Shippers warn FERC giving up jurisdiction over HIOS could lead to manipulation

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Related Companies Apache Corp. Badger Oil Corporation Chevron USA Inc. High Island Offshore System Mariner Energy

Related Documents Energy Regulatory Filing (Plead/Motion) High Island Offshore System 10/30/2009, filed on 10/30/2009

Related Articles 10/1/2009 FERC declares 3 legs of High Island system as outside commission jurisdiction

FERC in September declared three legs of High Island Offshore System LLC's pipeline to be gathering facilities and outside commission jurisdiction. But on Oct. 30, a group of shippers asked the commission to reconsider that decision or risk leaving them hostage to whatever rates HIOS wants to charge.

"The exercise of market power is not an idle theoretical concern," said the group, which includes Apache Corp., Chevron USA Inc., Badger Oil Corp. and Mariner Energy Inc.

In a March application, HIOS asked FERC to designate its facilities located at and upstream of High Island Block A-264 as gathering facilities. Included in the request were three main sections of pipeline: the 54-mile, 30-inch diameter west leg; the 41-mile, 30-inch-diameter center leg; and the 41-mile, 30- and 36-inch-diameter east leg. The three legs converge at HIA Block A-264. Also included in the request were two smaller laterals and compression-related facilities in HIA Block A-264, consisting of two 12,200-horsepower compressors and one 29,200-hp compressor.

FERC approved the request but also ruled that compression facilities located on the system would remain under federal oversight.

"The commission has a mandate under the NGA to protect consumers," shippers said in their protest. "In similar cases where pipelines have attempted to secure a non‐jurisdictional designation to escape commission regulation, the commission has rejected those requests finding that a jurisdictional determination will 'promote the public interest by permitting access to a domestic source of natural gas to be transported to market at reasonable fees.' Applied to HIOS, this would help to ensure that HIOS will charge just and reasonable rates for services rendered on an open access, nondiscriminatory basis."

A jurisdictional determination also would "protect against the exercise of market power by HIOS that could result in the shut‐in of valuable quantities of domestic natural gas, which is the nation's cheapest and cleanest source of fuel," the group said.

According to the shippers, if FERC does not reconsider its decision it will risk allowing HIOS too much leeway in setting rates by threatening to take facilities offline. An open season published on the HIOS Web site Sept. 30, according to the shippers, indicated the company would not repair the certificated compression on its system, which was damaged in a recent fire, if the shippers did not agree to modify their historical transportation contracts.

FERC's order found that the compression in question was still jurisdictional, and thus retained NGA jurisdiction. "But if the commission does not reverse its finding regarding the function of the integrated pipelines located upstream of Block 264, there may be no rate protection under Sections 4 and 5, and there would for certain be no abandonment protection under Section 7(b) afforded by the commission, regarding issues that might arise on those pipeline segments in the future," the shippers said.

"The commission should be mindful of HIOS's coordinated strategy to do an end‐run around regulatory protections for shippers in both this refunctionalization docket and in the rate case docket, which were filed on the very same day," shippers said. (CP09-91)