Distrigas of Massachusetts LLC (DOMAC), a major liquefied natural gas (LNG) terminal in the Northeast, has asked FERC for authorization to abandon its service provided under Section 7 of the Natural Gas Act and to cancel the company gas tariff, including all rate schedules.

By eliminating the tariff, DOMAC said it would be able to charge market-responsive prices for sales of vaporized liquefied natural gas (LNG), enabling it to more effectively compete with other gas suppliers in the Northeast market. As for liquid sales of LNG, it proposes to offer terms of service that are consistent with the relevant provisions in its existing tariff [CP08-49]. DOMAC has asked that the proposed changes take effect on April 1.

Approval of DOMAC's application would give it "comparative parity" with new LNG terminals and expansions that have been approved since the Federal Energy Regulatory Commission's (FERC) landmark Hackberry decision in 2002, as well as offshore LNG facilities that have been approved under the Deepwater Port Act and projects that are being developed in Canada to deliver regasified LNG to U.S. markets, the company said. In Hackberry, FERC held that new onshore LNG import terminals and facility expansions were not subject to open-access requirements and could offer market-based rates for terminal services (see NGI, Dec. 23, 2002). FERC's ruling was incorporated into the Energy Policy Act of 2005.

This has put DOMAC's LNG terminal in Everett, MA, which is operating under a 1988 tariff, at a disadvantage, the company said. "With the sole exception of DOMAC, sellers of imported natural gas downstream of LNG terminals are not subject to Commission regulation with respect to the price, terms and conditions of their sales and are capable of negotiating any transaction on mutually agreeable terms."

By contrast, "DOMAC must either adhere to the terms contained in its tariff and pro forma service agreements, or seek Commission approval for any transaction that varies from those terms. This puts DOMAC at a competitive disadvantage with respect to other sellers of natural gas," it noted.

DOMAC said it also is often overlooked by LNG suppliers because it is still regulated. "[LNG] suppliers naturally will seek the highest-priced markets. When faced with the choice between supplying a purchaser that is subject to price regulation, such as DOMAC (whose resales are subject to a price cap), and a purchaser that can charge market prices, the supplier will choose to supply LNG to the purchaser that can resell the LNG at the full market price."

Moreover, DOMAC said approval of the application would enable it to better manage sales of vaporized LNG imported into the facilities of affiliate Neptune LNG LLC, which is developing a deepwater LNG import facility off the coast of Massachusetts. The project, which would supply gas to the Northeast, was approved by the U.S. Maritimes Administration under the Deepwater Port Act nearly a year ago (see NGI, Feb. 5, 2007).

DOMAC said its request to cancel its tariff and charge market-based rates is partly due to the fact that Neptune will not be required to operate under a filed tariff. "The ability to sell natural gas imported into its [Everett] terminal without tariff restrictions will facilitate DOMAC's management of its expanded portfolio of imported LNG and permit the interchangeability of unregulated Neptune volumes with volumes available through the terminal," it noted.

The company stressed that its application, if granted, would not alter the Commission's oversight of the import terminal in Everett, nor would it lead to the interruption of LNG services with its existing customers. DOMAC said it would continue to provide service through the remaining term of the service agreements to all buyers who request it.

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