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FERC Debuts New Policy for Interconnecting to Pipes

FERC Debuts New Policy for Interconnecting to Pipes

FERC liked what it did with interconnections on the electric side so much that it figured why not try it out on natural gas. And that's exactly what the Commission did last week --- it issued a new policy for hooking up to the interstate gas pipeline grid.

By a unanimous vote, the Commission departed from its prior test under which a party (shipper, storage company, market center et al) seeking an interconnection had to show that it was "similarly situated" to other parties that previously were permitted to hook up to the pipeline. In its place, FERC adopted a new five-step test.

"By abandoning the old similarly situated test for a new interconnection policy, I think we take another step in maximizing the use of the interstate pipeline grid," said Chairman James J. Hoecker at last Wednesday's Commission meeting.

The FERC decision called the new policy a "sensible step" because it "supplements and enhances" the long-standing requirement that an open-access pipeline must provide transportation for any party seeking service at an existing interconnection when sufficient capacity is available on the pipeline's system.

In order to interconnect with a pipeline, the new policy requires: 1) a party seeking interconnection must be willing to bear the cost of construction if the pipeline performs the task. Or in the alternative, the party seeking interconnection could construct the facilities itself in compliance with the pipeline's technical requirements; 2) the proposed interconnection must not adversely affect pipeline operations; 3) it and any resulting transportation must not diminish service to existing customers; 4) it must not cause the pipeline to be in violation of any environmental or safety laws or regulations; and 5) it must not cause the pipeline to be in violation of its right-of-way agreements or any other contractual agreements.

The five steps were spelled out in an order involving Panhandle Eastern Pipe Line. The case was remanded by the U.S. Court of Appeals for the District of Columbia for FERC to provide further explanation as to why it departed from its accepted interconnection procedure in earlier orders [RP97-29]. In those orders, the Commission approved revisions to Panhandle's tariff, which in effect bound the pipeline to grant interconnections to parties meeting certain terms, regardless of whether they were similarly situated or not. The Commission last week stuck to its previous rulings in Panhandle based on the new policy, which it said will be applied to all future gas pipeline interconnection cases.

Commissioner William Massey believes the new policy will be a vast improvement over the "similarly situated" test. "In my opinion, [that] test led to the unfortunate result that pipelines were hesitant to provide hook-ups for fear to do so would open the floodgate for [more] hook-ups....."

The new policy prohibits a pipeline from denying a party an interconnection based solely on economic grounds, but it "acknowledges that economic issues could arise that the Commission might need to address," said Commissioner Linda Breathitt.

"For example, there may be instances in which shippers may be able to bypass part of a pipeline's system so that the pipeline recovers fewer costs from those customers than it would if [the] shippers were required to utilize existing connections. This order does not preclude consideration of economic arguments on a case-by-case basis where [pipelines] experiencing losses propose and can justify some kind of mitigation or remedy," she noted.

Hoecker agreed interstate pipelines would be able to "raise the issue of revenue losses," but he added this only would be "appropriate in extraordinary kinds of cases." Under no circumstance does the new policy permit pipes to charge interconnection or access fees, Massey said, adding they "could have the anti-competitive effect of deterring interconnections."

The order further calls for pipelines to develop "reasonable time frames" for pipelines to respond to parties' requests for interconnections.

Susan Parker

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