FERC Asks Commenters, Congress for Help in Closing the Jurisdictional Gap over Natural Gas Gathering

FERC recently issued a notice of inquiry asking for ideas on how to close the existing regulatory loophole that allows offshore natural gas gatherers to escape regulation.  Under current law, these gatherers fall outside of FERC's jurisdiction once they are spun off from interstate pipelines, as many were during 1990s.  Nor are these spun-off gatherers subject to state regulation.  Over the past few years, FERC has invoked various legal theories and statutes, including provisions of the Natural Gas Act and the Outer Continental Shelf Lands Act, to impose regulated rates on gatherers.  But the courts uniformly have balked.  The current notice asks for industry feedback on a 1994 order, Arkla Gathering Service Co., which set forth criteria for asserting jurisdiction over pipelines' unregulated gathering affiliates, and poses 13 detailed questions relating to the assertion of jurisdiction over these facilities.  Comments on the notice of inquiry are due 60 days after publication of the notice in the Federal Register.

FERC's primary concern in issuing the notice was the monopoly rents that offshore gatherers facilities are able to charge their customers without fear of regulatory intervention.  FERC Chair Joe Kelliher observed that some shippers have been charged "multiples, multiples" more for service on unregulated gathering systems than on the regulated pipelines they feed into, and concluded, "[i]f the law permits monopoly rents, [then] its time to change the law."  FERC was also concerned that the current laissez-faire approach enables gatherers to shut in offshore gas production at critical times, such as the recent emergency following Hurricane Katrina. [Criteria for Reassertion of Jurisdiction Over the Gathering Services of Natural Gas Company Affiliates, 112 FERC ¶ 61,292 (2005)] [NEW MATTER]

Concurrently with the issuance of the notice, Chair Kelliher and Commissioner Suedeen Kelly publicly asked Congress for new legislation granting FERC's regulatory authority over natural gas gatherers.  Some speculate that Congress may be primed to take up new energy legislation later this fall to address oil and natural gas production and conservation issues, at least partly in response to the price-gouging allegations that have arisen in the wake of Hurricanes Katrina and Rita.