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FERC Makes Minor Changes to Order 637

FERC Makes Minor Changes to Order 637

FERC reaffirmed most of its initial decisions in Order 637 on rehearing last week, making minor adjustments to the right-of-first-refusal (ROFR), penalty and posting provisions in the major natural gas rule. "...[O]n balance this is a solid, well-reasoned [rehearing] order that retains the character of the original order," said Commissioner William Massey.

With respect to ROFR, the Commission clarified that shippers with multi-year contracts for a seasonal-only service will retain ROFR protection, which gives a pipeline shipper with an expiring contract the opportunity to retain the capacity by matching a competing bid for a term of up to five years.

"I agree with petitioners that this modification is consistent with the purpose of the right-of-first-refusal protection, and that it will afford captive customers the contractual flexibility they need," noted Commissioner Linda Breathitt.

However, FERC denied rehearing on ROFR pricing, or its so-called roll-up policy. Under this policy, a pipeline that has completed a new expansion on which service will be priced incrementally can compel ROFR shippers to pay higher incremental rates when their existing contracts expire. "One of the primary arguments [favoring rehearing was] that this policy will result in large rate increases to captive customers at the end of their contracts," Breathitt said.

But "the policy we have established [in Order 637] contains protections for captive customers. The pipeline cannot charge a higher rate [to a ROFR shipper] unless its expansion is fully subscribed and there is another bid for capacity at a rate above the vintage maximum rate paid by the shipper," she noted.

"It is not expected that [this] pricing policy will result in frequent or large increases for captive customers since any rate increase will be limited to what another shipper is willing to pay for the service." Industrial gas customers also sought rehearing of FERC's decision not to extend ROFR protection to discount pipeline services, but their request was denied.

In response to comments from the Natural Gas Supply Association, Amoco Production and other shippers that "posting available [pipeline] capacity on a daily basis is not adequate. the order on rehearing will now require that this information be posted within one hour of close of the normal evening and intra-day nomination cycles," said Massey.

Specifically, the NGSA asked FERC to, at a minimum, require pipelines to post available design and scheduled capacity not only after the normal or "timely" cycle (11:30 a.m. on the day before flow day), but also after the 6 p.m. evening cycle and, where operationally feasible, after the two intra-day cycles.

"This [posting] change will enhance the ability of shippers to note the level of operationally available capacity in order to respond to nomination opportunities that may arise during the gas day," he noted. FERC also changed the time in which pipelines must file transactional reports, said Massey, adding that he regarded this to be an "unfortunate retreat" from Order 637.

The order "would alter the timing of the contemporaneous posting of transactional information from the time of contract execution to the time of the first nomination prior to gas flow. It may appear to be a small change to some, but it is one that I strongly preferred not to make."

Susan Parker

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