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Tennessee Replacement Shippers Fight Against Second-Class Status

Tennessee Replacement Shippers Fight Against Second-Class Status

Tennessee Gas Pipeline has come under fire at FERC for a proposed tariff filing that would allow the pipe to terminate a replacement shipper's capacity contract if the original shipper who released the capacity was found to be a credit risk and its contract dissolved. Tennessee could then subject the replacement shipper's capacity to open-season bidding by other potential shippers.

The tariff proposal would provide a replacement shipper the option of entering into a new contract under a pre-arranged transaction, which "would then be subject to bids by other potential shippers, forcing the replacement shipper to match a higher bid or longer term in order to maintain its pre-existing released capacity," said Calpine Energy Services LP.

Both Calpine Energy and the Rhode Island State Energy Statutory Trust called on the Commission to reject Tennessee's proposal, saying it flouted agency precedent that was outlined in a 2002 complaint decision involving Tenaska Marketing Ventures and Northern Border Pipeline. In that ruling, FERC said the termination of a releasing shipper's contract did not automatically terminate the service agreement between the releasing shipper and the pipeline, according to Calpine Energy.

"This reasoning cannot now be ignored by Tennessee so as to treat a capacity-release shipper's rights as something less than any other shipper," Calpine Energy told the agency [RP04-138]. "The capacity held by the replacement shipper is not 'generally available' capacity or capacity soon to be available after expiration of a contract."

It "should not be offered under an open season process as if it was unutilized capacity or vacant as a result of an expiring contract...The fact that the releasing shipper's contract has been terminated at the pipeline's choosing does not suddenly provide Tennessee the unilateral right to terminate the existing replacement shipper's contract.

The Rhode Island trust, which owns a 535 MW gas-fired power plant in the state, said Tennessee's tariff proposal would undermine the Commission's goal in Order 637 to establish a strong secondary market. Shippers seeking to buy released capacity would "run the risk that the capacity will be pulled from them at any time."

If FERC should approve Tennessee's tariff proposal, "it is likely certain shippers will shy away from doing release deals," causing "liquidity and any competition for the pipeline's services [to] suffer," it noted.

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