(a) Definitions. The following words and terms, when used in this section and in §3.31 of this title (relating to Gas Reservoirs and Gas Well Allowable) (Statewide Rule 31) shall have the following meanings, unless the context clearly indicates otherwise.
  (1) Affiliate--A person or entity that owns, is owned by, or is under common ownership with another person or entity to the extent of 50% or more or that otherwise controls or is controlled by another person or entity. Affiliates of a common entity are also affiliates of each other. A person or entity that purchases gas solely for purposes other than resale shall not be considered an affiliate, and an interstate pipeline, as defined in the Natural Gas Policy Act of 1978, §2(15) (15 United States Code §3301 et seq.), shall not be considered an affiliate of an intrastate pipeline.
  (2) Commission designee--A Railroad Commission employee authorized to act for the commission. Any authority given to a commission designee is also retained by the commission. Any action taken by the commission designee is subject to review by the commission.
  (3) Downstream purchaser--One that purchases natural gas for resale and is not a first purchaser.
  (4) First purchaser or initial purchaser--The first purchaser of natural gas produced from a well. A first purchaser and any affiliate of the purchaser that transports any natural gas it purchases from a well by use of the same pipeline system used by the first purchaser of which it is an affiliate shall be treated as a single first purchaser for purposes of ratability requirements; provided, however, that an affiliate that is purchasing and accepting deliveries pursuant to a special marketing program that is in compliance with this section, shall be treated as a separate first purchaser; and, provided further that the designation of such affiliate as a separate first purchaser is reviewable by the commission and may be disallowed upon a showing that the designation was for purposes of circumventing this section. Any affiliate may file forms in its own name.
  (5) Pipeline system--A network of physically connected pipelines that are operated as a single unit under normal conditions.
    (A) A first purchaser's pipeline system is that portion of a physical segment of a pipeline that the first purchaser owns.
    (B) If a first purchaser does not own the pipeline it uses to transport its gas, the first purchaser's pipeline system shall include all the wells from which it purchases that are on the pipeline system of the transport pipeline.
    (C) A first purchaser may not segregate its purchases from any one field into two or more pipeline systems by transporting on another pipeline gas that it purchases as a first purchaser if the first purchaser is also purchasing as a first purchaser from the same field and transporting on a pipeline that it owns.
    (D) A first purchaser may not segregate its purchases from any one field into two or more pipeline systems by executing gas exchange agreements.
    (E) Any of a first purchaser's pipeline systems which serve a common customer or common customers in a common geographic location shall be operated in a manner to avoid unjust or unreasonable discrimination in takes as between those systems.
    (F) A first purchaser shall not segregate its physically connected pipelines that are capable of being operated as a single unit under normal conditions into two or more pipeline systems or designate a gathering system as a separate system for purposes of circumventing this section.
  (6) Prorated gas field--A reservoir or field in which an allocation formula is in effect.
(b) General provisions. This section is promulgated to promote and maintain ratable production of natural gas and to require production in compliance with priority categories established by the commission for the purposes of preventing waste, including production in excess of market demand, protecting correlative rights, preventing discrimination, and conserving the natural resources of this state. An operator shall not produce in excess of its ratable share of the market demand as determined by this section and §3.28 and §3.31 of this title (relating to Potential and Deliverability of Gas Wells To Be Ascertained and Reported, and Gas Reservoirs and Gas Well Allowable) (Statewide Rules 28 and 31). An operator shall produce ratably as set out in subsection (e) of this section and shall produce in compliance with subsection (i) of this section which establishes priority categories of natural gas. Because production is dictated by pipeline capacity and market demand, pipelines are an integral part of production regulation. The requirements imposed on pipelines by this section and §3.28 and §3.31 of this title (relating to Potential and Deliverability of Gas Wells To Be Ascertained and Reported, and Gas Reservoirs and Gas Well Allowable) (Statewide Rules 28 and 31) are enforced to assist in the regulation of production and provide the only method by which such production regulation can be enforced and market demand met as required by statutory law. A first purchaser shall not discriminate between different wells from which it purchases in the same field, nor shall it discriminate unjustly or unreasonably between separate fields. The provisions of this section requiring ratable production and purchasing of gas apply to purchase and production from wells from which a first purchaser is purchasing on its pipeline system.
(c) Designation of pipeline system. A first purchaser shall, on or before a date designated by the commission or a commission designee, designate its pipeline system(s) and shall identify its affiliates that use the same pipeline system, including an affiliate operating a special marketing program that is in compliance with subsection (k) of this section. A pipeline system designation must identify the physical segment of pipeline that constitutes the pipeline system and identify by Railroad Commission of Texas lease and/or identification number and field the wells on that pipeline system from which the first purchaser is purchasing. A change in pipeline system designation is not required to add or delete well connections. The designation of a pipeline system cannot be changed by a first purchaser without prior approval by the commission or a commission designee. Approval of a change in pipeline system designation cannot be given without prior notice of the requested designation given by the first purchaser to affected operators of wells on the system(s) for which a change in designation is sought. A hearing to determine the proper designation of a first purchaser's pipeline system may be called by the commission, or may be requested by a first purchaser or by an operator filing a complaint. The burden of proof in the hearing shall be on the first purchaser.
(d) Operators who use produced gas. Any person who purchases natural gas at the wellhead, at a common point within a field or fields or at the outlet of a processing or treating plant must determine if it is the initial purchaser.
(e) Production guidelines. An operator shall produce without discrimination between its wells in the same field on the same first purchaser's pipeline system and without unjust or unreasonable discrimination between its wells in separate fields on the same first purchaser's pipeline system. An operator shall apportion a first purchaser's delivery requests ratably to its wells in each field on the same first purchaser's pipeline system without discrimination in the same manner as provided in this section and §3.28 and §3.31 of this title (relating to Potential and Deliverability of Gas Wells To Be Ascertained and Reported, and Gas Reservoirs and Gas Well Allowable) (Statewide Rules 28 and 31) and shall not produce in excess of its ratable share of the market demand as its share is determined by those rules. An operator shall produce in compliance with the priority categories of gas production established by the commission in subsection (i) of this section.
(f) Purchases from different fields.
  (1) In making purchases and accepting deliveries between fields, a first purchaser of natural gas that purchases and accepts delivery of gas from more than one field on its same pipeline system must accept from each field a consistent percentage of the portion of the aggregate deliverability as determined by the deliverability tests and total gas limits that it is entitled to purchase from all wells from which it purchases on its pipeline system, unless the purchaser can demonstrate a just and reasonable basis for discriminating between fields.
  (2) Natural gas purchases from a well by a first purchaser that uses another first purchaser's pipeline system to transport its gas and sells the gas purchased on that pipeline system solely to the first purchaser that owns the transport pipeline must be treated as first purchases of gas by the first purchaser that owns the transport pipeline.
(g) Purchases within a field.
Cont'd...