-700 psig. The gas is dehydrated upstream of two
custody transfer points on AER’s transmission system.
38. Midway Area - The Midway Area consists of:
one 3-inch pipeline, 142 feet long; seven 4-inch pipelines,
ranging in length from approximately 75 feet to 1.5 miles;
and one 6-inch pipeline, approximately 1.3 miles long.
The pipelines connect to ten wells and operate at
approximately 900 psig. The gas is dehydrated upstream
of delivery to two custody transfer points on AER’s
transmission system. One of the 4-inch lines delivers gas
to a custody transfer point on El] Paso Natural Gas
Company’s transmission system.
39. Minco Area - The Minco Area consists of: one
2-inch pipeline, approximately 0.3 miles long; two 3-inch
pipelines, one 200 feet and one 0.2 miles long; 18 4-inch
pipelines, ranging in length from approximately 21 feet to
3.6 miles; one 8-inch pipeline, approximately 4.9 miles
long; and two 10-inch pipelines, one 1.6 miles and one 2.6
ii
80
miles long. The pipelines connect to 19 wells and operate
at 800-850 psig. The gas is dehydrated prior to delivery
to five custody transfer points on AER’s transmission
system.
40. Oakman Area - The Oakman Area consists of:
one 2-inch pipeline, 419 feet long; and two 4-inch
pipelines, one 550 feet long and one 0.6 miles long. The
pipelines connect to three wells and operate at 700-900
psig. The gas is dehydrated prior to delivery to two
custody transfer points on AER’s transmission system.
41. Panola Area - The Panola Area consists of:
one 3-inch pipeline, approximately 0.4 miles long; and 14
4-inch pipelines, ranging in length from approximately 154
feet to one mile. The pipelines connect to 18 wells and
operate at 900-950 psig. The gas is dehydrated upstream
of delivery to three custody transfer points on AER’s
transmission system.
42. Paw Paw Area - The Paw Paw Area consists
of: 15 2-inch pipelines, ranging in length from
approximately ten feet to 0.8 miles; 43 3-inch pipelines,
approximately eight feet to 2.1 miles long; 50 4-inch
pipelines, approximately 195 feet to 7.4 miles long; four
6-inch pipelines, approximately 1.1 to 4.5 miles long; two
compressors totaling 340 horsepower; and three other
compressors that operate at 80, 65, and 170 horsepower.
The pipelines connect to 171 wells and operate at 400-600
psig. The gas is compressed and dehydrated prior to
delivery to four custody transfer points on AER’s
transmission system.
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43. Peek Area - The Peek Area consists of one
4-inch pipeline, approximately 1.7 miles long. It connects
to one well and delivers gas to a custody transfer point on
Panhandle Eastern Pipe Line Company’s transmission
system. This area is currently inactive.
44. Pine Hollow Area - The Pine Hollow Area
consists of: 23 2-inch pipelines, ranging in length from
approximately 40 feet to 1.1 miles; one 2.5-inch pipeline,
478 feet long; 15 3-inch pipelines, approximately 494 feet
to 1.8 miles long; nine 4-inch pipelines, approximately 158
to 3.4 miles long; one 8-inch pipeline, approximately 12
miles long; five compressors that operate at a total of
2,400 horsepower; and the Watkins compressor that
operates at 35 horsepower. The pipelines connect to 53.
wells and operate at 200-500 psig depending upon the
distance away from the Pine Hollow compressors. The
gas is dehydrated and compressed immediately upstream
of a custody transfer point on AER’s transmission system.
45. Quinton Area - The Quinton Area consists of:
five 3-inch pipelines, ranging in length from approximately
74 feet to 0.8 miles; 34 4-inch pipelines, approximately 330
feet to 2.6 miles long; twelve 6-inch pipelines,
approximately 0.7 to 2.4 miles long; and three 8-inch
pipelines, approximately 1.9 to 6 miles long. The
pipelines connect to 88 wells and operate at 400-500 psig.
The gas is dehydrated prior to delivery to a custody
transfer point on AER’s transmission system.
46. Russelville Area - The Russelville Area
consists of: 35 4-inch pipelines, ranging in size from
82
approximately 30 feet to 6 miles; 13 6-inch pipelines,
approximately 611 feet to 6.9 miles long; and three
10-inch pipelines, approximately 0.5 to 7.3 miles long. The
pipelines attach to 80 wells and operate at 300-400 psig.
The gas is dehydrated prior to delivery to three custody
transfer points on AER’s transmission system.
47. Reams Area - The Reams Area consists of: ten
2-inch pipelines, ranging in length from approximately 101
feet to 0.4 miles; 16 3-inch pipelines, approximately 18
feet to 1.3 miles long; 14 4-inch pipelines, approximately
514 feet to 2.9 miles long; one 6-inch pipeline,
approximately 10.9 miles long; one 8-inch pipeline,
approximately 1.3 miles long; one 10-inch pipeline,
approximately 5 miles long; and two field compressors
that operate at a total of 560 horsepower. The pipelines
connect to 58 wells. The lines operate at 50-70 psig
upstream of the Reams compressor, while other lines in
the area may operate at up to 500 psig. The Reams
compressor discharges into a custody transfer point on
AER’s transmission system. Various field lines and other
pipelines also deliver gas into other custody transfer
points on AER’s transmission system.
48. Red Oak Area - The Red Oak Area consists
of: three 2-inch pipelines, ranging in length from
approximately 146 feet to 1 mile; 29 3-inch pipelines,
approximately 22 feet to 1.1 miles long; 77 4-inch
pipelines, approximately 143 feet to 4.8 miles long; 13
6-inch pipelines, approximately 0.6 to 2.6 miles long; one
8-inch pipeline, approximately 2.3 miles long; and seven
compressors that operate at a total of 2,830 horsepower.
83
The pipelines connect to 158 wells and operate from
300-950 psig. The gas is dehydrated and delivered to nine
custody transfer points on AER’s transmission system.
49. Shattuck Area - The Shattuck Area consists of:
one 2-inch pipeline, 733 feet long; and five 4-inch
pipelines, ranging in length from approximately 203 feet
to 8.7 miles. The pipelines connect to 17 wells and
operate at 280-300 psig. The gas is dehydrated prior to
delivery to two custody transfer points on AER’s
transmission system.
50. Sickles Area - The Sickles Area consists of:
nine 4-inch pipelines, ranging in length from
approximately 292 feet to 1.3 miles; and two 6-inch
pipelines, one 1.4 miles and one 3.1 miles long. The
pipelines connect to twelve wells and operate near 900
psig. The gas is dehydrated prior to delivery to three
custody transfer points on AER’s transmission system.
51. Sooner Trend Area - The Sooner Trend Area
consists of: six 2-inch pipelines, ranging in length from
approximately 14 feet to 0.3 miles; 34 3-inch pipelines,
approximately eight feet to 2 miles long; 23 4-inch
pipelines, approximately 165 feet to 3.5 miles long; and
three 6-inch pipelines, approximately 0.5 to 2.8 miles long.
The pipelines connect to 60 wells. Part of the system
operates at approximately 350 psig with a central point of
dehydration at one custody transfer point with AER’s
transmission system. There are six other custody transfer
points, one that delivers gas to Mustang Fuel.
84
52. Spiro Area - The Spiro Area consists of: 23
2-inch pipelines, ranging in length from approximately ten
feet to 1.2 miles; 41 3-inch pipelines, approximately 150
feet to 1.6 miles long; 99 4-inch pipelines, approximately
27 feet to 3 miles long; ten 6-inch pipelines, approximately
0.5 to 7 miles long; four 8-inch pipelines, approximately
1.7 to 11.9 miles long; and three compressors, one 220
horsepower and two 42 horsepower. The pipelines
connect to 212 wells and operate at 400-600 psig. The gas
is dehydrated prior to delivery at AER’s Spiro
Compressor facility.
53. Stigler Area - The Stigler Area consists of: one
3-inch pipeline, approximately 0.4 miles long; and three
4-inch pipelines, ranging in length from approximately 0.4
to 2.6 miles. The pipelines connect to one well and
operate at 400-600 psig. The gas is dehydrated prior to
delivery to a custody transfer point on AER’s transmission
system.
54. Strong City Area - The Strong City Area
consists of: three 4-inch pipelines, ranging in length from
approximately 172 feet to 0.7 miles. The pipelines
connect to five wells and operate near 900 psig. The gas
is dehydrated prior to delivery to two custody transfer
points on AER’s transmission system.
55. Wardville Area - The Wardville Area consists
of four 4-inch pipelines, approximately 0.6 to 4.5 miles
long. The pipelines connect to four wells and operate
near 800 psig. The gas is dehydrated upstream of a
custody transfer point on AER’s transmission system.
q
4
qi
4
4
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56. Weatherford Area - The Weatherford Area
consists of: one 3-inch pipeline, approximately 0.9 miles
long; 19 4-inch pipelines, approximately 46 feet to 1.5
miles long; one 6-inch pipeline, approximately 3.3 miles
long; and one 8-inch pipeline, approximately 3.7 miles
long. The pipelines connect to 21 wells and operate at
900-950 psig, with a few lines operating at 400-450 psig.
The gas is dehydrated upstream of delivery to three
custody transfer points on AER’s transmission system and
one point on Delhi Gas Pipeline’s system.
57. Wilburton Area - The Wilburton Area consists
of: six 2-inch pipelines, ranging in length from
approximately 58 feet to 0.9 miles; 27 3-inch pipelines,
approximately 40 feet to 1.3 miles long; 129 4-inch
pipelines, approximately 16 feet to 3.2 miles long; seven
6-inch pipelines, approximately 0.6 to 1.9 miles long; three
8-inch pipelines, approximately 3 to 4 miles long; and one
10-inch pipeline, approximately 3.3 miles long. The
pipelines connect to 236 wells and operate at 500-700 psig.
The gas is dehydrated prior to delivery to several custody
transfer points on AER’s transmission system or to AER’s
Wilburton station.
58. Wirth Area - The Wirth Area consists of: one
2-inch pipeline, approximately 0.5 miles long; nine 4-inch
pipelines, ranging in length from approximately 50 feet to
0.7 miles; and one 8-inch pipeline, approximately 10 miles
long. The pipelines connect to 13 wells and operate at
400-450 psig. The gas is dehydrated prior to delivery to
a custody transfer point on AER’s transmission system.
86
Oklahoma - Arkansas Border
59. Bonanza Area - The Bonanza Area consist of:
14 2-inch pipelines, ranging in length from approximately
seven feet to one mile; 15 3-inch pipelines, approximately
36 feet to 1.4 miles long; 50 4-inch pipelines,
approximately 142 feet to 3.1 miles long; four 6-inch
pipelines, approximately one to 9.6 miles long; and four
compressors that operate at a total of 1,570 horsepower.
The pipelines connect to 128 wells and operate at 250-500
psig. The gas is dehydrated and compressed prio: to
delivery to four custody transfer points on AER’s
transmission system.
Arkansas
60. Aetna Area - The Aetna Area consists of: two
2-inch pipelines, 38 and 765 feet long; two 3-inch
pipelines, approximately 0.7 to 0.9 miles long; 33 4-inch
pipelines, ranging in length from approximately twelve
feet to 4.5 miles; and four 6-inch pipelines, approximately
43 feet to 4 miles long. The pipelines connect to 71 wells
and operate at 300-500 psig. The gas is dehydrated prior
to delivery to a custody transfer point on AER’s
transmission system.
61. BM-15 Area - The BM-15 area consists of: one
2-inch pipeline, 355 feet long; one 3-inch pipeline, 330
feet long; twelve 4-inch pipelines, ranging in length from
approximately 35 feet to 2 miles; and one 6-inch pipeline,
approximately 0.9 miles long. The pipelines connect to
26 wells and operate at 300-600 psig. The gas is
87
dehydrated prior to delivery to five custody transfer points
on AER’s transmission system.
62. Cecil Area - The Cecil Area consists of: 18
2-inch pipelines, ranging in length from approximately 106
feet to 1.9 miles; 39 3-inch pipelines, approximately 99
feet to 2.7 miles long; 59 4-inch pipelines, approximately
37 feet to 2.4 miles long; six 6-inch pipelines,
approximately 0.6 to 3 miles long, one 8-inch pipeline,
approximately 10.2 miles long; and five compressors, that
operate between 30 and 615 horsepower. The pipelines
connect to 187 wells and operate at 250-300 psig, with
some lines as high as 500 psig. The gas is dehydrated and
compressed prior to delivery to three custody transfer
points on AER’s transmission system at Walker Station.
63. Chismville Area - The Chismville Area consists
of: three 2-inch pipelines, ranging in length from
approximately 206 feet to 1.1 miles; five 3-inch pipelines,
approximately 261 feet to 0.7 miles long; 35 4-inch
pipelines, approximately 114 feet to 2.4 miles long; and
nine 6-inch pipelines, approximately 592 to 7.1 miles long.
The pipelines connect to 82 wells and operate at 600-800
psig. The gas is dehydrated prior to delivery to 16
custody transfer points on AER’s transmission system.
64. Clarksville Area - The Clarksville Area consists
of: 21 2-inch pipelines, ranging in length from
approximately 194 feet to 1.4 miles; 40 3-inch pipelines,
approximately 456 feet to 2.1 miles long; 35 4-inch
pipelines, approximately 44 feet to 2.6 miles long; and two
6-inch pipelines, approximately 0.7 to 3.7 miles long. The
88
pipelines connect to 127 wells and operate at 300-500 psig.
The gas is dehydrated and compressed prior to delivery to
six custody transfer points on AER’s transmission system. -
65. Ft. Chaffee Area - The Ft. Chaffee Area
consists of: eight 3-inch pipelines, ranging in length from
approximately 256 feet to one mile; 16 4-inch pipelines,
approximately 34 feet to 3.8 miles long; one 6-inch
pipeline, approximately 5.3 miles long, and two
compressors that operate at 700 and 220 horsepower.
The pipelines connect to 41 wells and operate at 70-150
psig. The gas is dehydrated, compressed and discharged
at the Ft. Chaffee compressor facilities into AER’s
transmission system.
66. Gragg Area - The Gragg Area consists of:
eleven 2-inch pipelines, ranging in length from
approximately seven feet to 0.6 miles; nine 3-inch
pipelines, approximately 0.2 to 1.4 miles long; 40 4-inch
pipelines, approximately 124 feet to 2.1 miles long; one
6-inch pipeline, approximately 3.8 miles ‘long; and five
compressors that operate between 42 and 530 horsepower.
The pipelines connect to 96 wells and operate at 80-120
psig. The gas is dehydrated and compressed prior to
delivery at the Sanderson, Mansfield, and Gragg
compressor interconnects or ten other custody transfer
points on AER’s transmission system.
67. Jerusalem Area - The Jerusalem Area consists
of: one 3-inch pipeline, approximately one mile long; and
six 4-inch pipelines, ranging in length from approximately
330 feet to 1.2 miles. The pipelines connect to four wells
89 .
and are currently idle. When the area is active the gas is
delivered to four custody transfer points on AER’s
transmission system.
68. Kibler Area - The Kibler Area consists of: 13
2-inch pipelines, ranging in length from approximately 13
feet to 1.4 miles; 68 3-inch pipelines, approximately 220
feet to 2 miles long; 37 4-inch pipelines, approximately
266 feet to 3.2 miles long; four 6-inch pipelines,
approximately one to 7.9 miles long; one 10-inch pipeline,
approximately 0.8 miles long; and two 220 horsepower
compressors. The pipelines connect to 225 wells and
operate at 120-500 psig. The gas is compressed and
dehydrated prior to delivery to four custody transfer
points on AER’s transmission system.
69. Knoxville Area - The Knoxville Area consists
of: seven 2-inch pipelines, approximately 184 feet to 1.3
miles long; 29 3-inch pipelines, approximately 110 feet to
1.7 miles long; 66 4-inch pipelines, approximately 41 feet
to 5.3 miles long; five 6-inch pipelines, approximately 0.6
to 8.2 miles long; two 8-inch pipelines, approximately 0.9
to 9.1 miles long; one 10-inch pipeline, approximately 5.5
miles long; and one 150 horsepower and two 140
horsepower compressors. The pipelines attach to 143
wells and operate at 300-500 psig. The gas is compressed
and dehydrated prior to delivery to three custody transfer
points on AER’s transmission system.
70. Line J Area - The Line J Area consists of: one
3-inch pipeline, approximately 0.6 miles long, and 32
4-inch pipelines, ranging in length from approximately 84
90
feet to 3.2 miles. The pipelines connect to 52 wells. Some
of the pipelines operate at 250-500 psig, while others
exceed 800 psig. The gas is dehydrated prior to delivery
to nine custody transfer points on AER’s transmission
system.
71. Missionary Lake Area - The Missionary Lake
Area consists of: one 2-inch pipeline, 994 feet long; one
2.5-inch pipeline, approximately 1.8 miles long; and one
4-inch pipeline, approximately 0.3 miles long. The
pipelines connect to two wells and operate at 100-200
psig. The gas is dehydrated prior to delivery to two
custody receipt points on AER’s transmission system.
72. Ozark Area - The Ozark Area consists of:
eight 2-inch pipelines, ranging in length from
approximately 31 feet to 0.4 miles; ten 3-inch pipelines,
approximately 84 feet to 1.2 miles long; 28 4-inch
pipelines, approximately 136 feet to 2.3 miles long; one
6-inch pipeline, approximately 4.5 miles long; and one
8-inch pipeline, approximately 4.8 miles long. The
pipelines connect to 80 wells and operate at 400-600 psig.
The gas is dehydrated prior to delivery to two custody
transfer points on AER’s transmission system.
73. Slaytonville Area - The Slaytonville Area
consists of: four 3-inch pipelines, ranging in length from
approximately 201 feet to 1.3 miles; and seven 4-inch
pipelines, approximately 0.5 to 1.5 miles long. The
pipelines connect to 10 wells and operate at 300-500 psig.
The gas is dehydrated prior to delivery to two custody
delivery points on AER’s transmission system.
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74. Spardra Area - The Spardra Area consists of:
five 2-inch pipelines, ranging in length from approximately
146 feet to 1 mile; 15 3-inch pipelines, approximately 460
feet to 2.6 miles long; 29 4-inch pipelines, approximately
49 feet to 4.5 miles long; and one 6-inch pipeline,
approximately 0.3 miles long. The pipelines connect to 76
wells and operate at 300-500 psig, with a few operating at
over 800 psig. The gas is dehydrated prior to delivery to
five custody transfer points on AER’s transmission system.
75. Union City Area - The Union City Area
consists of: four 2-inch pipelines, ranging in length from
approximately 139 feet to 1.8 miles; 21 3-inch pipelines,
approximately 269 feet to 1.7 miles long; 19 4-inch
pipelines, approximately 459 feet to 3.4 miles long; and
one 60 horsepower compressor. The pipelines connect
to 63 wells and operate at 300-550 psig. The gas is
compressed and dehydrated prior to delivery to six
custody transfer points on AER’s transmission system.
76. Witcherville Area - The Witcherville Area
consists of: one 2-inch pipeline, approximately 0.7 miles
long; five 3-inch pipelines, ranging in length from
approximately 40 feet to 0.8 miles; 19 4-inch pipelines,
approximately 0.4 to 3.5 miles long; one 6-inch pipeline,
approximately 1.7 miles long; and one 700 horsepower
compressor. The pipelines connect to 35 wells and
operate at 90-200 psig. The gas is compressed and
dehydrated prior to delivery to four custody transfer
points on AER’s transmission system.
Texas-Oklahoma Border
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77. Quitman Area - The Quitman Area consists
of: one 2-inch pipeline, 154 feet long; one 3-inch pipeline,
691 feet long; and three 4-inch pipelines, ranging in length
from approximately 517 feet to 1.2 miles. The pipelines
connect to three wells and operate at 500 psig. The gas
is dehydrated prior to delivery to four custody transfer
points on AER’s transmission system.
Texas
78. Beckville Area - The Beckville Area consists
of: 18 4-inch pipelines, ranging in length from
approximately 715 feet to 1.4 miles; four 6-inch pipelines,
approximately 1.3 to 9.1 miles long; and one 8-inch
pipeline, approximately 3.8 miles long. The pipelines
connect to 27 wells and operate at 200-300 psig. The gas
is delivered into the Hawk Gathering System owned by R.
Lacy Inc. -
79. Britt Ranch Area - The Britt Ranch Area
consists of: one 3-inch pipeline, 998 feet long; four 4-inch
pipelines, ranging in length from approximately 404 feet
to 4.4 miles; one 6-inch pipeline, 2.7 miles long; and one
8-inch pipeline, 5.4 miles long. The pipelines connect to
eight wells and operate at 800-1000 psig. The gas is
dehydrated prior to delivery to three custody transfer
points on AER’s transmission system.
80. Buffalo Wallow Area - The Buffalo Wallow
Area consists of: one 3-inch pipeline, approximately 0.6
miles long; six 4-inch pipelines, ranging in length from
approximately 200 feet to one mile; and one 6-inch
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pipeline, approximately 0.4 miles long. The pipelines
connect to seven wells and operate at 800-1,000 psig. The
gas is dehydrated and delivered to five custody points on
AER’s transmission system.
81. Carthage Area - The Carthage Area includes
two sub-areas, one low pressure and one high pressure.
The low pressure sub-area consist of: two 2-inch pipelines,
approximately 0.8 and 1.3 miles long; one 2.5-inch
pipeline, 96 feet long; nine 3-inch pipelines, ranging in
length from approximately 0.2 to 1.6 miles; 17 4-inch
pipelines, approximately 57 feet to 2.5 miles long; one
6-inch pipeline, approximately 2.8 miles long; one 8-inch
pipeline, approximately 2.1 miles long; one 10-inch
pipeline, approximately 4.4 miles long, and one 350
horsepower compressor. The pipelines connect to 35
wells and operate at 35 psig. The gas is dehydrated at a
central point and delivered to Union Pacific Resources
Co. (Union).
The high pressure area consists of: one 3-inch
pipeline, 175 feet long; 19 4-inch pipelines, ranging in
length from approximately 100 feet to 2 miles long; and
three 6-inch pipelines, approximately 0.4 to 4.8 miles long.
The pipelines connect to 30 wells and operate at 400-500
psig. The gas is dehydrated prior to delivery to Union or
to AER’s transmission system.
82. Cedar Springs Area - The Cedar Springs Area
consists of three 4-inch pipelines, ranging in length from
approximately 652 feet to 0.6 miles. The pipelines
connect to three wells and operate at 650-850 psig. The
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gas is dehydrated prior to delivery to two custody transfer
points on AER’s transmission system.
83. Hemphill Area - The Hemphill Area includes
the Hemphill and Hamon-Locke sub-areas. The Hemphill
sub-area consists of: five 3-inch pipelines, ranging in
length from approximately 437 feet to 0.5 miles; 31 4-inch
pipelines, approximately 56 feet to 3.8 miles long; three
6-inch pipelines, approximately 0.6 to 1.1 miles long; one
8-inch pipeline, approximately 2.3 miles long, one 10-inch
pipeline, approximately 0.7 miles long; and four
compressors totaling 922 horsepower. The pipelines
connect to 36 wells and operate at 300-400 psig. The gas
is compressed and dehydrated prior to delivery into a
custody transfer point on AER’s transmission system.
The Hamon-Locke sub-area consists of: one 2-inch
pipeline, 585 feet long; one 3-inch pipeline, 645 feet long;
four 4-inch pipelines, ranging in length from
approximately 745 feet to one mile; and one 65
horsepower compressor. The pipelines connect to five
wells and operate at approximately 200 psig. The gas is
dehydrated and compressed upstream of the delivery into
a custody transfer point on AER’s transmission system.
This area is currently inactive.
84. Indian Rock Area - The Indian Rock Area |
consists of: twelve 4-inch pipelines, ranging in length from
approximately 164 feet to 3.2 miles; two 6-inch pipelines, |
approximately 3.
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