June 16, 2011

(Reprinted with permission of Energy Law360).

 

Shale gas is changing the flow of natural gas nationwide. Traditional long-haul pipelines that transported gas from the Gulf of Mexico or the Texas gas fields to the Northeast market area are seeing significant changes and challenges in their operations.

These pipelines are making rate filings with the Federal Energy Regulatory Commission to effectuate amendments to their rates and terms in order to better cope with flow changes. These requests for rate increases have amounted to as high as 500 percent in the Stingray Pipeline Company LLC case (FERC Docket No. RP11-1957).

Membership organizations play an essential role in shaping FERC policy on important issues with national implications. Issues related to nationwide gas flow changes due to shale gas are exactly the type of issues that member organizations should be involved in because they represent novel policy and legal challenges.

The Precedent

In the recent past, it had become more burdensome for member organizations to participate in FERC proceedings due to various procedural hurdles that have plagued member organization FERC practice. Language in a 2007 FERC opinion suggested that member organizations must meet a higher burden than other entities when intervening in FERC cases.

Specifically, in American Electric Power Services Corporation, 120 FERC ¶ 61,052 (2007), FERC granted the American Forest & Paper Association’s (AF&PA) motion to intervene but denied the Electricity Consumers Resource Council’s (ELCON) motion.

FERC apparently based its determination upon AF&PA’s showing that it has members that owned and operated qualifying cogeneration and small power production facilities in the subject service territory; whereas ELCON did not and was more concerned with the precedential effect of the case.

Further, FERC stated that it “expects that member organizations seeking to intervene in a case-specific proceeding on the basis that they have a member in a relevant geographic area, or are representing a specific member or members, will state that member's identity.”

However, after receiving a letter from 24 member organizations alerting it that its order constituted a “troubling” statement that would “discourage the scope of intervention by member organizations and associations” (FERC Docket No. QM07-4), FERC acted sua sponte to clarify its order with regard to member organizations’ interventions.

FERC sua sponte issued an order on clarification, 120 FERC ¶ 61,265 (2007), where it “clarif[ied] that [its] general intervention policy has not changed,” acknowledged that it engages in policymaking through adjudication, and reinforced the importance of member organizations’ participation in the adjudicatory process.

FERC further clarified that its initial decision must be read in the context in which it was made, i.e. where the commission was addressing a situation in which member organizations were making the very same generic arguments in a fact-specific proceeding that they were making at the same time in a then-ongoing generic rulemaking.

The Practice

Unfortunately, this has created some confusion as to what is required of member organizations in order to establish interest and standing in FERC proceedings. In a number of subsequent cases, various hurdles have been placed before member organizations of shippers when they have tried to intervene before FERC.

Member organizations have been forced to identify their members with interest in a number of cases or risk being excluded from FERC proceedings. Efforts by the organizations in opposition to this trend have been extended mostly before FERC’s administrative law judges without much success.

This practice was slowly perpetuating a disturbing trend because member organizations were being singled out for the imposition of a higher standard than other intervenors solely due to their status as member organizations.

In a Northern Natural Gas Company (Northern) rate case (FERC Docket No. RP10-148), Northern opposed the interventions of the Process Gas Consumers (PGC), American Forest & Paper Association (AF&PA), American Public Gas Association (APGA) and Canadian Association of Petroleum Producers (CAPP). Northern argued that these trade associations are member organizations that should be required to identify by name their members that have a specific interest in the proceeding and state what that interest is.

As a result, the administrative law judge, over the associations’ objections, decided that the associations must state with specificity their interest in the proceeding and must identify specific members with interests in the proceeding. The ALJ denied the associations’ interventions without prejudice to filing late motions to intervene to cure these deficiencies. The associations supplemented their motions to intervene by identifying specific members with interests in the proceeding and the ALJ granted them party status.

Also, in a Natural Gas Pipeline Company of America LLC (NGPL) rate case (FERC Docket No. RP10-147), although the time to challenge the interventions of the same associations had already passed and they had already acquired full party status in the proceeding, NGPL nonetheless asked that they be required to identify their members who have an interest that may be directly affected by the proceeding. A different ALJ granted the request, again over the associations’ objections.

Member organizations have often found it easier to identify their members with interest in the case instead of fighting on this issue. For example, in an Ozark Gas Transmission LLC (Ozark) rate case (FERC Docket No. RP11-1495), APGA identified its member that would be affected by the proceeding in the body of its motion to intervene. However, this did not save APGA’s intervention from a challenge by Ozark. In fact, Ozark used this identification against APGA by arguing that APGA should be excluded from the proceeding because the member identified had already filed for intervention in the proceeding and thus can represent itself.

Therefore, member organizations are in a catch-22 situation: If they do not identify their members with interest, they can be excluded for not articulating a specific interest; if they do identify the members with interest, it is argued that they have no interest left to represent when the members intervene on their own behalf. It should be obvious that member organizations are meant to pool the resources of their members in order to provide input on issues that are common to the members but leave issues that are specific to each member to be handled by the members on their own behalf.

This catch-22 issue also came up in other proceedings. For example, in a Tennessee Gas Pipeline Company (Tennessee) rate case (Docket No. RP11-1566), Tennessee argued that although the American Gas Association (AGA) has not identified members with a direct interest, Tennessee believes that there may be between 40 and 50 of AGA’s members that have intervened and are already parties to the proceeding. Tennessee further argued that these parties can adequately protect their interests, which obviates the need for AGA to also become a party.

Also, in a Sabine Pass (Sabine) liquefaction project proceeding (Docket No. CP11-72), Sabine insisted that APGA identify its members that would be affected by the approval of the project. APGA answered that each of its more than 700 members may be affected by the outcome of the proceeding. In such cases, investigating each of an organization’s members to find out if it may have an interest in the case can prove to be a near-insurmountable task.

The Change

FERC recently issued an order granting the AF&PA and PGC (collectively, Associations) motions to intervene in the Stingray rate case (Docket No. RP11-1957) without ordering them to identify their members with interest as requested by Stingray. This decision is an important development in FERC practice because it is likely to have a profound impact on member organizations’ standing in FERC proceedings.

In this case, Stingray argued that the Associations’ motions to intervene should be denied because they do not have a direct interest in the case, they must name their members with interest, and they have not shown that their participation is in the public interest.

The authors of this article drafted an answer on behalf of the Associations arguing that FERC precedent does not require member organizations to name their members with interest, having members who are consumers on downstream pipelines that interconnect with Stingray constitutes a clear and direct interest, and FERC should be allowed to hear the views of industrial consumers in this case. As a result, FERC granted the Associations’ interventions without requiring them to identify their members.

In addition, this is a significant development for consumers in general. In this decision, FERC acknowledged that a consumer that takes gas downstream from the subject pipeline has a clear and direct interest in the proceeding. Therefore, the consumer does not need to ship gas on the subject pipeline itself in order to be allowed an opportunity to participate in the proceeding with full party status.

Specifically with regard to member organization standing, the authors based their arguments on an analysis of the FERC decisions in the American Electric Power (AEP) cases mentioned above. Although these cases may be seen as ambiguous, the authors’ analysis showed that FERC clearly did not mean to increase the burden on member organizations or to single them out for detrimental treatment.

The authors argued that FERC’s AEP order on clarification clearly meant to allow member organizations to continue to pursue their concerns as they have done prior to the AEP orders without identifying by name their members with interest. In fact, FERC’s pronouncements actually state a policy favoring interventions by member organizations with no requirements beyond a statement of interest, and FERC’s practice in the aftermath of the AEP orders has consistently implemented this policy.

The authors further argued that the context of FERC’s requirement that organizations identify members is inapplicable to the Stingray proceeding because there is no ongoing generic rulemaking where the organizations are making the same arguments.

Conclusion

FERC’s decision in favor of the organizations in the Stingray case opens the door for other member organizations and associations to pursue their concerns without fearing the fierce opposition that they had to face in recent years. This should usher a new age of rational policy-making where the views of broad sectors of the economy can be reflected in the administrative process touching on energy issues nationwide, in particular policies related to the change on gas flows due to the explosion in shale gas production in the Northeast.

 

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or Portfolio Media, publisher of Law360. This article is for general information purposes and is not intended to be and should not be taken as legal advice.