FERC has set for hearing a complaint in which two Rockies Express Pipeline (REX) shippers have accused Northern Natural Gas of restricting access to receipt point capacity at an interconnection between the REX and Northern Natural systems.

"The REX shippers have raised serious questions arising from Northern's open season for the additional capacity to be available through the new interconnection with [the] REX pipeline," said the order, which was issued by the Federal Energy Regulatory Commission (FERC) on Jan. 25 [RP08-29].

However, "the existing record in this proceeding is insufficient to allow the Commission to make a reasoned decision on any of the issues that have been raised, which include, but are not limited to, whether a backhaul [service] should be required for delivery at the new REX point, whether market center development would be inhibited by such requirements, and whether the posting violated Commission regulations and policy so as to be unjust and unreasonable," it noted.

For that reason, FERC has ordered a hearing to determine "whether Northern's actions in conducting an open season for the new capacity at the REX interconnection and in awarding the capacity to certain shippers were unjust, unreasonable or otherwise unlawful." The agency directed a FERC administrative law judge (ALJ) to convene a prehearing conference within 30 days, and to issue an initial decision within one year. FERC said the ALJ can recommend a remedy in his decision.

ALJ Carmen A. Cintron has been selected to preside over the proceeding. A prehearing conference has been scheduled for Feb. 6 at FERC headquarters.

Ultra Resources Inc. and Sempra Rockies LLC filed the complaint in late October, alleging that Northern Natural failed to properly post REX receipt point capacity on its electronic bulletin board and tied the availability of the capacity to a "phantom backhaul" service that would be priced at $0.3670/Dth (see NGI, Oct. 29, 2007).

The interconnect between REX and Northern Natural in Gage County, NE, will be a "substantial receipt point" on the Northern system, according to Ultra Resources and Sempra Rockies. Ultra holds 50,000 Dth/d and Sempra Rockies holds 5,830 Dth/d of primary firm delivery point capacity at the REX interconnect with Northern. Each has contracted for 200,000 Dth/d of firm capacity on REX.

Ultra Resources produces natural gas in southwestern Wyoming; Sempra Rockies is an affiliate of one of the owners of the nearly 1,700-mile REX pipeline system, Sempra Pipelines & Storage Corp.

Because of the "phantom" backhaul charge, they argue that REX shippers delivering natural gas to the Northern Natural system on REX will be at a competitive disadvantage compared to shippers transporting gas to Demarc through Northern Natural's field area facilities (they would not incur a backhaul charge). Demarc is an artificial line in Kansas between Northern Natural's less-constrained lower field area and more-constrained upper market area.

By its action, Northern Natural will prevent shippers in its market area from scheduling gas received at the REX receipt point for transportation to the downstream delivery points until after the gas has been transported in a phantom backhaul from the REX receipt point to Demarc, Ultra Resources and Sempra Rockies said.

"Northern is keeping other customers from being able to purchase this gas at a fair market price because Northern is going to extract from those people who have the firm receipt point capacity an added charge of 35 cents [per Dth] to do nothing, to take this gas nowhere," said William F. Demarest Jr., a Washington, DC-based attorney representing Ultra and Sempra Rockies.

The added fee "will cause the price that can be charged [for gas] to go up, and it makes our gas uncompetitive and unattractive to customers who really need it," he told NGI.

The issue is much bigger than Ultra and Sempra Rockies, Demarest said. "It's a much more important issue because it goes to the inability of all of those local distribution companies in the market area to use the capacity that they've been paying for all of these years to actually get access to cheaper gas supplies" from the Rocky Mountains, he noted.

"They're going to be boxed out. They're not going to get the cheaper gas because that gas is going to flow off to...pipelines" other than Northern Natural, Demarest said. He noted that Ultra and Sempra Rockies would like to be able to use their firm delivery point capacity at the REX-Northern interconnect, but "right now they're going to be effectively forced to take their gas to other pipelines where they don't have to [pay] an artificial charge imposed on their gas."

Northern Natural has disputed the allegations (see NGI, Nov. 19, 2007). It pointed out that most REX shippers were satisfied with the open season it held in the summer of 2007 for 200,000 Dth/d of service from the new REX receipt point to Northern Natural's Demarc area. The pipeline said it received bids for 630,000 Dth/d, far beyond the available capacity. As a result, it said that it allocated the 200,000 Dth/d of capacity on a pro rata basis to the seven maximum rate bids.

Northern Natural said Ultra/Sempra are now asking FERC to overturn the results of a valid open season in which the two shippers did not participate, the pipeline pointed out. They want FERC to order Northern Natural to conduct a new open season.

As for the claims that Northern tied receipt point capacity to a backhaul service, the pipeline called them "groundless and unsupportable." Northern said it "did not require use of any new service in order to purchase the available capacity. Northern merely followed its tariff in holding an open season for the newly available capacity from a receipt point to the only primary delivery point with enough capacity available."

Prior to the open season, Northern Natural said it made parties aware that its system was constrained through the Demarc North region (i.e., receipts at REX could not go north into the market area). As a result, incremental transportation service from the REX receipt point was available only to upstream (i.e., south of the REX receipt point) delivery points, it noted.

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