PA Regulation of Natural Gas Gathering and Midstream Activity



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On May 19, 2011, the Pennsylvania Public Utility Commission (?PaPUC?) took much-awaited action in the Laser Northeast Gathering Company, LLC (?Laser?) proceeding ? a precedent setting proceeding of great interest to landowners, consumers, natural gas producers and gathering and midstream companies operating in Pennsylvania. 


As background, Laser proposes to construct a gathering system in Pennsylvania extending into New York where it is to interconnect with an interstate natural gas pipeline.  Its purpose is to provide gathering service to producers.  At Laser?s request, FERC previously agreed that the system performs a gathering function under FERC?s applicable test.  


In Pennsylvania, Laser nonetheless sought a certificate from the PaPUC to construct facilities and offer non-exclusive service, but did so seeking regulated ?public utility? status under Pennsylvania law, which, if granted, would also provide Laser with the power of eminent domain.  An Administrative Law Judge ("ALJ") issued a decision finding that Laser and its gathering or midstream service offerings were not eligible for regulated, public utility status, and also rejected a settlement that, among other things, provided Laser with eminent domain powers, but light-handed rate regulation. The ALJ?s decision was appealed to the PaPUC. 


The PaPUC, in the May 19 actions of a majority of its Commissioners, acknowledged the issue here involving its jurisdiction over the gathering or midstream business sector in Pennsylvania is one of first impression.  It then concluded that Laser meets the definition of ?public utility,? and remanded the case to the ALJ to conduct additional fact-finding hearings to determine whether granting Laser a certificate of public convenience is necessary or proper.  The ALJ is also to address whether Laser?s service territory should be exclusive, its tariff is reasonable, and whether the terms of its prior filed settlement are in the public interest.  


In greater detail . . . 


The PaPUC?s analysis turns on whether the services offered by Laser are ?for the public? ? a phrase significant under Pennsylvania law for determining whether a company is a ?public utility.?  Applying other criteria, and since Laser has proposed to serve any and all desiring to transport gas through its system under negotiated contracts, the PaPUC viewed Laser as providing ?public utility? service.  


However, as a helpful tip to the rest of the gathering and midstream businesses in Pennsylvania, the PaPUC stated:


[w]hile natural gas gathering and transportation service can meet the definition of ?public utility,? and in the case of Laser?s proposed operations, does meet the definition of ?public utility,? not all gathering and transportation service providers will be considered public utilities and subject to the Commission?s jurisdiction.  Whether such entities are public utilities turns on the specific facts surrounding each pipeline?s operations, including whether the gathering and transportation services are offered to or for the ?public.?  


For other reasons specific to certain Pennsylvania law provisions, Laser?s request for certain light-handed regulation of its rates and terms and conditions of service was rejected.  ?Laser is required to provide a tariff and a schedule of rates prior to obtaining its certification. . . . Laser will need to obtain Commission approval of any request to change existing rates by submitting a proposed tariff and justification for the increase.?  But the Commission held that it has the discretion to approve of negotiated rates, and the ability to exclude Laser from the regulated, rate-making process. 


The PaPUC disagreed with the ALJ?s finding that the terms of the settlement that had been filed in the case would not be enforceable by the PaPUC.  The ALJ is to further develop the record to assess whether the settlement terms are in the public interest, and special note was made of Laser agreeing in the settlement ?not to seek an exclusive service territory.?  


In a concurring statement, the Vice Chairman of the PaPUC did express concern with the use of eminent domain by regulated gathering companies, and referenced authority the PaPUC might use to protect property owners.  One Commissioner filed a dissenting statement. 

Should you have any questions about this alert, please contact Kurt Krieger.  For general questions involving energy law, please contact the Energy Team at Steptoe & Johnson PLLC.


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