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 (FERC) 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.

Cove Point said its terminal requires regular arrival of cargoes — approximately one every four months — to keep its cryogenic facilities cooled to a temperature of approximately minus 260 degrees Fahrenheit in order to be fully operational and able to receive LNG imports. However, DCP, a subsidiary of Richmond, VA-based Dominion Resources, has not received a cargo since February (see NGI, June 6).

Last 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 NGI, June 20).

The decline in usage of the Cove Point LNG terminal and related facilities has been 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 light of the ruling, Cove Point proposed that its tariff be revised to give it OFO authority over LNG imports. The Commission denied the request, saying that such a 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,” and that it could submit a limited Section 4 filing to recover the purchase costs from the importers served by its facilities.

In related action, FERC last Thursday accepted, yet suspended in part, DCP’s proposal revising its maximum tariff rates, eliminating the retainage cap currently in place for Rate Schedule FPS customers, and revising tariff provisions to treat firm rate schedule authorized overruns on the same basis as other interruptible services. It also established a hearing into the proposed rate changes.

“The rates and tariff changes proposed by Cove Point’s instant filing have not been shown to be just and reasonable. The Commission finds the instant filing raises issues requiring further investigation. Accordingly the Commission will establish a hearing concerning whether Cove Point’s proposed rate changes are just and reasonable,” the FERC order said [RP11-2137].

“Rate issues that may be explored at the hearing include, but are not limited to the following: 1) the proposed cost of service; 2) the appropriateness of the proposed 13.75% return on equity, capital structure and overall rate of return; 3) cost allocation, cost classification and rate design; 4) the proposed depreciation rates; and 5) the proposed removal of the Rate Schedule FPS fuel retainage cap.”

The Commission accepted some proposed tariff changes to take effect July 1, while others were suspended to be effective Dec. 1.

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.