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
"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