• FERC Affirms Jurisdiction over Ethane Pipeline
  • January 10, 2014 | Authors: Peter S. Glaser; Kevin C. Greene; Daniel L. Larcamp; Clifford S. Sikora; Lara L. Skidmore
  • Law Firms: Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Portland Office
  • On Tuesday, December 31, 2012, the Commission issued an order asserting jurisdiction over a “purity” ethane pipeline. Williams Olefins Feedstock Pipelines, L.L.C. (“Williams”) had filed a Petition for Declaratory Order requesting that the Commission disclaim Interstate Commerce Act (“ICA”) jurisdiction over Williams’ proposed Williams Bayou Ethane Pipeline project (“Ethane Pipeline”). The Commission denied the petition and clarified that “the Commission’s ICA jurisdiction applies where oil or petroleum products that can be used for energy purposes are moved in interstate commerce.”

    Gas extracted from certain production sources is referred to as “wet” natural gas because, in addition to methane, the natural gas also contains hydrocarbon compounds referred to as Natural Gas Liquids or NGLs, like ethane, propane, butane, and naturally occurring gasoline. These NGLs are separated from the methane following production. In the last few years, certain of these liquid hydrocarbons, including ethane, have experienced an increasing market demand and are sold on their own.

    Williams asserted that its Ethane Pipeline would transport exclusively ethane and that the ethane would be eventually consumed as feedstock for the production of ethylene, and would not be used in an energy context as fuel. Williams argued that the Commission’s prior precedent held that the Commission’s ICA jurisdiction applied to products used for energy purposes, but not to products that were petrochemical feedstocks.

    The Commission disagreed with Williams’ analysis, and determined that it would have jurisdiction under the ICA over the Ethane Pipeline. The Commission explained that its ICA jurisdiction was not focused on Williams’ asserted end use of the product its pipeline would be transporting, but rather “whether the product being transported is a naturally-occurring hydrocarbon that is used or can be used for energy-related purposes[.]” The fact that ethane is a naturally-occurring hydrocarbon was not disputed, and the Commission focused its analysis on the issue of whether ethane is used or can be used for energy-related purposes (as distinct from whether the ethane that would be transported by Williams’ pipeline would be so used). The Commission determined that there is currently a market for ethane as a fuel, and that that market is growing and diversifying, both domestically and abroad. Thus, the Commission found there to be both existing and potential, future energy uses for purity ethane, and concluded that its transportation by pipeline was subject to ICA jurisdiction.

    The Commission also explained that it will not make determinations regarding its jurisdiction based on an applicant’s representations of a product’s end-use. Such end uses are out of the direct control of the transporter and can change over time. The Commission reasoned that allowing some ethane pipelines to avoid jurisdiction based on the purported end use of the product while other ethane pipelines remain regulated could create a “balkanized” ethane pipeline system, with some pipelines subject to FERC jurisdiction and others not.