The Federal Energy Regulatory Commission Wednesday ordered two Duke Energy gas pipelines to revise the right-of-first-refusal (ROFR) provisions in their tariffs to give firm shippers paying maximum rates the opportunity to review third-party bids for capacity under expiring transportation contracts, even in cases where shippers signal an intention to terminate their contracts.

In the existing tariffs, firm shippers on Algonquin Gas Transmission and Texas Eastern Transmission Co. (Tetco) retain their right to invoke ROFR only when the pipelines alert them at least a year in advance that they intend to terminate a contract, but the shippers waive their rights under ROFR to match third-party bids when they alone elect to terminate their agreement (RP00-533, RP00-535).

With only the pipes able to trigger the ROFR process, Algonquin and Tetco shippers essentially have been denied the chance to review competitive capacity bids that are accepted by the pipelines, before deciding whether to renew or terminate their contracts for all or part of the capacity, a FERC staff member said.

FERC’s action provides a “fail safe” to Algonquin and Tetco shippers, even those planning to terminate their contracts, to see what third parties are bidding for their capacity and, if they choose, to match the bids, a spokesman for the agency noted.

The draft order said the Tetco and Algonquin ROFR provisions were at odds with Commission regulations, which require all long-term firm shippers who are paying maximum rates to be given ROFR rights whenever their contracts expire and regardless of who gives notification of a contract termination.

The Commission’s action comes only a few weeks after the agency voted to eliminate the contract term limit for incumbent pipeline shippers who exercise their rights under ROFR to retain capacity under transportation contracts that are set to expire (See Daily GPI, Oct. 31). The decision was a blow to existing pipeline shippers, who believed FERC’s requirement of a five-year term matching cap under ROFR thwarted potential abuses.

Under the Commission’s ROFR rules, an existing pipe shipper whose contract was set to expire had to match a competitor’s bid up to a pipeline’s maximum rate, but only for a term of up to five years in order to keep his capacity. But with FERC’s decision in late October to remove the five-year term cap, an existing shipper now seeking to renew his expiring contract has to match the term in a third-party bid, regardless of the length.

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