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Tennessee's Scheduling Proposal Called Discriminatory

April 9, 2012
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Tennessee Gas Pipeline said it has proposed a higher scheduling priority for local distribution companies -- as opposed to producers and marketers -- because they have a "public service obligation to deliver gas to their customers and end-users."

Producers on Tennessee Gas Pipeline have filed protests to a tariff proposal that would elevate the scheduling priority for local distribution companies (LDCs) on the pipeline's system, saying that it would discriminate against both producers and marketers.

Tennessee's tariff proposal seeks to revise its secondary in-the-path scheduling priority for allocating firm transportation capacity on the pipeline. Firm transportation from primary receipt points to primary delivery points could continue to have the highest priority. However, service from secondary receipt points to primary delivery points (secondary-to-primary) would have scheduling priority over service from primary receipt points to secondary delivery points (primary-to-secondary) under the tariff proposal.

Chesapeake Energy Marketing Inc. (CEMI), a subsidiary of Oklahoma City-based Chesapeake Energy Corp., said it strongly opposed Tennessee's tariff revisions. "The proposal would discriminate against many producers and marketers, including CEMI, who have entered into significant contracts for firm capacity on Tennessee in order to reach markets and debottleneck parts of the Tennessee system. It would confer market power on secondary-to-primary shippers [primarily LDCs], at the cost of primary-to-secondary shippers," the marketer told the Federal Energy Regulatory Commission (FERC) [RP12-514].

Cabot Oil & Gas Corp. echoed the sentiment. The proposal is intended to "accommodate the interests of local distribution companies that are firm shippers on Tennessee's pipeline system at the expense of other firm shippers, such as producers, that hold firm transportation capacity on Tennessee." Tennessee said it gave a higher scheduling priority to LDCs because they have a "public service obligation to deliver gas to their customers and end-users."

Enbridge Marketing (U.S.) LP and the Independent Oil & Gas Association of West Virginia said it was "unduly discriminatory for Tennessee to arbitrarily distinguish firm transportation by a shipper moving gas from a primary receipt point to an in-path secondary delivery point from firm transportation by a shipper moving gas from an in-path secondary receipt point to a primary delivery point. The shippers are similarly situated. There is no rational means of justifying disparate treatment of these two in-path movements for purposes of scheduling in the event of a capacity constraint."

CEMI cited a number of reasons for objecting to the tariff proposal. "First...CEMI and other producers and marketers have been the anchor shippers for several capacity expansions and greenfield projects, including several filed by Tennessee. The world has changed since pipelines generally, and pipeline expansions in particular, were supported primarily by local distribution companies. The Commission's policies should not discriminate against producers and their affiliates [that] have contracted for firm capacity so that they can reach markets with natural gas production made possible by billions of dollars in investments and related transportation commitments," it said.

CEMI is a customer on Tennessee's Northeast Upgrade Project, which would provide about 636,000 Dth/d of capacity to ease further constraints on the west-east 300 Line in Pennsylvania. The project still is pending at FERC (see NGI, Nov. 7, 2011). Assuming it is approved, Tennessee has targeted an in-service date of November 2013.

Cabot has executed an agreement for firm transportation capacity on Tennessee's Northeast Supply Diversification (NSD) project, which would provide up to 250,000 Dth/d of incremental firm capacity from the Marcellus Shale region along its 300 Line system to serve existing markets in New England and the Niagara Falls area of New York. FERC approved the expansion last September. The pipeline has targeted the project to go into service in November.

Chesapeake also has signed up for capacity on Tennessee's MPP project, which would provide about 240,000 Dth/d of incremental firm capacity from the Marcellus Shale region along the existing 300 Line to serve established markets, including those in the Northeast. The project includes installing 7.9 miles of 30-inch diameter pipeline in Potter County, PA, and modifications and upgrades to four compressors in other counties. Tennessee has asked FERC to approve the expansion by 3Q2012 to ensure it also would be in service by November 2013.

Tennessee's tariff proposal would block market access by producers/marketers, which in turn could harm LDCs, CEMI said. "While Tennessee justifies the proposal as providing LDCs with additional security of supply and the ability to access additional supplies, it would in fact limit the ability of producers to move natural gas to the city-gates within the primary path for which they contracted. [And] this would limit the security of supply to LDCs [that] might turn to these producers and marketers for incremental or replacement supply."

Further, "by elevating the capacity rights of LDCs using secondary-to-primary over producers and marketers using primary-to-secondary, the proposal would provide LDCs and others with important economic leverage in negotiating contracts," CEMI said. "The Commission should not endorse or accept any proposal that subordinates the rights of one class of firm shippers to another class."

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