Opinion ID: 184971
Heading Depth: 2
Heading Rank: 1

Heading: The Abandonment Proceeding and the Settlement

Text: 6 In January of 1994, pursuant to 7(b) of the Natural Gas Act (NGA or the Act), El Paso applied to abandon all of its non jurisdictional gathering, treating, and processing facilities. See 15 U.S.C. 717f(b) (1994). FERC has jurisdiction over the transmission of natural gas, but it does not have jurisdiction over the gathering, treating, or processing of natural gas. See 15 U.S.C. 717(b) (1994). The line between the two is not always clear, but it is important. If a facility is functionalized as transmission, the regulated company--in this case, El Paso--may incorporate the cost of that facility into its rates. If it is functionalized as gathering, it may not. 7 El Paso intended to abandon all of its non jurisdictional facilities by transferring them to its wholly owned subsidiary, Field Services. The Chaco plant, located in the San Juan basin, was one of the systems that El Paso intended to transfer to Field Services. The Chaco plant consists of liquid extraction, dehydration, and compression facilities. El Paso transferred most of these facilities to Field Services. But one of the compressor stations, the Chaco compressor station, was not transferred to Field Services. The Chaco compressor station consists of 16 compressor units that have a total of 77,960 hp and that generate more than 800 pounds of pressure. See El Paso Natural Gas Co., 81 F.E.R.C. p 61,209, at 61,890 (1997). The Chaco compressor pressurizes gas coming in from the fields before it enters a liquid extractor. Liquid extraction is a part of natural gas processing and the extractor is a nonjurisdictional facility. El Paso did not transfer the Chaco compressor station to Field Services because it believed that Chaco was necessary to preserve mainline capacity and so served a jurisdictional transmission function. Williams argued that the Chaco compressor was a gathering facility and should have been transferred to Field Services. 8 In September 1995, FERC approved El Paso's application to abandon its gathering facilities. See El Paso Natural Gas Co., 72 F.E.R.C. p 61,220 (1995). In that same order, however, FERC also required El Paso to show cause why it did not abandon the Chaco compressor. See id. at 62,020. After El Paso transferred the Chaco plant facilities to Field Services, Field Services replaced the liquid extractor, which used a lean oil method, with a new cryogenic liquid extractor. The relevant difference between the two is that, to function efficiently, the cryogenic extractor needs the large amounts of pressure produced by the Chaco compressor station. 9 Meanwhile, before the show cause proceeding regarding the Chaco compressor was completed, El Paso sought a rate increase in an entirely separate proceeding. In 1996, El Paso submitted a Settlement in that rate proceeding, which contained a provision relating to the pending dispute over the Chaco compressor. This provision, 15.2, provides: 10 15.2 Refunctionalization Issues. In consideration of the other provisions of this Stipulation and Agreement, all El Paso facilities underlying the rates in Docket No.RP95-363-000, are properly functionalized as transmission facilities solely for the term of this Stipulation and Agreement. Accordingly, (i) the show cause proceeding in Docket No. CP94-183-002 shall be terminated without prejudice to later filings after the term of this Stipulation and Agreement; (ii) during the term of the Stipulation and Agreement, no party shall contest, in any Commission proceeding, the functionalization of El Paso's facilities; and (iii) regardless of any actions taken by the Commission or by non-consenting parties to this Settlement Agreement, the settlement rates established herein will not be subject to change during the term of this Stipulation and Agreement based on any refunctionalization issue. 11 Stipulation and Agreement in Settlement of Rate and Related Proceedings, reprinted in Joint Appendix (J.A.) 661.Williams objected to 15.2, arguing that if the Chaco compressor was later found to be nonjurisdictional, this provision would improperly allow El Paso to continue to incorporate Chaco's costs into its transmission rates. Williams complained that the effect of this provision is to subsidize Field Services because Field Services would not have to pay the compressor's costs. 12 Despite Williams' objections, FERC approved the Settlement on April 16, 1997, finding that it was a fair and reasonable resolution of difficult issues. El Paso Natural Gas Co., 79 F.E.R.C. p 61,028, at 61,131 (1997), reh'g denied, 80 F.E.R.C. p 61,084 (1997). With regard to the pending show cause proceeding, the Commission noted that was issuing an order in that docket concluding that El Paso appropriately did not include the Chaco facilities among the facilities to be transferred to its gathering affiliate because the primary function of that facility is jurisdictional transmission.Id. Soon after, FERC issued an order in the show cause proceeding finding that the Chaco compressor functioned as a transmission facility and was therefore properly functionalized as jurisdictional by El Paso. See El Paso Natural Gas Co., 79 F.E.R.C. p 61,079 (1997). This order was consistent with FERC's order approving the Settlement: Both orders provided that the Chaco compressor was a jurisdictional facility. 13