[BETA] Fortnightly

A new FERC decision veers away from congressional intent not to burden intrastate pipelines with interstate policies.

State commissions can set intrastate natural gas pipeline transportation rates except when the intrastate pipeline moves gas in interstate commerce. Then, the Federal Energy Regulatory Commission (FERC) regulates the rates under evolving Natural Gas Policy Act of 1978 (NGPA) standards. Two recent FERC orders in a GulfTerra Texas Pipeline L.P. (GulfTerra, formerly EPGT Texas Pipeline L.P.) ¹ rate case make new precedent for NGPA intrastate pipelines providing interstate transportation. ²

The GulfTerra orders advance several FERC-favored techniques to propose NGPA intrastate pipeline rates for interstate transportation service. FERC takes care not to burden the intrastate pipeline with some aspects of interstate, Natural Gas Act (NGA) regulation. On other matters, however, FERC either requires conformity to interstate pipeline rate policies or adopts state rate approaches for federal purposes.

NGPA vs. NGA

With the NGPA, Congress encouraged intrastate pipelines to move gas into the interstate grid without burdening them with full federal jurisdiction, including the need for prior certification of services and facilities, found in the NGA. ³ That is, NGPA Section 311 gives FERC power to facilitate a national natural gas transportation network without trying to subject intrastate pipelines, which already are regulated by the states, to FERC regulation over all of their operations. ⁴ NGPA intrastate pipeline transportation in interstate commerce must have fair and equitable ratemaking, which is purposefully, as well as semantically, a different standard from the NGA's just-and-reasonable rates standard for interstate gas pipelines.

NGPA intrastate rates also must be reasonably comparable to interstate rates. Deferring to the federal system's delicate balance between state and national authorities, NGPA Section 311 declares that fair and equitable rates for intrastate pipeline transportation in interstate commerce may not exceed amounts FERC determines to be "reasonably comparable" to the rates and charges that any interstate pipeline would be permitted to charge for providing similar service. ⁵ Plainly, the inherent state/federal tension of such reasonably comparable FERC rate regulation of intrastate pipelines engaged in interstate transportation raises questions of the extent such ratemaking should be done at all, and, if done, further questions of which rate techniques should control. These two GulfTerra orders give FERC's up-to-date answers, providing lessons for those rate planners trying to maximize their options.

GulfTerra's Rate Case Raises Important Issues

FERC effectively does not litigate NGPA rate cases. Since 1978, FERC has held only one NGPA Section 311 rate hearing, ⁶ with testimony and trial examination of expert witnesses. FERC prefers instead to proceed without hearings, using staff panel advisory procedures, with the participants filing papers on the issues. FERC used that advisory procedure for GulfTerra, which is a substantially sized system in Texas.

GulfTerra's more than 6,200 miles of intrastate gathering and transportation lines impact the operation of the national transmission grid significantly by connecting all major Texas hubs and markets except the Katy Hub, including 11 interstate pipelines and 20 intrastate pipelines. ⁷ Regulated by the Railroad Commission of Texas (RRC), GulfTerra apparently is a bona fide NGPA intrastate pipeline constructed