FERC on remand last Wednesday approved a tariff proposal for Gas Transmission Northwest Corp. (GTN) to enter into pre-arranged deals with shippers for available transportation service to start at a future date, and it granted the pipe’s request for a waiver of its right-of-first-refusal (ROFR) requirement so other shippers could use the capacity in the interim. But it wasn’t a clean sweep for GTN. FERC made significant changes.

The Commission took this action after the U.S Court of Appeals for the District of Columbia in April directed the agency to explain why it denied GTN a waiver of its ROFR so it could enter into pre-arranged deals, yet granted ROFR waivers to other natural gas pipelines for similar capacity arrangements. GTN, a Pacific Northwest pipeline formerly named Pacific Gas Transmission, is owned by National Energy & Gas Transmission, but is expected to be purchased by TransCanada Corp.

Under ROFR, a pipeline shipper whose capacity contract is set to expire can retain the capacity if it can match a competitor’s bid up to a maximum rate and for a comparable term. Absent a waiver of this requirement, GTN’s ability to enter into pre-arranged deals with shippers to commit to future service would be short-circuited.

The Federal Energy Regulatory Commission had justified the disparate treatment in the cases by saying that GTN’s pre-arranged capacity deals were not intended to ensure that future expansions on the pipeline were better sized (unnecessary construction eliminated), while the capacity reservation programs of the other pipelines were designed to do just that. But the distinction eluded the court, which ordered the Commission to either produce a “compelling distinction” between the two types of cases or grant the waiver.

In an order on remand last Wednesday, FERC ruled it “will allow GTN to enter pre-arranged deals and sell capacity in the interim without a right-of-first-refusal” [RP02-362-006]. Under its proposal, GTN could enter into a pre-arranged deal for service to commence up to three years in the future. It also would not be required, until one year prior to the start date of a pre-arranged deal, to post a notice that the capacity associated with the pre-arranged deal would be subject to GTN’s open-season bidding process. And open bidding wouldn’t be required to begin until three months before the in-service date of the pre-arranged deal.

FERC took issue with the latter (posting and bidding) part of the proposal, and rejected it. “GTN’s agreement to [do] a pre-arranged deal with a particular shipper could lead to a withholding of capacity for sale on a long-term basis for a period of close to three years without there being any bidding process to allow other shippers to obtain the capacity on a long-term basis,” the order said.

“The pipeline must post the pre-arranged deal as soon as it is entered into to permit other parties an opportunity to bid for the capacity on a long-term basis with a right-of-first-refusal, rather than waiting until a later time, as under GTN’s proposal,” it noted.

“Any third party wishing to purchase the capacity, whether for service commencing immediately or in the future, could then participate in the open season…If a competing bid for service to commence immediately or in the future provides a higher net present value than the pre-arranged deal, the pipeline would give the pre-arranged shipper a one-time right to match the bid. Once future capacity is awarded, any interim long-term capacity would then be available without a right-of-first-refusal.”

This approach “ensures that the capacity is awarded to the party willing to pay the highest net present value for it,” and it “also prevents GTN from giving preferential treatment to a customer that wishes to enter a pre-arranged deal without first subjecting the deal to a bidding process,” the order said.

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