Buchanan Ingersoll A Rooney PC Attorneys & Government Relations Professionals

17 North Second Street 15th Floor Harrisburg, PA 17101-1503

Brian J . Knipe T 717.237.4800 (717)237-4820 F 717.233.0852 Brian.Knipe@bipc.com www.bipc.com

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Rosemary Chiavetta, Secretary Pennsylvania Public Utility Commission Commonwealth Keystone Building 400 North Street, 2nd Floor North Harrisburg, PA 17120

Re: Application of Laser Northeast Gathering Company, LLC for Approval to Begin to Offer, Render, Furnish or Supply Natural Gas Gathering and Transporting or Conveying Service by Pipeline to the Public in Certain Townships of Susquehanna County, Pennsylvania, Docket No. A-2010-2153371

Dear Secretary Chiavetta:

Enclosed for filing are the original and nine (9) copies of the Replies of MarkWest Liberty Midstream & Resources, LLC to Exceptions of Other Parties. Hard copies are being served as indicated on the attached Certificate of Service.

Very truly yours,

Brian J. Knipe For BUCHANAN INGERSOLL & ROONEY PC

BJK/kra

Enclosures

cc: Honorable Susan D. Colwell (via email and hand delivery, w/encls.) Cheryl Walker Davis, Director, Office of Special Assistants (via email and hand delivery,

w/encls. and CD-Rom) Certificate of Service

California " Delaware :: Florida :: New Jersey :: New York :: Pennsylvania :: Virginia :: Washington, DC

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

Application of Laser Northeast Gathering Company, LLC for Approval to Begin to Offer, Render, Furnish, or Supply Natural Gas Gathering and Transporting or Conveying Service by Pipeline to the Public in Certain Townships of Susquehanna County, Pennsylvania

Docket No. A-2010-2153371

REPLIES OF MARKWEST LIBERTY MIDSTREAM & RESOURCES, LLC TO EXCEPTIONS OF OTHER PARTIES

BUCHANAN INGERSOLL & ROONEY, P.C.

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Brian J. Knipe, ID No. 82854 17 North Second Street, 15th Floor Harrisburg, PA 17101-1503 Telephone: (717)237-4800 Facsimile: (717) 233-0852 brian.knipefaibipc.com

Attorneys for MarkWest Liberty Midstream & Resources, LLC

Dated: February 7, 2011

TABLE OF CONTENTS

I. INTRODUCTION 1

II. REPLIES TO EXCEPTIONS 6

A. Laser and OTS Mischaracterize the R.D.'s Rationale for Correctly Concluding that Natural Gas Gatherers Do Not Provide Service "For the Public" 6

B. Laser Does Not Contest the Finding That Its Natural Gas Gathering Pipeline Is Designed and Constructed Only to Serve a Specific Group of Entities 9

C. Natural Gas Gatherers Select and Control Whom They Serve Through Contracts and Serve a Defined, Privileged and Limited Group 10

D. Contrary to Laser's Suggestion, There is No "Long-Standing Precedent" That Natural Gas Gatherers Are Public Utilities Under the Current Law 14

E. Public Utility Natural Gas Gatherers and Unregulated Natural Gas Gatherers Cannot Co-exist 15

F. The Commission Needs Legislative Authorization to Implement Light-Handed Regulation for Natural Gas Gathering Lines 17

G. Natural Gas Gatherers Can Develop Infrastructure Without The Power of Eminent Domain 18

H. The Joint Petitioners Have Cited No Applicable Legal Authority for Approving Their Non-Unanimous Settlement 20

III. CONCLUSION 22

TABLE OF AUTHORITIES

Pennsylvania Statutes

66 Pa.C.S. § 102 2,6 66 Pa.C.S. § 102(l)(v) 14 66 Pa.C.S. § 1301 18

Pennsylvania Regulations

52 Pa. Code § 5.407 16 52 Pa. Code § 5.408 16 52 Pa. Code § 5.535 1 52 Pa. Code § 60.3(a) 12 52 Pa. Code § 69.1401 5 52 Pa. Code § 69.1401(cX2) 4, 6, 9 52 Pa. Code § 69.1401(c)(3) 4,9

Case Law

Drexelbrook Associates v. Pa. PUC, 418 Pa. 430, 212 A.2d 237 (1965) 5 Elkin v. Bell Telephone Company of Pa., 491 Pa. 123, 420 A.2d 371 (1980) 21 Feingoldv. Bell, A l l Pa. 1, 383 A.2d 791 (1977)

Pennsylvania Public Utility Commission Orders

Application of Allegheny Land and Exploration, Inc., Docket No. A-125136 (Order entered March 1, 2005) 15

Application of Ardent Resources, Inc., Docket No. A-140005 (Order entered April 16, 2007) 15

Nutmeg Energy, Inc., Gas City Oil and Gas Corporation, Exley Oil and Gas Corporation, Docket No. P-00062204 (Order entered Feb. 26, 2007) 15

Other

Texas Utilities Code § 104.003 18

MarkWest Liberty Midstream & Resources, LLC ("MarkWest"), in accordance with 52

Pa. Code § 5.535, submits these Replies to the Exceptions filed by Laser Northeast Gathering

Company, LLC ("Laser"), the Office of Trial Staff ("OTS"), the Silver Lake Association ("Silver

Lake") and Ms. Vera Scroggins to the Recommended Decision ("R.D.") of Administrative Law

Judge Susan D. Colwell ("ALJ") dated November 22, 2010 and issued December 1, 2010.

I. INTRODUCTION

For decades, natural gas gathering line operators have operated in Pennsylvania as

competitive enterprises. They have successfully developed and operated gathering systems

without the need for public utility regulatory oversight. Instead, market forces and arm's length

negotiations with producers and landowners have determined where operators have developed

their pipelines, which producers a gatherer has served, and the pricing and other terms and

conditions of gathering service. Gatherers are critical to developing Pennsylvania's emerging

Marcellus Shale natural gas industry, which promises to have enormous economic benefits for

the Commonwealth. As Pennsylvania is on the verge of realizing these benefits, however,

Laser's Application for a Certificate of Public Convenience ("CPC") asks the Pennsylvania

Public Utility Commission ("Commission") to radically change the midstream natural gas

industry in Pennsylvania.

Laser's Application asks the Commission to regulate Laser as a public utility, potentially

subject to all the same, established requirements of a public utility with respect to rates and

finances, services provided and tariff requirements. MarkWest and other experienced natural gas

gathering system operators oppose the Application because gatherers are not public utilities

under Pennsylvania law, and regulating them as utilities will create regulatory uncertainty and

have significant adverse consequences on other participants in the emerging Marcellus Shale

natural gas production industry. Notwithstanding Laser's claims to the contrary, a Commission

order determining that Laser is a regulated "public utility" as defined by Section 102 of the

Pennsylvania Public Utility Code ("Code"), 66 Pa.C.S. § 102, is tantamount to a determination

that any natural gas gathering line providing service to a third party producers is a "public utility"

subject to the full panoply of requirements under the Code and the Commission's regulations.

As MarkWest explained in its briefs, the Code's regulatory framework for public utilities

does not fit natural gas gathering. MarkWest Main Brief ("MB") at 17-19. Since 1992 when the

Federal Energy Regulatory Commission issued Order No. 636 unbundling the costs for each area

of natural gas production, gathering and transportation, Pennsylvania has had no particular

reason to update its regulatory framework for midstream services. While MarkWest does not

oppose the concept of "light-handed regulation" advanced by Laser and other parties, the

problem is that there is no current legal or regulatory basis for light-handed regulation in

Pennsylvania. In fact, the very same reasoning Laser uses to argue that the Commission has

discretion to engage in light-handed regulation likewise supports an argument that the

Commission has discretion to later engage in "heavy-handed regulation." A Commission order

creating such a change or uncertainty in the regulatory framework will deter parties wanting to

invest in building new gathering infrastructure needed for the increased production in the

Marcellus Shale.

Laser's Application is inconsistent with the Commissioner's objectives, as indicated by

the remarks of a majority of Commissioners at the April 22, 2010 En Banc Hearing on Marcellus

Shale Jurisdictional Issues, Docket No. 1-2010-2163461. The Commissioners publicly stated

that they are not interested in regulating natural gas gathering lines as public utilities or

regulating them for economic purposes. Instead of economic regulation, the Commission is

interested in obtaining legislative authority for safety, including inspections, complaints and

funding through reasonable per mile fees.

MarkWest supports the Commission's pursuit of legislative authority for oversight and

enforcement of federal pipeline safety standards for gathering lines, and respectfully submits that

the General Assembly is the appropriate forum. Given the importance of gatherers to

development of the Marcellus Shale play, the Commission and the midstream industry need a

statewide legislative solution that is thoroughly vetted and scrutinized by all stakeholders, as

opposed to ad hoc orders on applications for CPCs without a legitimate statutory or regulatory

basis. To that end, MarkWest and other midstream industry participants have been actively

working with the General Assembly to pass legislation establishing the Commission's authority

to regulate gathering line safety and enforce comprehensive federal safety standards as a state

agent of the U.S. Department of Transportation Pipeline and Hazardous Materials Safety

Administration ("PHMSA"). The need to ensure gathering line safety, however, does not require

the Commission to regulate gatherers as public utilities. Safety oversight is a completely

separate issue from public utility regulation of financial transactions, contracts and service. See

MarkWest MB at 25-27; MarkWest Reply Brief ("RB") at 15.

In this proceeding, the burden is clearly on Laser to demonstrate a sound legal and policy

basis for upsetting a paradigm that has long operated successfully. Laser has failed to satisfy this

burden, and the R.D., which reflects thoughtful legal analysis and thorough consideration of the

entire record, correctly recommends denial of Laser's Application. The R.D. correctly finds that

a natural gas gatherer such as Laser is not a "public utility" as defined in the Code because it is

not providing service "to or for the public." Instead, natural gas gathering lines are specifically

designed and constructed only to serve a limited group of entities, /'.e., upstream producers with

which individual, complete contractual arrangements have been made, by moving raw

unprocessed gas from the producers' wells to a processing facility and/or an interstate

transmission line. Other producers cannot be served without a significant revision to the

gathering system. See 52 Pa. Code § 69.1401(c)(2). The R.D. correctly found that natural gas

gatherers provide service to a defined, limited and privileged group of sophisticated producers,

each of which has negotiated a private contract at arm's length with the gatherer with pricing and

other terms and conditions unique to the specific producer's operations and needs, and that

gatherers reserve the right to select their customers by contractual arrangement so that only those

with a contract have a right to demand gathering service. See 52 Pa. Code § 69.1401(c)(3).

The potential for this proceeding to severely hinder Marcellus Shale development is

compounded by the request of Laser, the OTS and various protestants that the Commission

impose numerous conditions on any CPC granted to Laser, conditions which lie outside the

Commission's jurisdiction, in accordance with a non-unanimous Joint Petition for Settlement

("Settlement"). Under the non-unanimous Settlement, protestants to the Application have agreed

not to oppose the Application, in exchange for Laser's agreement to conditions relating to,

among other things, environmental requirements, noise control, the exercise of eminent domain

and land use. The R.D. recommended disapproval of the non-unanimous Settlement because

many of the agreed-upon conditions — to which Laser agreed to secure the non-opposition of the

OTS and protestants1 to the Application — including environmental requirements, noise control

1 Although he signed the non-unanimous Settlement, Protestant William C. Fischer has not taken exception to the ALJ's R.D. Instead, on January 14, 2011 Mr. Fischer filed a letter with the Commission stating his support for the R.D.;

Having carefully read the November 22, 2010 Recommended Decision of Administrative Law Judge Susan D. ColweiJ, I can find no error in the logic, law or compassion that frames the reasoning behind her recommendation to deny this application. Nor can I find an honest motive that would allow me, in

requirements, restrictions on the use of eminent domain, and land use requirements, lie outside

the Commission's jurisdiction and are inappropriate conditions of a CPC.

Laser's Exceptions mischaracterize the rationale for the R.D.'s findings that natural gas

gathering is not a public utility service, and argue for reversal based on incorrect premises.

Thus, while the R.D. explicitly bases its finding that gatherers are not public utilities on the

standards articulated by Pennsylvania courts in cases such as Drexelbrook Associates v. Pa.

PUC, 418 Pa. 430, 212 A.2d 237 (1965), and the Commission's Policy Statement at 52 Pa. Code

§ 69.1401, Laser contends that it is based on, among other things, the belief that direct service to

burner-tip customers is necessary for public utility status, and a general aversion to eminent

domain. See Laser Exceptions at 10-18 (discussing end-use), at 27-30 (discussing eminent

domain). Indeed, the R.D. that Laser purports to attack in its Exceptions is very different from

the actual R.D. issued in this proceeding. The Commission should not upset a sound R.D. that is

consistent with precedent, statutory interpretation and commercial realities, based on Laser's

erroneous analysis which disregards the R.D.'s actual rationale.

As explained further below, the R.D. correctly recommended denial of the Application

based upon Laser's failure to meet its burden of proving its entitlement to a CPC. Because

regulation of natural gas gatherers as public utilities is contrary to law and the public interest, the

Exceptions of Laser, the OTS, Silver Lake and Ms. Scroggins should be denied, and the R.D.

should be adopted without modification.

good conscience, to file an Exception. Her clarity is a Magi's gift to Pennsylvania.

II. REPLIES TO EXCEPTIONS

A. Laser and OTS Mischaracterize the R.D.'s Rationale for Correctly Concluding that Natural Gas Gatherers Do Not Provide Service "For the Public."

The R.D. correctly finds that Laser's proposed service is not "to or for the public" within

the meaning of 66 Pa.C.S. § 102. COL 17. This is because a gathering system is specifically

designed and constructed to serve natural gas producers by transporting gas from the particular

locations where wells are built to a designated transmission line or processing facility. R.D. at

56, 57, COL 18. It is constructed only to serve specific individuals, and others cannot feasibly

be served without a significant revision to the project. R.D. at 57; see 52 Pa. Code §

69.1401(c)(2). As additional grounds for finding that Laser's proposed service is not "to or for

the public," the R.D. finds that the proposed gathering service is provided to a defined, privileged

and limited group, i.e., natural gas producers with property in the Marcellus Shale region of

Pennsylvania where the necessary zoning limitations and environmental and other applicable

requirements will permit drilling, and a well is located, R.D. at 57, and that the gatherer reserves

its right to select its customers by contractual arrangement so that no one among the public,

outside of the selected group, is privileged to demand service, R.D. at 65. For these reasons, the

R.D. properly concluded that transporting gas from a producer to market is a business

transaction, not a public utility service. R.D. at 56, 63.

While the R.D. clearly articulates its reasons for holding that natural gas gathering

service to third parties is not service "for the public," Laser mischaracterizes the R.D.'s rationale

in its Second Exception by erroneously claiming that "[t]he R.D. interprets 'the public' in Section

102 of the Code to require service to end-user or burner-tip customers." Laser Exceptions at 10.

Laser spends the next eight pages of its Second Exception — the most pages Laser spends on

any subject — attacking this phantom argument. OTS takes a somewhat similar approach in its

Exception No. 1, although to its credit, OTS concedes that "[t]he RD never explicitly asserts that

end-user service is a prerequisite for public utility service," OTS Exceptions at 5 n.7. Rather,

OTS attempts to illustrate, through a series of quotes taken out of context, "an implicit and

erroneous conviction that Laser should not receive a certificate of public convenience because it

does not provide burner-tip service." OTS Exceptions at 5 n.7. Both theories are incorrect.

As explained above, the R.D. is very straightforward as to why natural gas gathering

service is not service for the public, and it nowhere states that end-use is in any way a pre­

requisite for public utility service, nor reflects such an "implicit and erroneous conviction."

Rather, the R.D.'s references to "end-use" or "consumers" appear in discussions where the R.D.

juxtaposes the operations of natural gas gatherers with those of traditional natural gas public

utilities and notes the sharp distinctions:

Note the sharp contrasts between gathering raw gas for transport to a refining facility and the actions of a traditional gas utility, which installs its distribution lines in a manner which permits property owners all along the route to connect to consume gas in operating their heating and cooking appliances.

R.D. at 56. The distinctions between gatherers and traditional natural gas utilities that create the

"sharp contrasts" are numerous and include, among other things, the competitive nature of the

natural gas gathering business; the provision of service to producers which are "upstream" of the

gatherer; the transport of raw, unprocessed gas unsuitable for transportation in "downstream"

interstate transmission pipelines, or for consumption by the public; the sophistication and

privileged status of gathering customers; the unique pricing and other terms and conditions of

each contract for gathering service to meet the customer's needs; and the siting, design and

construction of the gathering system based upon the ability of the gatherer to exclude producers

who cannot agree to contractual terms from the use of the gathering system. See MarkWest St. 1

at 10, 11, 15-16; L M M St. 1 at 4, 7, 11. Thus, Laser's and OTS's discussions about service to

end-users not being determinative of public utility status are irrelevant.

Similarly, Laser is incorrect in suggesting in its Second Exception that the R.D.

concluded that natural gas gathering is not public utility service based solely on the fact that

natural gas gatherers transport raw, unprocessed gas. Laser Exceptions at 21-23. Certainly, this

is one of several important factors in understanding the difference between regulated natural gas

transmission and distribution lines and unregulated natural gas gathering lines, a difference

MarkWest explains at length in its Reply Brief. MarkWest RB at 4-5. To be sure, gathering

lines serve very different purposes and carry very different materials than public utilities. The

fact that gatherers carry raw gas is also significant because it is another reason that gatherers

must negotiate pricing and terms of service with each and every producer on a case-by-case

basis. Were the gas of uniform quality, Laser could more realistically post a comprehensive

utility-style tariff. But the fact that natural gas gathering lines carry raw gas was only part of one

basis the R.D. articulated for concluding that natural gas gathering is not "for the public."

In its Fourth Exception, Laser argues that the R.D. improperly uses a public utility's

ability to exercise the po\ver of eminent domain as a reason to deny Laser public utility status.

Laser Exceptions at 27-30. Again, Laser has mischaracterized the R.D. by raising and attacking

another phantom argument. In addition to the omission of any reference to eminent domain in

the R.D.'s analysis of whether Laser's proposed service is "to or for the public," the discussion of

eminent domain to which Laser takes exception appears several pages after the R.D. has

concluded that the proposed service is not public utility service (see R.D. at 56-67). The

discussion of eminent domain occurs in the R.D.'s analysis of the terms of the non-unanimous

Settlement. See R.D. at 76-83.

B. Laser Does Not Contest the Finding That Its Natural Gas Gathering Pipeline Is Designed and Constructed Only to Serve a Specific Group of Entities.

In its Second Exception, Laser argues that the R.D.'s conclusion that its gathering

pipeline is constructed only to serve specific individuals, COL 18, is incorrect because producers

are a subset of the public to whom Laser is willing to offer its services without limitation. Laser

Exceptions at 18-19. Laser is conflating two separate tests of whether an entity is providing

service "to or for the public:" the "designed and constructed only to serve a specific group of

entities" test articulated in 52 Pa. Code § 69.1401(c)(2), and the "defined, privileged and limited

group" test articulated in 52 Pa. Code § 69.1401(c)(3). While Laser focuses its arguments on the

latter test, it never takes exception with the R.D.'s analysis under the former test, which is

actually the primary reason for the R.D.'s conclusion that the proposed service is not "for the

public." See COL 18. And while Laser may be "desirous of being flexible to invest additional

capital and expand and extend the system as needed to serve as many potential customers as

desired to enter into agreements with them," Laser Exceptions at 20-21, Laser never argues that

the system is presently designed and constructed to serve all these potential customers, or that

expanding and extending the system would not be a "significant revision."

OTS, on the other hand, does attempt to address the "significant revision" test in its

Exception No. 1, by contending that "the construction of additional lateral lines to connect new

wells to the backbone gathering pipeline cannot be considered a significant revision to the

project." OTS downplays the construction of lateral lines, analogizing it to the installation of a

service line connecting a residential or commercial end-user to a local distribution main. See

OTS Exceptions at 10-11. However, OTS cannot point to any evidence of record to support the

suggestion that the installation of a new service line tie-in, which might cost thousands of

dollars, is comparable to the construction of a new lateral line on a gathering system, which

could run into several tens of millions of dollars. MarkWest respectfully submits that OTS's

argument underscores the risk of attempting to impose the existing public utility regulatory

structure on an industry which has developed outside of that arena and been governed by

competitive market forces.

C. Natural Gas Gatherers Select and Control Whom They Serve Through Contracts and Serve a Defined, Privileged and Limited Group.

Laser's numerous assertions that it "holds itself open" to service to all members of the

public are inconsistent with the facts of record and the commercial realities of the midstream

natural gas industry. See MarkWest MB at 9-10; MarkWest RB at 6-9. In its Second Exception,

Laser attempts to marginalize natural gas gatherers' contracts with producers, contending that

they are not exclusionary of any customer, but merely a vehicle to delineate technical

requirements. Laser Exceptions at 23-25. Yet, in an April 2, 2010 amendment to its

Application, Laser "agreed that it will provide service only to producers who have entered into a

contractual agreement with Laser Northeast for gathering and transportation services." April 2,

2010 letter amendment; see Laser St. 1-A at 7.

Further, in testimony MarkWest explained the significant role the contract plays in the

context of natural gas gathering. See, e.g., MarkWest St. 1 at 10, 16. As MarkWest's witness

Ms. Sander explained, every producer has unique needs, MW St. 1 at 16, and commercial

considerations (e.g., volume, gas composition) necessarily dictate that each contract with each

producer will be unique. Laser's likening of sophisticated commercial negotiations in the

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midstream context to what traditional public utility service providers do to provide end-use

customers of any class with electricity, natural gas, water or telephone service, Laser Exceptions

at 24-25, is not credible. Laser has proposed no universal set of terms of service for the

Commission's approval. The "tariff1 attached to its Application is merely a naked floor and

ceiling for mcf charges. It is so devoid of detail that there will always be a need to negotiate

significant terms and conditions. If a customer cannot agree to terms satisfactory to Laser, the

producer will be excluded from connecting to Laser's gathering line. In this manner, a gatherer

like Laser sometimes may exercise leverage over a producer. Sometimes the reverse may be

true. A public utility, however, should never have leverage over its customers. In sum,

gathering contracts are individual arm's length business deals between two sophisticated private

entities.

Laser's comparison of its proposed range of gathering rates to rates for natural gas

transportation service, Laser Exceptions at 6 n.18, 26 n.64, does not change the fact that Laser

reserves the right to select its customers by private contractual arrangement. Indeed, a

comparison of Laser's tariff2 to the natural gas local distribution company ("LDC") transportation

tariff that Laser cites in Paragraph 36 of the Settlement3 illustrates the extent to which Laser's

tariff is lacking in essential terms of service which will need to be negotiated individually.

While the Laser tariff has only a negotiated gathering rate as its default pricing and service

mode, the LDC tariffs negotiated rate service presumes the customer has an otherwise applicable

traditional tariff and rate schedule, to which the customer will default under certain

circumstances. Also, the LDC tariff provides for a negotiated rate option only in certain unique

and special circumstances, such as the availability of an alternative fuel source which would

2 Attached as Exhibit C to Laser's Application. 3 Columbia Gas of Pennsylvania, Inc. negotiated contract rates for customers under Tariff No. 144 to Tariff Gas-Pa.PUCNo. 9 Fifth revised Pages 115 and 116.

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effectively replace the LDCs service. In addition, the requirement in Paragraph 16 of Laser's

tariff that the customer ordinarily pay the cost of any "special installation necessary to meet the

peculiar requirements for service at other than standard conditions" is extremely broad and open-

ended in the natural gas gathering context, where service has no standard conditions. This tariff

provision is very different than an LDCs transportation tariff. Further, there is no real

description in Laser's tariff of what Laser will actually be gathering and transporting. This is

because the actual product itself, as well as the actual service and the pricing, are all subject to

the unique circumstances of each producer and the individual negotiations between the producer

and gatherer. In short, the Laser tariff comes nowhere close to setting forth the essential terms of

service, in contrast with the LDC transportation service.

In addition, the Commission's gas transportation regulations require the natural gas

utility's tariff to state a minimum volume of transported natural gas that entitles a customer to

transportation service, see 52 Pa. Code § 60.3(a), a detail missing from Laser's tariff. Also, since

transportation service is provided by a jurisdictional LDC, there is no need for the Commission's

regulations to require transportation tariffs to include specific terms regarding gas composition,

since the gas is all consumer quality and not raw gas. This is a critical term that gatherers and

producers must negotiate. Moreover, the Commission's regulations mandate that transportation

service shall be provided without discrimination as to type and location of customer. 52 Pa.

Code § 60.3(a). As MarkWest has explained in detail, discrimination among customers is a

necessary part of the natural gas gathering business. MarkWest St. 1 at 15-16.

Furthermore, it is worth noting that while a jurisdictional LDC that already provides

service to the public may offer transportation service under a contract, Laser has cited no legal

12

authority that such transportation service, in and of itself, makes an entity that is otherwise not a

public utility into a public utility.

In its Second Exception, Laser argues that its customer group is not "privileged" because

it is not limited by economics to sophisticated producers. Laser Exceptions at 19. As MarkWest

explained in its Main Brief, producers are indeed a privileged group of people with enough

access to capital to enter into agreements to produce natural gas. See MarkWest MB at 12.

Laser, however, argues that its potential group of customers extends well beyond producers, and

that it will serve "as many producers, marketers and LDCs as possible." See Laser Exceptions at

20-21. For support, Laser cites to the testimony at hearing of one of its witnesses, who Laser

claims, in footnote 54 of its Exceptions, was subject to cross-examination (which was actually

friendly cross-examination by counsel for Ms. Scroggins, a signatory to the non-unanimous

Settlement who had waived normal cross-examination pursuant to Paragraph 39 of the

Settlement). Under friendly cross-examination, Laser's witness described the various types of

customers with which it might negotiate transportation agreements:

[A]ny and all potential customers needing to move gas through the pipeline system. So that would include large capital, largely capitalized producers, small capitalized producers, individual landowners owning wells,4 marketers, or LDC companies, landowner groups who aggregate together. Any and all opportunities to serve people seeking to take natural gas out of the ground and move it through the pipelines.

N.T. at 400 (emphasis added). Notwithstanding this litany of entities, the witness's final

summary description confirms that all of these entities, who would take gas out of the ground

and move it through a gathering line, fall within the category of "producers." See MarkWest RB

4 MarkWest questions whether the reference to "individual landowners owning wells" goes too far in attempting to suggest a gathering line is open to serving "the public." MarkWest believes that no party to this proceeding can identify a single instance in which an individual landowner drilled his or her own well, instead of hiring a third party business entity to develop, own and operate it.

13

at 9; see also Laser MB at 31 ("fpjotential producers would include large capital, largely

capitalized producers, small capitalized producers, individual landowners owning wells,

marketers, or LDC companies, and landowner groups who aggregate together." (emphasis

added)). In addition, this argument and the testimony it cites directly contradict Laser's direct

testimony, which states that "Laser also agreed that it would provide service only to producers

who have entered into a contractual agreement with Laser Northeast for gathering and

transportation services." Laser St. 1-A at 7.

D. Contrary to Laser's Suggestion, There is No "Long-Standing Precedent" That Natural Gas Gatherers Are Public Utilities Under the Current Law.

In its First Exception, Laser claims that under the R.D.'s rationale, no gathering line could

ever be deemed a public utility. Laser Exceptions at 5. As an initial matter, this argument is

flawed because it is based upon Laser's mischaracterization of the R.D.'s rationale (e.g., the

erroneous suggestion that the R.D. ruled that service to end-users is a prerequisite to public

utility status). Putting phantom arguments aside, Laser's complaint fails to recognize that a

gathering line has no lawful right to be a Pennsylvania public utility when it fails to meet the

prevailing legal standards of providing service "for the public." 66 Pa.C.S. § 102(lXv).

Laser argues that the R.D.'s ruling that natural gas gathering is not a public utility service

contradicts a handful of decisions reached over the past 50 plus years, to the effect that

petroleum pipelines, oil pipelines, oil gathering lines, crude oil pipelines and motor gasoline

pipelines provide "public utility" services. See Laser Exceptions at 5 n.13, 10-11 nn.24-27.

However, the record is wholly lacking in evidence that supports the incorrect suggestion that the

crude oil and liquid fuels pipeline businesses are similar to natural gas gathering. Had Laser

raised this issue and attempted to develop it in the record, the record would have shown that the

14

gathering and transportation of natural gas is materially different from the gathering and

transportation of crude oil or liquid fuels. See MarkWest RB at 11-12. Further, several of the

instances cited by Laser involve CPCs granted to oil or petroleum pipelines in the remote past.5

With respect to natural gas gathering lines, Laser continues to rely on the cases of Ardent

Resources and Allegheny Land & Exploration. MarkWest previously distinguished these cases,

in which the entities seeking certification did not provide typical natural gas gathering service (in

fact, Ardent Resources appears to have involved an intrastate transmission line rather than a

gathering line). MarkWest M B at 12-15; MarkWest RB at 9-11. Given the many differences of

the pipelines at issue in Ardent Resources and Allegheny Land & Exploration, it is eminently

reasonable for the R.D. to consider the case of Nutmeg Energy, which involved an actual typical

natural gas gathering line and provides a thorough analysis of the applicable law.

MarkWest submits that, on the eve of Pennsylvania's natural gas boom, and with the

Marcellus Shale's diverse set of pipeline operators, gatherers, etc., Ardent Resources, Allegheny

Land & Exploration and a handful of remote oil and petroleum pipeline cases should not

determine the course Pennsylvania pursues in developing the Marcellus Shale and do not provide

a good reason for the Commission to dramatically change the Pennsylvania natural gas

midstream industry.

E. Public Utility Natural Gas Gatherers and Unregulated Natural Gas Gatherers Cannot Co-exist.

Laser incorrectly contends in its First Exception that public utility gatherers and non-

utility gatherers can co-exist under prevailing law. Laser Exceptions at 6-7. For proof that this

5 See e.g., Laser Exceptions at 10 n.25 (citing Order entered March 21, 1957 regarding Laurel Pipeline Company, which was authorized to operate a petroleum products pipeline under The Corporation Act of 1874, April 29, P.L. 73, § 1, as supplemented by the Act of June 2, 1883, P.L. 61, as amended, 15 P.S. § 2153); Laser Exceptions at 10 n. 24 (citing Apptication of National Transit which involved a CPC issued in 1915).

15

view is mistaken, the Commission need look no further than the application filed by Peregrine

Keystone Gas Pipeline, LLC ("Peregrine") at Docket No. A-2010-2200201, which requests a

CPC for Peregrine to construct a gathering system in a proposed service territory covering

Greene and Fayette Counties,' as well as East Bethlehem Township in Washington County.6 This

service territory directly overlays two competitive gathering systems owned and operated by

MarkWest and Laurel Mountain Midstream, LLC ("LMM"), both of which intervened in this

proceeding and oppose the Application and Settlement. While Peregrine proposes to offer

service on a non-exclusive basis, its Application explains that non-exclusive means that "the

Commission may issue certificates to other qualified applicants to provide gathering and

transportation services in these counties or municipalities." Application U 6.

As a result, the granting of Peregrine's Application could prevent MarkWest and L M M

from lawfully serving their existing gathering customers and from expanding their gathering

systems or constructing new gathering systems in the area unless and until they have obtained

their own CPCs from the Commission. This could force MarkWest and L M M to submit to being

regulated with respect to rates and service in the manner of a public utility.7

Futhermore, while an applicant such as Laser can request a non-exclusive territory,

whether the Commission grants an exclusive territory is beyond any applicant's control. The

ALJ correctly explained this to the parties at the April 28, 2010 prehearing conference in this

6 The Commission's regulations provide for the incorporation of records from other proceedings and the official and judicial notice of facts. 52 Pa. Code §§ 5.407, 5.408. 7 For the same reason, Laser's argument in its first Exception that the "opposing pipelines" have no standing to oppose the Joint Settlement is incorrect. Laser Exceptions at 1 n.2. It cannot be seriously questioned that the Joint Settlement has precedential value, in that if it is approved for one certificated midstream gatherer, parties to future certification proceedings can and will seek to have the Commission impose similar conditions. Thus, Laser's claim that it alone must live with the terms does not preclude other pipelines from opposing the illegality of the Settlement terms. If this were the prevailing law, very few non-unanimous settlements to which an applicant or petitioner was a party could ever be opposed.

16

matter. N.T. at 11. This fhrther calls into question whether the differing business models

suggested by Laser can co-exist.

In addition, Laser argues that the "different circumstances" of "pipeline intervenors"

(presumably MarkWest and L M M ) are no basis to deny Laser's claims of public utility status.

Laser Exceptions at 7. Laser is referring to discovery responses by MarkWest and L M M that

they are not providing service "to the public" but are selecting customers will provide gathering

service only to a shipper it has selected and with which it has an individually negotiated contract.

Laser Exceptions at 6 n. 17. According to Laser, it is different than other gatherers because it is

"open and willing to serve any member of the subset or limited portion of the public that may

desire its services under terms and conditions of service," including maximum charges set forth

in a tariff and tailored contracts negotiated with each customer. Laser Exceptions at 6 n. 18. A

review of the record evidence, however, demonstrates that Laser's operations are not materially

different from those of any other gatherer serving third parties. A l l gatherers compete for

customers the same way, and gathering operations and functionality are similar. The only real

difference is Laser's demand to be recognized as a "public utility."

F. The Commission Needs Legislative Authorization to Implement Light-Handed Regulation for Natural Gas Gathering Lines.

In its Third Exception, Laser mistakenly maintains that there is legal precedent for light-

handed regulation. Laser Exceptions at 26-27. For the reasons explained in its briefs,

MarkWest submits that Pennsylvania lacks the necessary statutory authority for light-handed

8 Light-handed regulation, as proposed by Laser in its application and testimony, includes: (I) negotiated rates like natural gas transportation with maximum rate or LDC gas alternate/competitive energy tariffs; (2) no affiliated interest or security certificate filings; (3) reasonably expedited Section 1102 proceedings for commencement, transfer or abandonment; safety regulation applies including any new amendments to the Statute or any new law; complaint forum remains effective; and (4) streamlined annual reporting to be developed. See Settlement |36.

17

regulation of natural gas gatherers. See MarkWest M B at 19-21; MarkWest RB at 12-14. Light-

handed regulation is very different than the Commission's normal discretion under Section 1301

of the Code, 66 Pa.C.S. § 1301, to determine just and reasonable rates, as Laser incorrectly

suggests. The Commission's powers must arise from the express language of the Code or by

strong and necessary implication therefrom. See Feingold v. Bell, 417 Pa. 1, 383 A.2d 791

(1977). The necessary statutory basis for light-handed regulation is absent here.

Without the type of statutory directives present in the context of natural gas suppliers,

electric generation suppliers, competitive telecommunications providers, or even natural gas

gatherers in Texas,9 the same discretion Laser is depending on the Commission to exercise to

implement light-handed regulation without a statutory directive can later be exercised to

implement heavy-handed regulation. MarkWest questions whether Laser's interpretation of

Chairman Cawley's remarks at the April 22, 2010 en banc hearing, see Laser Exceptions at 26

n.63, confuse the Chairman's "desire" for legislative authorization of some form of light-handed

regulation with a legal opinion on the "legality" of such light-handed regulation in absence of

legislative authority.

G. Natural Gas Gatherers Can Develop Infrastructure Without The Power of Eminent Domain.

As discussed above, in its Fourth Exception Laser mischaracterizes the R.D.'s rationale

for finding that Laser is not proposing to provide service "to or for the public," by arguing that

this determination was inappropriately based on the ALJ's concerns about eminent domain.

Laser Exceptions at 27-30. Putting aside this mischaracterization of the R.D.'s actual rationale.

9 Laser's notion of light-handed regulation resembles the regulatory construct found in Texas. In Texas, however, light-handed regulation is a creature of statute, not a creation of the Railroad Commission. See Tex. Utilities Code § 104.003.

Laser's argument that eminent domain has no place in the R.D.'s analysis expressly contradicts

its first Exception, where Laser argues that the public utility power of eminent domain is in the

public's best interest, and therefore is a reason to grant Laser public utility status:

Laser's Application for certification as a public utility, and the Joint Settlement joined by diverse parties, balance the need for swift infrastructure deployment with important environmental and landowner protections and benefits. Specifically, the Joint Settlement provides for appropriate and balanced use of eminent domain as a last resort; and safety, construction, materials and operational practices in excess of regulatory minimums, while ensuring that Laser can develop its gathering pipeline infrastructure "safely and swiftly."

Laser Exceptions at 2 (footnotes omitted). This mistaken view of the importance of eminent

domain is corroborated by Laser's own testimony: "[t]here is a need to get the natural gas from

the well to the market and absent eminent domain that may not happen."10 Laser St. 3-R at 4; see

also Laser St. 1-A at 17 ("certain other powers are necessary to enable gatherers to function and

promote Marcellus Shale gas benefits to the public, such as eminent domain . . . ."). Since

Laser's First Exception asserts that eminent domain is an important consideration in the case, and

requires certification as a matter of "good policy," Laser cannot reasonably fault the R.D. for

discussing it, especially considering the impact it can have upon a landowner's rights.

Furthermore, eminent domain and other public utility powers are not necessary for the

development of natural gas gathering systems or the Marcellus Shale. The very existence of

MarkWest's and LMM's natural gas gathering systems in Pennsylvania rebut this argument.

MarkWest and L M M have developed substantial and vibrant midstream systems in Southwestern

Pennsylvania, and they did it by working with landowners at arm's length. See, e.g., L M M St. 1

10 The desire for eminent domain also answers the question of why Laser would continue to pursue being subject to the full panoply of public utility regulation, when most companies would be relieved to have an R.D. finding they are not a public utility.

19

at 8. The R.D. observes correctly that development of the Marcellus Shale is proceeding just

fine without eminent domain:

And, development of the Marcellus Shale is proceeding apace, without the ability to exercise eminent domain. The warnings of the gathering companies that landowner reluctance to grant easements and that this somehow justifies the use of eminent domain, is without support in the record.

R.D. at 77. Indeed, Laser presented no evidence that the natural gas resources cannot be

adequately developed without the use of eminent domain, or that it is "good policy" to grant

gatherers a right unnecessary to the development of the Marcellus Shale that only serves to dilute

landowner rights.

H. The Joint Petitioners Have Cited No Applicable Legal Authority for Approving Their Non-Unanimous Settlement.

In its Fifth Exception, Laser challenges the R.D.'s recommendation that the non-

unanimous Settlement be disapproved.11 Exceptions at 7-8, 30-40. The other parties that signed

the Settlement — with the exception of Mr. Fischer — challenge the R.D.'s disapproval of the

Settlement as well . 1 2 As explained above, however, once the R.D. determined that Laser is not a

public utility under Pennsylvania law, it was not even necessary for the R.D. to consider the

Settlement. The Settlement cannot confer jurisdiction on the Commission over Laser's natural

gas gathering service to third party producers.

In addition, the Settlement asks the Commission to regulate and/or enforce noise and

environmental provisions. As MarkWest explained in its briefs, local municipalities have

" The Commission should reject Laser's attack on the very formatting of the R.D., including the alleged failure to summarize the benefits of the Settlement. E.g., Laser Exceptions at 7. Laser cannot point to any Code section or Commission regulation that requires the R.D. have a particular format Further, the R.D. spends ample time addressing the purported benefits of the Settlement, especially given the R.D.'s previous finding that Laser is not a "public utility," in which case it was unnecessary for the R.D. to address the Settlement any more than it did. 1 2 See OTS Exception Nos. 3, 4 and 5; Ms. Scroggins Exceptions Nos. 2, 3, 4 and 5; Silver Lake Exception No. 1.

20

jurisdiction to regulate noise, and the Commonwealth's Department of Environmental Protection

is charged by the State with preserving environmental quality. See MarkWest MB at 21-25;

MarkWest RB at 15-16. These areas are beyond the Commission's jurisdiction and properly

entrusted to other entities by statute. Laser argues that the R.D. should be reversed because the

Commission has approved conditions voluntarily in the context of utility merger and acquisition

proceedings. See Laser Exceptions at 34-35 nn.76-78. However, utility merger and acquisition

proceedings are decided under a completely different "net public benefits" standard, and have no

application to the instant certification proceeding. Further, Laser has not cited any case in which

the Commission exercised any authority of how and when a public utility exercised its power of

eminent domain after the Commission has granted a CPC. In this case, Laser is asking the

Commission to impose, via the Settlement, an obligation on Laser to determine if the exercise of

eminent domain is a "last resort." Laser Exceptions at 36. Because such authority does not arise

from the express language of the Code or by strong and necessary implication therefrom, see

Feingold v. Bell, 477 Pa. 1, 383 A.2d 791 (1977), placing such added responsibility on the

Commission is unlawful.'3

Laser also takes exception to the R.D.'s finding that the Commission lacks jurisdiction to

enforce various terms of the settlement, and submits that, to the extent a settlement term involves

the jurisdiction of another agency or a court, the Commission could refer an issue to the agency

or court with primary jurisdiction, using a proposed process loosely based on Elkin v. Bell

Telephone Co. of Pa., 491 Pa. 123, 420 A.2d 371 (1980). However, the referral process

developed in Elkin in the context of a civil complaint seeking damages, and the civil court's

attempt to recognize that the underlying service issue was within the exclusive jurisdiction of the

13 The R.D. quotes portions of Laser's own written testimony that illustrate Laser's own belief that the settlement conditions are outside the Commission's jurisdiction. See R.D. at 72 (quoting Laser St. 5-R at 2), 76 (quoting Laser St. 3-R at 5).

21

Commission, which lacks the power to awarded money damages. This is a very different

scenario and process than what Laser has presented, and provides absolutely no legal authority

for Laser's recommended approach.

HI. CONCLUSION

For the reasons stated above, MarkWest Liberty Midstream & Resources, LLC

respectfully requests that the Commission deny the Exceptions and adopt the Initial Decision of

Administrative Law Judge Susan D. Colwell without modification.

Respectfully submitted,

BUCHANAN INGERSOLL & ROONEY, P.C.

Dated: February 7, 2011

Brian J. Knipe, ID Npf82854 17 North Second Street, 15th Floor Hamsburg, PA 17101-1503 Telephone: (717)237-4800 Facsimile: (717) 233-0852 brian.knipefatbipc.com

Attorneys for MarkWest Liberty Midstream & Resources, LLC

22

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

Application of Laser Northeast Gathering Company, LLC for Approval to Begin to Offer, Render, Furnish, or Supply Natural Gas Gathering and Transporting or Conveying Service by Pipeline to the Public in Certain Townships of Susquehanna County, Pennsylvania

Docket No. A-2010-2153371

CERTIFICATE OF SERVICE

I hereby certify that I have this day served a true copy of the foregoing document upon the

parties, listed below, in accordance with the requirements of § 1.54 (relating to service by a

party).

VIA E-MAIL & FIRST-CLASS U.S. MAIL

Daniel P. Delaney, Esquire George A. Bibikos, Esquire K&L Gates, LLP 17 North Second Street, 18th Floor Harrisburg, PA 17101 dan.delanevfgtklgates.com george.bibikosfgi.klgates.com

Todd S. Stewart, Esquire Hawke McKeon & Sniscak LLP 100 North Tenth Street Harrisburg, PA 17105 tsstewart@hmslegal.com

John H. Isom, Esquire Andrew S. Tubbs, Esquire Post & Schell 17 North Second Street, 12th Floor Harrisburg, PA 17101-1601 jisomfgipostschell.com

Johnnie E. Simms, Esquire Adeolu Bakare, Esquire Office of Trial Staff PA Public Utility Commission P.O. Box 3265 Harrisburg, PA 17105-3265 isimms@state.pa.us abakare@state.pa.us

Michael D. Fiorentino, Esquire 42 East Second Street Media, PA 19063 mdfiorentino(g),gmail.com

William C. Fischer c/o Silver Lake Association 20159 State Route 167 Brackeny, PA 18812 billf5),fischerbureau.com

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Elizabeth U. Witmer, Esquire Audrey J. Daly, Esquire Saul Ewing, LLP 1200 Liberty Drive, Suite 200 Wayne, PA 19087 ewitmerffisaul. com adaly@,saul.com

Deborah Goldberg, Esquire Megan Klein, Esquire Earthjustice 156 William St., Suite 800 New York, NY 10038 dgoldberg@,earthi ustice.org mkleinfglearthiustice.org

Daniel Clearfield, Esquire Kevin J. Moody, Esquire Eckert, Seamans, Cherin & Mellott, LLC 213 Market Street - 8th Floor Harrisburg, PA 17101 kmoodvfgte ckertseamans.com dclearfield(5),eckertseamans.com

Thomas J. Sniscak, Esquire William E. Lehman, Esquire Hawke McKeon & Sniscak LLP 100 North Tenth Street Harrisburg, PA 17105 tisniscak@tunslegal.com welehman@hmslegal.com

Scott J. Rubin 333 Oak Lane Bloomsburg, PA 17815-2036 scott.i.rubin@gmail.com

Brian J. Clark, Esquire Buchanan, Ingersoll and Rooney, PC 213 Market Street, 3rd Floor Harrisburg, PA 17101-2121 brian.clark@bipc.com

James A. Mullins, Esquire Office of Consumer Advocate 5th Floor, Forum Place Bldg. 555 Walnut Street Harrisburg, PA 17101-1921 imullinsfgtpaoca.org

Date: February 7, 2011 Brian J. Knipe£/Esquire