FERC Makes Minor Changes to Order 637
FERC reaffirmed most of its initial decisions in Order 637 on
rehearing last week, making minor adjustments to the
right-of-first-refusal (ROFR), penalty and posting provisions in
the major natural gas rule. "...[O]n balance this is a solid,
well-reasoned [rehearing] order that retains the character of the
original order," said Commissioner William Massey.
With respect to ROFR, the Commission clarified that shippers
with multi-year contracts for a seasonal-only service will retain
ROFR protection, which gives a pipeline shipper with an expiring
contract the opportunity to retain the capacity by matching a
competing bid for a term of up to five years.
"I agree with petitioners that this modification is consistent
with the purpose of the right-of-first-refusal protection, and that
it will afford captive customers the contractual flexibility they
need," noted Commissioner Linda Breathitt.
However, FERC denied rehearing on ROFR pricing, or its so-called
roll-up policy. Under this policy, a pipeline that has completed a
new expansion on which service will be priced incrementally can
compel ROFR shippers to pay higher incremental rates when their
existing contracts expire. "One of the primary arguments [favoring
rehearing was] that this policy will result in large rate increases
to captive customers at the end of their contracts," Breathitt
But "the policy we have established [in Order 637] contains
protections for captive customers. The pipeline cannot charge a
higher rate [to a ROFR shipper] unless its expansion is fully
subscribed and there is another bid for capacity at a rate above
the vintage maximum rate paid by the shipper," she noted.
"It is not expected that [this] pricing policy will result in
frequent or large increases for captive customers since any rate
increase will be limited to what another shipper is willing to pay
for the service." Industrial gas customers also sought rehearing of
FERC's decision not to extend ROFR protection to discount pipeline
services, but their request was denied.
In response to comments from the Natural Gas Supply Association,
Amoco Production and other shippers that "posting available
[pipeline] capacity on a daily basis is not adequate. the order on
rehearing will now require that this information be posted within
one hour of close of the normal evening and intra-day nomination
cycles," said Massey.
Specifically, the NGSA asked FERC to, at a minimum, require
pipelines to post available design and scheduled capacity not only
after the normal or "timely" cycle (11:30 a.m. on the day before
flow day), but also after the 6 p.m. evening cycle and, where
operationally feasible, after the two intra-day cycles.
"This [posting] change will enhance the ability of shippers to
note the level of operationally available capacity in order to
respond to nomination opportunities that may arise during the gas
day," he noted. FERC also changed the time in which pipelines must
file transactional reports, said Massey, adding that he regarded
this to be an "unfortunate retreat" from Order 637.
The order "would alter the timing of the contemporaneous posting
of transactional information from the time of contract execution to
the time of the first nomination prior to gas flow. It may appear
to be a small change to some, but it is one that I strongly
preferred not to make."