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Cove Point's Plea for OFO Authority on LNG 'Rejected Outright'

FERC has "rejected outright" Dominion Cove Point LNG LP's (DCP) interpretation of its existing tariff and proposed tariff revisions that would permit it to issue an operational flow order (OFO) requiring shippers to deliver liquefied natural gas (LNG) by tanker to its import terminal to keep the cryogenic portion of the terminal cooled.

However, the Federal Energy Regulatory Commission said its rejection was "without prejudice to a future [limited Section 4] filing proposing to amend Cove Point's authority to recover [the] operational costs" from its customers of LNG purchases that are necessary to maintain the cryogenic facilities of its Maryland terminal [RP11-2136]. The agency suspended DCP's tariff revisions for the maximum five months to take effect on Nov. 26. DCP had asked the Commission for an effective date of June 26.

Regular arrival of cargoes -- approximately one every four months -- is critical because the cryogenic facilities at the Cove Point terminal must remain cooled to a temperature of approximately minus 260 degrees Fahrenheit in order to be fully operational and able to receive LNG imports, the company said. However, DCP, a subsidiary of Richmond, VA-based Dominion Resources, has not received a cargo since February (see Daily GPI, June 1).

Earlier this month major customers of DCP protested the company's proposed tariff changes. They contend that DCP's proposal would back out cheaper gas from the United States and potentially disrupt the domestic gas market. Industrial gas customers suggested that the long-term solution may be to once again deactivate the Cove Point LNG terminal in Lusby, MD (see Daily GPI, June 14).

The decline in usage of the Cove Point LNG terminal and related facilities is largely driven by the development of the Marcellus and other shale gas, and the wide disparity in the price of LNG between the United States and other world markets, the company told FERC. These factors have led to a plentiful and inexpensive supply of natural gas in the U.S., and higher demand and prices for LNG elsewhere in the world.

DCP had asked the Commission to clarify that its existing tariff allowed it to issue an OFO ordering the terminal customers to deliver LNG shipments to maintain its cryogenic status, but the agency pointed out that "Cove Point's current tariff language authorizes it to compel tenders [sales] of 'gas,' but not LNG."

Moreover, "requiring an LNG importer to deliver a tanker cargo of imported LNG to Cove Point's terminal involves significantly different considerations than issuing an OFO to flow domestic natural gas on portions of Cove Point's pipeline or to deliver domestic natural gas for liquefaction and storage in Cove Point's storage facilities...Accordingly, Cove Point's currently effective [tariff language] does not give it OFO authority to compel tenders of LNG cargo," the FERC order said.

In the event FERC ruled that DCP does not have OFO authority over the customers served by its import terminal, the company proposed that its tariff be revised to give it such authority. The Commission said Cove Point's tariff proposal was not just and reasonable. But it noted that Cove Point's existing tariff permits it to make operational purchases of LNG as necessary to ensure that the cryogenic facilities at its terminal are cooled to temperatures required for the terminal to be fully operational and able to receive LNG imports.

"Cove Point may make a limited Section 4 filing to revise its tariff to include a mechanism to recover the costs of such purchases from the LNG importers served by those facilities," the order said.

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