FERC has cleared the way for Rockies Express Pipeline LLC (REX) to offer westbound capacity on part of its system from the Marcellus/Utica region without the threat of having to match for existing west-to-east customers the lower rates it is charging for the new service.

The Federal Energy Regulatory Commission (FERC) ruled last week that “most favored nations” (MFN) provisions of REX’s negotiated contracts for eastbound gas with foundation/anchor shippers would not be triggered by future agreements to ship natural gas westward on the eastern end of its system.

The ruling came on a request for a declaratory order, which had been protested by some of the anchor shippers [RP13-969] (see Daily GPI, July 17).

“The potential transactions do not trigger the anchor and foundation shipper rights because the potential transactions are for transportation entirely within Zone 3 [about 640 miles between Audrain, MO and Clarington, OH], and thus do not apply to the same rate zones or facilities as the anchor and foundation shipper agreements,” the agency order said.

REX sought to reverse the flow on part of the mammoth, three-stage system to capture the benefits of the shale gas market as use of eastbound capacity on its system began declining (see Daily GPI, Sept. 12). The pipeline plan was initially conceived in 2005 to rescue gas stranded in the Rocky Mountain region and take it to higher-value eastern markets. But by the time construction of the 1,700-Mile pipeline was complete to Ohio, the northeastern shale revolution was well underway (see Daily GPI, Nov. 6, 2009; July 10, 2008; Dec. 13, 2007; Nov. 16, 2005).

It wasn’t long before the 1.8 Bcf/d system was running below capacity. In late 2012, Moody’s Investor Service said it was changing its outlook for the pipeline from “stable” to “negative,” citing concerns over a possible decline in the natural gas pipeline company’s earnings in late 2014 “when about 10% of its capacity is likely to require recontracting.” Most of its contracts expire in 2019.

Kinder Morgan Energy Partners, which constructed and operated the pipeline, sold its 50% interest in REX a year ago to comply with antitrust stipulations related to Kinder Morgan Inc.’s acquisition of El Paso Corp. Tallgrass Energy Partners [LP] bought the interest in REX and other KMP assets for $1.8 billion (see Daily GPI, Dec. 21, 2012; Nov. 14, 2012). Sempra Energy and ConocoPhillips each own 25% of REX.

REX had argued that “because [the westbound transactions] will utilize only one zone [Zone 3] on the system, they will not use all of the facilities [used] to provide service to the foundation and anchor shippers and will be at lower rates.”

MFN provisions should not be triggered by future firm transportation agreements at lower rates that “have an east-to-west primary path; are for a term of one year or longer; and are limited to service in one rate zone and therefore do not utilize all of the same facilities or rate zones as” service for foundation/anchor shippers, REX said.

Foundation and anchor shippers had argued that since they helped pay for the pipeline construction initially, they should get the benefit of any lower rates. The pipeline said it would not go forward with the new east-to-west service if it would trigger the MFN provisions in its existing contracts.