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Pa. PUC
Developments on Regulation of Midstream Operators
In two recent developments, the Pennsylvania Public
Utility Commission ("PUC" or "Commission")
appears to have settled, at least for the time being, the long
outstanding question of whether midstream natural gas services
might generally be regulated as "public utility"
services. As summarized below, these developments indicate that,
until specific facts and circumstances dictate otherwise, the PUC
will not, as a rule, exercise its "public utility"
jurisdiction over these operations.
On August 20, 2012, the PUC entered into a Joint Stipulation
("Stipulation") with the Pennsylvania Independent Oil and
Gas Association ("PIOGA") in a case before the
Commonwealth Court of Pennsylvania that centered on this
"public utility" regulatory question. By way of background,
PIOGA initiated the Commonwealth Court proceeding in late 2011 with
a Petition for Review of two PUC Orders that, in the context of a
PUC proceeding by Laser Northeast Gathering Company, LLC
("Laser"), arguably would have provided the basis for
characterizing all midstream natural gas gathering services
as "public utility" services. Specifically, as argued by
PIOGA, although Laser ultimately withdrew its application for
"public utility" status, the Commission's Orders in the
underlying case ultimately could have established precedent for
future determinations by the PUC that all other such midstream
developers are "public utilities" subject to the PUC's
jurisdiction. For this reason, PIOGA sought the Commonwealth
Court's reversal of the PUC's Laser
orders on the grounds that natural gas gathering services do not
meet the definition of "public utility" services under
the Commission's regulations.
The Stipulation between PIOGA and the PUC resolved this basic
definitional and jurisdictional question. Specifically, the
Stipulation memorialized the agreement between these parties that
the determination of "public utility" status is
"necessarily a fact-based determination," and that the
PUC in the Laser case "made no general or final factual
findings and established no precedent ... that the service provided
by midstream gathering companies, per se, qualifies as public
utility service." Furthermore, the Stipulation noted the PUC's
understanding and declaration that, while a gathering company might
be able to prove its "public utility" status after a full
evidentiary hearing, the "technical and operational nature of
midstream gathering service" dictates that these services are
"generally provided on a private contract basis rather than on
a 'public utility' service basis."
On a related note in another proceeding, the PUC on September 13,
2012, issued an Order approving the withdrawal of the application
for "public utility" authority of another midstream
developer, Peregrine Keystone Gas Pipeline, LLC ("Peregrine").
In so doing, the Commission also vacated the Recommended Decision
issued by the presiding Administrative Law Judge in that case,
which presented a firm declaration that midstream gathering
services are not public utilities. Despite the request of PIOGA
in this proceeding, the Commission's Order withdrawing Peregrine's
application refused to declare that its prior Laser orders have no
precedential effect. The PUC did, however, acknowledge that, as
espoused in its Commonwealth Court Stipulation, the Commission has
not established a specific precedent on this issue in favor of PUC
regulation of midstream companies.
PIOGA
has since filed with the PUC a Petition for Reconsideration of the
Order in the Peregrine
case, challenging the PUC's independent determination to vacate the
ALJ's Recommended Decision. Specifically, PIOGA argues that the
Recommended Decision represents the "only fully developed,
on-the-record analysis of the issues" related to the question
of whether the PUC should exercise jurisdiction over midstream
entities. According to PIOGA, the Recommended Decision "is an
integral part of the body of guidance provided to interested
persons and the general public by the Commission . . . concerning
natural gas midstream services and, as such, should be preserved
and not discarded."
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The State of Drilling in the
Empire State
by Kevin M. Eddy
Pittsburgh
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Despite being home to the first natural gas well in
the United States, the State of New York has prohibited the use
of hydraulic fracturing within its borders. Since the election of
Governor Andrew Cuomo, the question in the oil and gas industry
is whether he will lift the ban. Shortly after his election, Governor
Cuomo tasked the Department of Environmental Conservation with
drafting rules to allow for hydraulic fracturing. While the DEC
issued proposed rules and held public hearings on those proposed
rules, the likelihood of hydraulic fracturing coming to New York
hit a major stumbling block.
Read the full
article on our website.
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Pa. Litigation Update: Butler and
Act 13
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October has been a busy month for oil and
gas-related issues before the Pennsylvania Supreme Court. Two
questions with major implications for drilling companies were
heard.
The first, Butler v. Charles
Powers Estate, concerns the interpretation of
mineral reservation clauses in deeds. The Supreme Court was asked
to determine whether the Superior Court erred in remanding the
case to the trial court to allow testimony regarding scientific
and historical evidence about the Marcellus shale formation and
whether the natural gas contained within the shale is a
"mineral." The Supreme Court will likely focus on
its earlier precedent holding that there is a rebuttable presumption
that parties intend the term "mineral" to include only
metallic substances and that only the parties' intent can rebut
the presumption to include non-metallic substances.
The second case will
examine the Pennsylvania Commonwealth Court's ruling striking
down the zoning provisions of Act 13. The Supreme Court will
determine whether the Pennsylvania legislature can prohibit local
municipalities from enacting zoning ordinances affecting oil and
gas drilling and operations that are more restrictive than the
state's requirements. The Supreme Court will determine the
scope to which the Pennsylvania Oil and Gas Act may preempt local
zoning ordinances impacting oil and gas exploration.
We will continue to follow these two important cases
and keep you informed as to how you may be affected. For more
background, see our articles on Act 13 here, here, here, and here. We wrote
about the Butler case here and here.
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First Round of Marcellus
Drilling Fees Tops Pa. Estimates
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The state of Pennsylvania collected $197.6 million
in the first round of Marcellus Shale impact fees. The money
collected will be distributed later this year, with most of it
going to counties and municipalities in the drilling region.
Read more.
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New Pipeline to Carry Natural
Gas from Pa. to N.Y.
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Williams and Cabot Oil & Gas are working
together to develop a new pipeline to carry natural gas from
northeast Pa. to major northeastern markets. The initial capacity
would be enough to fuel about 3 million homes. If the
environmental report and permit application are approved,
construction will begin by April 2014.
Read more.
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Useful Resource: Spilman
Webinar
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Spilman attorney M. Katherine Crockett discusses the
USEPA's new oil and gas air rules package in a timely and
informative Webinar.
View the Webinar.
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Marcellus Shale Team Member
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With nearly 30 years of experience, Carl is well-versed in
commercial real estate law, including lending law, mineral law
and title insurance. He has represented natural resources
companies in the refinance, purchase and sale of mineral
interests and commercial properties. He also has experience
issuing lender and owner title insurance policies. Carl is
consistently recognized by The
Best Lawyers in America for excellence in corporate
law. Click here to read his full professional
biography.
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This is an attorney advertisement. Your receipt and/ or
use of this material does not constitute or create an attorney-client
relationship between you and Spilman Thomas & Battle, PLLC or any
attorney associated with the firm. This e-mail publication is
distributed with the understanding that the author, publisher and
distributor are not rendering legal or other professional advice on
specific facts or matters and, accordingly, assume no liability
whatsoever in connection with its use.
Responsible
Attorney: Michael J. Basile
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