A federal appeals court in Washington, DC directed FERC to explain why it rejected a waiver of its right-of-first-refusal (ROFR) requirement for Gas Transmission Northwest Corp. (GTN) to enter into pre-arranged deals with shippers for available transportation service to start at a future date, yet granted ROFR waivers to other pipelines for similar capacity arrangements.
“We remand so that the Commission may give a rationale [for its 2003 order], if it has one,” the U.S. Court of Appeals for the District of Columbia Circuit said in a six-page decision issued Tuesday.
GTN, a subsidiary of bankrupt National Energy & Gas Transmission, challenged FERC’s denial of its request for a partial ROFR waiver to carry out its pre-arranged capacity program, saying the decision was inconsistent with orders in three other pipeline cases in which the agency awarded waivers of the ROFR requirement so that shippers could reserve service on future expansion projects.
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 would not be able to enter into pre-arranged deals with shippers to commit to future service.
The Federal Energy Regulatory Commission 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 noted that GTN had argued on rehearing before the Commission that a ROFR waiver would “help to ensure that future expansion projects are both necessary and properly sized.” Therefore, “the Commission’s principal answer fails to distinguish its own prior precedent,” the three-judge panel said.
“Unless the Commission can explain why the advantages of capacity reservation are superior to those of GTN’s pre-arranged deal program, or why the negative effects of ROFR waiver are more severe in the latter context,” the appeals court said FERC cannot argue that its decision was justified based on the intended objective of the agency’s ROFR requirement, which is to protect shippers from a pipeline’s exercise of market power.
“If on remand the Commission can adduce a compelling distinction between the two contexts, waiver denial may well be sustainable. If not, not,” the judges opined.
“Perhaps there are material differences between capacity reservation and GTN’s pre-arranged deal, so far as they affect the trade-offs between improving the chances of averting wasteful capacity construction and controlling the risks of injurious pipeline exercises of market power. But at this point the Commission has failed to identify them.”
The 1,350-mile, 2.59 Bcf/d GTN pipeline system extends from near Kingsgate, British Columbia, on the BC-Idaho border, to a point near Malin, OR, on the Oregon-California border. TransCanada Pipelines announced in February that it is seeking to buy the pipeline for an estimated US $1.7 billion, including $500 million of assumed debt (see Daily GPI, Feb. 26).
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