Two Duke Energy pipelines failed to win rehearing of FERC rulings that ordered the pipes to make their right-of-first-refusal (ROFR) tariff provisions more friendly to shippers.

In separate orders on investigation issued last November, FERC ruled that the tariff provisions of Texas Eastern Transmission LP (Tetco) and Algonquin Gas Transmission were “unjust and unreasonable” because they deprived shippers who terminated a contract or let a contract expire on its own terms of ROFR. Shippers were entitled to ROFR only if they were notified that the pipelines planned to end their contracts.

The Commission said the ROFR provisions of both Tetco and Algonquin violated the natural gas deregulation rule (Order 636), which required that a firm shipper, who has a contract expiring and is interested in renewing, be given the opportunity to review and/or match third-party bids for all or part of the capacity. The agency ordered the pipelines to bring their ROFR provisions into compliance with Order 636.

On rehearing, Tetco and Algonquin separately challenged the Commission’s action, claiming that the agency had adopted a new policy by requiring the pipelines to provide ROFR for shippers who terminate their contracts.

The pipelines contend “the Commission is now insisting for the first time that a pipeline must afford shippers a ROFR when they terminate an agreement so that they can examine third-party bids for their capacity and reassess the value of their capacity in the marketplace,” the order noted [RP00-535-005]. Tetco and Algonquin further claimed the so-called new policy could not be applied until FERC made clear that it was making a change and cited the reasons for the change.

FERC argued that the claims of a new policy were unfounded. “The Commission’s ROFR policies…have had several purposes, not just one, and one of those purposes has been to permit the re-evaluation of capacity in the marketplace when a contract expires or is terminated. This has always been a major purpose of the ROFR,” it said.

“The ROFR provided the customer with a means of retaining its capacity, but only if it could match competitive bids from third parties in the marketplace. It also gave existing shippers an opportunity to reduce their contract demands, if they no longer needed a portion of their capacity. The Commission never intended the ROFR to lock customers into contracts or to freeze amounts of subscribed capacity and keep them off the market indefinitely.”

Algonquin’s and Tetco’s ROFR provisions “do not allow capacity to be re-evaluated in the marketplace because they provide for indefinite, automatic continuation of shippers’ contracts, and, at the same time, deny shippers a ROFR if they terminate a contract and only permit such termination upon two to five years’ advance notice,” the order said.

The two Duke Energy pipes scored one victory. The Commission agreed to clarify that the changes to the pipes’ ROFR tariff provisions would apply prospectively. The new tariffs would apply to contracts for which Tetco and Algonquin receive notice of termination on or after March 4 of this year, according to the order.

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.