July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
ONE OF THE thorniest issues that the Federal Energy Regulatory Commission has had to deal with in recent years is defining the scope of its jurisdiction over pipelines on the Outer Continental Shelf. Yet the solution is relatively simple and straightforward.
Fueled by the volatile combination of perceived statutory ambiguity and significant financial gains to pipeline owners, who can convince the Commission that their currently regulated facilities are in fact beyond its jurisdiction, the OCS controversy has raged for years. The issue finally came to a head in 1997 in the Sea Robin case.
The question presented is how to draw the line under Section 1(b) of the Natural Gas Act, 15 U.S.C. § 717(b), between the "transportation" of natural gas on OCS pipelines, which the Commission may regulate, and "production or gathering" of natural gas, which it may not. To date, the effort to draw jurisdictional lines has produced: (1) an administrative test - the so-called modified primary function test - which the Commission effectively concedes is unworkable; (2) two opinions on judicial review (the most recent in Sea Robin) disapproving the Commission's application of the test to OCS facilities; (3) dissension among the Commissioners themselves on how to proceed; and (4) an appeal to the industry at large for comments on the issue in Docket No. RM98-8. To put it mildly, the law in this area is not settled.
As difficult and intractable as this problem may appear, Congress has provided a simple and direct solution. The place to look for this solution, however, is not in the legislative record of the NGA, which was enacted 15 years before the OCS came into being as a special federal domain, but in the legislative history of the 1978 Amendments to the Outer Continental Shelf Lands Act, the principal federal statute governing the OCS. The 1978 legislative history shows that Congress meant that "gathering" on the OCS covers only those lines that feed into a facility where oil or natural gas is first collected or where oil and natural gas are first separated, dehydrated or otherwise processed. Under this test, which Congress included in Section 5(f)(2) of the OCSLA, gathering would cover the movement of gas from the wellhead through the separation or dehydration unit on a platform where free water or excess water vapor is removed from the gas in preparation for its injection into a pipeline for transportation to shore.
Reading Between the Lines
Congress did not focus on the specific nature of gathering operations when it passed the NGA in 1938. Rather, it sought to ensure that federal law would occupy the field of regulation that the Supreme Court had determined was beyond the power of the states - i.e., regulation of the sale of natural gas for resale in interstate commerce and the transportation of natural gas in interstate commerce. Section 1(b) of the NGA made those activities subject to federal regulation. The "production and gathering" and the "local distribution" of natural gas, which traditionally had been deemed "local" activities regulated by the states, were excluded