63476 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Proposed Rules

1See, Natural Gas Production for the Lower 48

States 1982 through 1993, Energy Information

Agency, March 1993.

2 71 FERC ¶ 61,351 (1995).

Office of Management and Budget, room

3228, NEOB, Washington, D.C. 20503,

(202) 395–7340. Copies of the

information collection submission to

OMB are available from Joe Mink, CFTC

Clearance Officer, Three Lafayette

Centre, 1155 21st Street, N.W.,

Washington, D.C. 20581; telephone

(202) 418–5170.

List of Subjects in 17 CFR Part 30

Commodity futures.

In consideration of the foregoing, and

pursuant to the authority contained in

the Commodity Exchange Act and, in

particular, sections 2(a)(1)(A), 4, 4c and

8a of the Commodity Exchange Act, 7

U.S.C. 2, 6, 6c and 12a, the Commission

hereby proposes to amend part 30 of

chapter I of title 17 of the Code of

Federal Regulations as follows:

PART 30—FOREIGN FUTURES AND

FOREIGN OPTIONS TRANSACTIONS

1. The authority citation for part 30

continues to read as follows:

Authority: Secs. 2(a)(1)(A), 4, 4c and 8a of

the Commodity Exchange Act, 7 U.S.C. 2, 6,

6c and 12a.

2. Section 30.3 is proposed to be

amended by revising paragraph (a) to

read as follows:

§ 30.3 Prohibited transactions.

(a) It shall be unlawful for any person

to engage in the offer and sale of any

foreign futures contract or foreign

options transaction for or on behalf of a

foreign futures or foreign options

customer, except in accordance with the

provisions of this part: Provided, that,

with the exception of the disclosure and

antifraud provisions set forth in §§ 30.6

and 30.9 of this part, the provisions of

this part shall not apply to transactions

executed on a foreign board of trade,

and carried for or on behalf of a

customer at a designated contract

market, subject to an agreement with

and rules of a contract market which

permit positions in a commodity

interest which have been established on

one market to be liquidated on another

market.

* * * * *

Issued in Washington, D.C. on December 5,

1995 by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 95–30046 Filed 12–8–95; 8:45 am]

BILLING CODE 6351–01–P

DEPARTMENT OF ENERGY

Federal Energy Regulatory

Commission

18 CFR Chapter I

[Docket No. RM96–5–000]

Gas Pipeline Facilities and Services on

the Outer Continental Shelf—Issues

Related to the Commission’s

Jurisdiction Under the Natural Gas Act

and the Outer Continental Shelf Lands

Act

November 29, 1995.

AGENCY: Federal Energy Regulatory

Commission, DOE.

ACTION: Proposed rule; notice of inquiry.

SUMMARY: The Federal Energy

Regulatory Commission is initiating an

inquiry into the Commission’s policy

respecting the application of its

jurisdiction under the Natural Gas Act

and the Outer Continental Shelf Lands

Act over natural gas facilities and

services on the Outer Continental Shelf

(OCS). The notice of inquiry is intended

to receive information respecting the

structure and operation of natural gas

gathering and transportation on the OCS

and the effects of the Commission’s

current policy. The notice of inquiry

solicits comments on the legal and

policy issues to be considered, in either

maintaining or departing from the

Commission’s present policy, the

operational considerations pertaining to

OCS exploration and development

activities, and pipeline systems that the

Commission should take into account in

its review of its current policy. The

notice of inquiry invites all interested

persons to participate in the inquiry and

to submit answers to several specific

questions.

DATES: Written comments must be

received on or before January 12, 1996;

an original and 14 copies should be

filed.

ADDRESSES: All comments should refer

to Docket No. RM96–5–000 and should

be addressed to: Office of the Secretary,

Federal Energy Regulatory Commission,

888 First Street, N.E., Washington, DC

20426.

FOR FURTHER INFORMATION CONTACT:

Robert Wolfe, Office of the General

Counsel, 888 First Street, NE.,

Washington, DC 20426, (202) 208–2098.

SUPPLEMENTARY INFORMATION:

I. Introduction

The Federal Energy Regulatory

Commission is initiating an inquiry into

the Commission’s policy respecting the

application of its jurisdiction under the

Natural Gas Act (NGA) and the Outer

Continental Shelf Lands Act (OCSLA)

over natural gas facilities and services

on the Outer Continental Shelf (OCS).

The Commission is initiating this

Notice of Inquiry (NOI) to examine the

structure and operation of natural gas

gathering and transportation on the OCS

and the effects of the Commission’s

current policy. The NOI will also seek

information on the legal and policy

issues to be considered, in either

maintaining or departing from the

Commission’s present policy, the

operational considerations pertaining to

OCS exploration and development

activities, and pipeline systems that the

Commission should take into account in

its review of its current policy.

II. Background

The Commission’s current policy

respecting the jurisdictional status of

gas pipelines and services on the OCS

presents a number of issues concerning

the status, scope, and effects of the

Commission’s regulation of gathering

and transportation on the OCS. The

Commission has determined that it

should undertake a review of these

issues.

Increases in successful offshore

exploration and development activities,

particularly in the Gulf of Mexico, have

heightened the significance of these

jurisdictional issues. Recently, several

companies have either filed requests for,

or have indicated their intent to request,

exempt gathering status for offshore

pipeline systems that each is eager to

construct to bring gas onshore from

significant newly developed deep water

reserves in the Gulf. There are also

pending requests for declaratory orders

concerning existing certificated offshore

systems.

There are 18 existing interstate

pipelines on the Outer Continental Shelf

(OCS) in the Gulf of Mexico that are

presently subject to the Commission’s

regulation under the NGA. There are

also numerous facilities that are not

under NGA jurisdiction. These are

principally producer-owned facilities. It

is noteworthy that an estimated 27% of

the lower 48 State’s total dry gas

production comes from the Gulf of

Mexico OCS.1

The various OCS pipeline system

proposals and Sea Robin Pipeline

Company’s request for rehearing of the

Commission’s June 16, 1995 order in

Docket No. CP95–168–000 2 have

prompted reexamination of the
Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Proposed Rules 63477

3See Schneidwind v. ANR Pipeline Co., 485 U.S.

293, 310–311 (1988).

4 Interstate Natural Gas Co. v. FPC, 331 U.S. 682

(1947).

5FPC v. Louisiana Power & Light Co., 406 U.S.

621 (1972).

6See, e.g., Phillips Petroleum Co. v. Wisconsin,

347 U.S. 672, 682–84 (1954); Interstate Natural Gas

Co. v. FPC, supra at 690.

7 43 U.S.C. § 1334(e), (f)(1).

8 43 U.S.C. § 1334(f)(2).

9 876 F. 2d 46 (Fifth Cir. 1989).

10The ‘‘primary function’’ test was articulated in

Farmland Industries, Inc. (Farmland), 23 FERC

¶ 61,063 (1983). In Farmland the Commission

enumerated several physical and geographic criteria

to be included in the analysis for determining

whether the ‘‘primary function’’ of a facility is the

transportation or the gathering of natural gas. These

factors are: (1) the length and diameter of the line,

(2) the extension of the facility beyond the central

point in the field, (3) the line’s geographic

configuration, (4) the location of compressors and

processing plants, (5) the location of wells along all

or part of the facility, and (6) the operating pressure

of the line. The ‘‘primary function’’ test has been

found by the Commission to be applicable to both

onshore and offshore facilities. The criteria set out

in Farmland were not intended to be all inclusive.

The Commission has also considered nonphysical

criteria such as the intended purpose, location, and

operation of the facility, the general business

activity of the owner of the facility, and whether the

jurisdictional determination is consistent with the

objectives of the NGA and the Natural Gas Policy

Act of 1978 (NGPA). 11 52 FERC ¶ 61,268 (1990).

Commission’s approach to regulating

OCS facilities. Given the continuing

importance of the OCS as a source of

natural gas, a principal aim of the

Commission is to develop regulatory

policies that do not impede or distort

developmental activities on the OCS.

III. The Statutory Framework

A. The Natural Gas Act (NGA)

The basic purpose of Congress in

enacting the NGA was to ‘‘occupy the

field’’ 3 of the regulation of natural gas

moving in interstate commerce by the

primary grant of jurisdiction to the

Commission over those aspects of such

regulation over which the states may not

act.4 To that end, Congress meant to

create a comprehensive regulatory

scheme of dual state and federal

authority.5 Section 1(b) of the NGA

embodies the primary grant of

jurisdiction to the Commission. At the

same time, section 1(b) exempts from

the Act’s coverage ‘‘the production or

gathering of natural gas.’’ Thus, section

1(b) first grants to the Commission

broad plenary authority to regulate the

business of transporting and of

wholesaling natural gas moving in

interstate commerce. Secondly, section

1(b), by operation of the ‘‘production

and gathering’’ exemption, removes

from that plenary grant of federal

jurisdiction those aspects of natural gas

regulation which are the proper subject

of state regulation.6

B. The Outer Continental Shelf Lands

Act (OCSLA)

Additional sources of regulatory

authority over OCS pipeline facilities

and activities are sections 5(e), and

5(f)(1), of the OCSLA.7 Generally,

sections 5(e) and 5(f)(1) of the OCSLA

give the Commission certain

responsibilities and authorizations to

ensure that natural gas pipelines on the

OCS transport for non-owner shippers

in a nondiscriminatory manner and

operate in accordance with certain

competitive principles.

Section 5(e) of the OCSLA requires

pipelines to transport natural gas

produced from the OCS ‘‘without

discrimination’’ and in such

‘‘proportionate amounts’’ as the

Commission, in consultation with the

Secretary of Energy, determines to be

reasonable. In addition, section 5(f)(1) of

the OCSLA requires pipelines

transporting gas on or across the OCS to

adhere to certain ‘‘competitive

principles’’. These ‘‘competitive

principles’’ include a requirement that

the pipeline must provide ‘‘open and

nondiscriminatory access to both owner

and nonowner shippers.’’

The applicability of the provisions of

sections 5(e) and 5(f)(1) is not restricted

to interstate pipelines that are subject to

the Commission’s NGA jurisdiction. The

only pipelines that may be exempt from

the Commission’s authority under the

OCSLA are certain ‘‘feeder lines,’’

which are defined in section 5(f)(2) of

the OCSLA 8 as a pipeline that feeds into

a facility where oil and gas are ‘‘first

collected’’ or a facility where oil and gas

are ‘‘first separated, dehydrated, or

otherwise processed.’’ These ‘‘feeder

lines’’ may only be exempted from the

requirements of the OCSLA by order of

the Commission.

IV. The Commission’s Current Policy

In 1989, in response to the court’s

decision in EP Operating v. FERC (EP

Operating),9 which reversed a

Commission determination that a 51-

mile long, 16-inch diameter OCS

pipeline was a jurisdictional

transportation facility, the Commission

set upon a review of its ‘‘gathering

policy.’’ The purpose of that review was

to assess the impact of EP Operating as

well as the continuing viability and

relevance of the ‘‘primary function’’ test,

which at that time was the

Commission’s preferred methodology

for determining the jurisdictional status

of gas pipeline facilities.10 That review

culminated in the Commission’s

articulation and application of the

‘‘modified primary function’’ test in

Amerada Hess, et. al. (Amerada Hess).11

As set out in Amerada Hess, the

‘‘modified primary function’’ test

consists of the continued application of

the ‘‘primary function’’ test, with a

modification in its application in accord

with EP. Specifically, when applying

the Farmland criteria, the Commission

stated that it would consider, especially

for offshore facilities, the changing

technical and geographic nature of

exploration and production. The order

explained that because of recent

advances in engineering and available

technology, offshore drilling operations

were moving further offshore and

further from existing interstate pipeline

interconnections. Accordingly, the order

explained that a relatively long pipeline

on the OCS may be consistent with a

primary function of gathering or

production whereas an onshore pipeline

of similar length would not. Therefore,

in applying the ‘‘modified primary

function’’ test to OCS pipeline facilities

the Commission stated that it would

apply, in effect, a sliding scale that

would allow for the use of gathering

pipelines of increasing lengths and

diameters in correlation to the distance

from shore and the water depth of the

offshore production area.

V. Specific Questions for Response by

All Commenters

The Commission has compiled a list

of questions, set forth below, that will

be helpful in assessing the

Commission’s current policy and

possible policy alternatives. This list is

not meant to be all inclusive. Parties to

this proceeding are invited to present

alternative solutions not specifically

referenced in this notice.

A. General.

1. It is necessary or appropriate to

continue distinguishing between

gathering and transportation on the

OCS, or would it be better either to

declare that under the NGA all such

facilities are exempt gathering facilities

or to declare that under the NGA all

such facilities are jurisdictional

transportation facilities?

2. Does the Commission need to

continue to regulate offshore

transportation under the NGA, or is

reliance on the OCSLA sufficient to

protect the public interest?

3. Is there a ‘‘regulatory gap’’

pertaining to rates or any other matter

respecting gas pipeline facilities or

services on the OCS?

4. What is the extent of the

Commission’s authority under the
63478 Federal Register / Vol. 60, No. 237 / Monday, December 11, 1995 / Proposed Rules

12Under ‘‘recourse rates’’, pipelines would be free

to offer negotiated rates. Customers could choose

either negotiated rates or they could choose the

pipeline’s on-file, cost-of-service rates.

13See n. 13 supra.

OCSLA respecting rates for gas pipeline

services?

5. Does the OCSLA provide sufficient

remedial authority for the Commission

to ensure nondiscriminatory access by

prohibiting discriminatory or excessive

rates?

6. Does the OCSLA provide the

Commission with sufficient authority to

protect the interests of historical

customers of existing offshore interstate

pipelines if these pipelines were

declared to be gathering facilities?

7. Is it feasible, as a matter of law and

policy, to adopt a light-handed

regulatory approach that relies on

complaints about discriminatory access

or rates?

8. If such an approach is adopted, is

there a need to distinguish between new

and existing pipelines to determine how

much regulation is necessary? What

would be the legal and policy basis for

any such distinction?

9. What are the implications of a

change in OCS gathering policy on

existing OCS interstate pipelines that

may wish to retain their jurisdictional

status or on existing, interstate pipelineowned, OCS transmission facilities that

wish to retain a transmission

classification for those facilities?

10. How much, if any, OCS gas is

processed at locations other than

onshore or in shallow waters?

B. Should the Commission issue a

rule under the NGA declaring all

pipeline facilities on the OCS to be

nonjurisdicational gathering facilities

and simultaneously issue a rule under

the OCSLA imposing terms and

conditions on OCS facilities to protect

existing shippers on existing OCS

interstate pipelines or on existing OCS

transmission facilities?

1. What would be the practical effect

of these rules?

2. Does the Commission have

sufficient authority under the OCSLA to

prohibit, eliminate or alter rates that are

clearly discriminatory or rates that are

so high that they would have the effect

of denying access to shippers?

3. What would be the impact of the

Commission’s ceasing to regulate any

offshore pipeline rates under the ‘‘just

and reasonable’’ standard of sections 4

and 5 of the NGA?

4. Is here a legal basis under the

OCSLA for the Commission to regulate

generally the level of rates for services

performed by OCS pipelines?

5. What conditions could the

Commission require under the NGA

and/or the OCSLA to protect historical

customers of currently regulated OCS

pipelines if their facilities are declared

to be exempt gathering facilities?

6. Under this option, should the

Commission consider allowing all rate

regulation to end at any point that a

pipeline and a (non-affiliated) shipper

agree? (This option would be similar to

recent proposals for ‘‘recourse rates’’.12)

C. Should the Commission issue a

rule under the NGA declaring all

pipeline facilities on the OCS to be

jurisdictional transportation facilities,

but only regulate transportation rates for

historical customers on existing

interstate pipelines and for non-owner

shippers on new facilities?

1. What would be the practical effect

of such a rule?

2. Does a ‘‘regulatory gap’’ exist on the

OCS that would support the issuance of

such a rule?

3. What legal support is there for the

Commission’s regulating only those

pipelines that transport non-owner

shipper gas?

4. Is there any need to regulate the

rates charged new customers that have

not relied upon or have no expectation

of NGA regulation?

5. Would the provisions of the OSCLA

provide sufficient protection from

undue discrimination to both historical

and new customers of OCS pipelines?

6. Under this option, should the

Commission consider allowing all rate

regulation to end at any point that a

pipeline and a (non-affiliated) shipper

agree? (This option would be similar to

recent proposals for ‘‘recourse rates’’.13)

D. Should the Commission continue

the application of the ‘‘modified

primary function’’ test on a case-by-case

basis? What would be the effects of this

approach?

VI. Procedure for Comments

The Commission invites interested

persons to submit comments, data,

views, and other information

concerning the matters set out in this

notice.

To facilitate the Commission’s review

of the comments, commenters are

requested to provide an executive

summary of their position on the issues

raised in the NOI. Commenters are

requested to identify the specific

question posed by the NOI that their

discussion addresses and to use

appropriate headings. Additionally,

commenters should double space their

comments.

The original and 14 copies of such

comments must be received by the

Commission before 5:00 p.m., Friday,

January 12, 1996. Comments should be

submitted to the Office of the Secretary,

Federal Energy Regulatory Commission,

888 First Street, NE., Washington DC

20426 and should refer to Docket No.

RM96–5–000.

In addition, commenters are asked to

submit their written comments and

executive summaries on a 3 1/2-inch

diskette formatted for MS-DOS based

computers. In light of our ability to

translate MS-DOS based materials, the

text need only be submitted in the

format and version that it was generated

(i.e. MS WORD, WordPerfect, ASC III,

etc.) For Macintosh users, it would be

helpful to save the documents in word

processor format and then write them to

files on a diskette formatted for MS-DOS

machines.

By direction of the Commission.

Lois D. Cashell,

Secretary.

[FR Doc. 95–30062 Filed 12–8–95; 8:45 am]

BILLING CODE 6717–01–M

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[INTL–0003–95]

RIN 1545–AT92

Source of Income From Sales of

Inventory and Natural Resources

Produced in One Jurisdiction and Sold

in Another Jurisdiction

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

and notice of public hearing.

SUMMARY: This document contains

proposed regulations governing the

source of income from sales of natural

resources or other inventory produced

in the United States and sold in a

foreign country or produced in a foreign

country and sold in the United States.

This document affects persons who

produce natural resources or other

inventory in the United States and sell

in a foreign country, or produce natural

resources or other inventory in a foreign

country and sell in the United States.

This document also provides notice of

a public hearing on these proposed

regulations.

DATES: Written comments and outlines

of oral comments to be presented at the

public hearing scheduled for April 10,

1996, at 10 a.m. must be received by

March 11, 1996.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (INTL–0003–95),