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Six Tennessee Contracts Get FERC Okay Again

Six Tennessee Contracts Get FERC Okay Again

FERC has upheld an order approving Tennessee Gas Pipeline's new transportation service agreements with six shippers, casting aside producer arguments that the contracts included negotiated terms and conditions and raised right-of-first-refusal (ROFR) issues.

Indicated Shippers, which represent major producers, argued the contracts included "partial rate zone turnback provisions" that were negotiated terms and conditions not offered to other firm shippers on Tennessee's system. Moreover, the producer group insisted such provisions will frustrate the underlying purpose of the ROFR regulations, as well as will amount to an invalid exercise of the shippers' ROFR.

FERC initially approved the contracts in early October, but gave Indicated Shippers and other parties a second chance to comment on the agreements after they had a chance to review information that previously wasn't available. Nevertheless, the Commission majority again accepted the Tennessee contracts without condition. "Indicated Shippers have raised nothing in their protest to warrant any change in our action," the order said [RP96-312-018]. Commissioners William Massey and Linda Breathitt dissented on the negotiated-rate issue, as they did in the original order.

In all six agreements, firm shippers had exercised rights to extend their contracts under a unique tariff provision that stemmed from a 1997 settlement between Tennessee and existing long-term firm shippers. "Thus, since the extensions are pursuant to negotiated contract term extension agreements, the.....contract extensions [at issue] are not subject to the Commission's ROFR regulations," the order noted. "Therefore, Indicated Shippers' argument that the contracts raise ROFR issues.....[is] without merit."

Nor did the contracts provisions deviate from Tennessee's tariff or constitute a shift in Commission policy by allowing pipes to negotiate terms and conditions of service, as Indicated Shippers had claimed, the order said. Rather, they were "mere contract extensions," it noted. "The parties to contracts may negotiate changes in points, volumes, rates and the term of the contract and, unless operating conditions are changed (which is not the case here), such changes are not considered changes in service." Specifically, the changes in primary points under the contracts at issue "are not precluded by any Commission policy on negotiated rates; nor are they barred by anything in Tennessee's tariff." Susan Parker

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