At its final meeting before the August break, FERC last weekcleared its agenda of several major rehearing orders — includingOrder 637-B, which was a rehearing of Order 637-A, which was arehearing of Order 637. This time around the Commission refused tobudge on the majority of the policy calls it made in 637-A thataddressed regulation of the short-term natural gas transportationmarket.
“With this order, the  rulemaking process is at an end. Thenext step is for the industry and the Commission to focus on theissues raised in the compliance filings so as to restructurepipeline services and penalties to enhance competition throughoutthe industry,” the order said. Also with this order, Order 637 isnow ripe for court review.
Probably the most controversial aspect of 637-B was FERC’sunshakable commitment to allow shippers to use forward-haul andbackhaul transactions to transport gas to a single delivery pointin an amount exceeding their contract demand — a ruling that drewa partial dissent from Commissioner Linda Breathitt.
She cited two previous cases in which the Commission prohibitedthis practice because “the overlap of forward-haul and backhaultransactions in excess of contract demand results in shippersreceiving service in excess of that for which [they are] paying.This is so regardless of whether the overlap is at a single pointor on a segment.” The FERC majority countered that it “[was] notchanging a well-established policy.”
Moreover, “those seeking rehearing have not shown that pipelinesface any operational problems in permitting such flexibility norhave they demonstrated that such flexibility adversely affectsother shippers or the pipeline’s ability to sell mainline capacityto other shippers,” the Commission said in Order 637-B.
FERC also agreed to make pre-existing negotiated-rate contractssubject to its right-of-first-refusal (ROFR) policy. “Thus,negotiated-rate contracts entered into prior to the issuance ofOrder 637 will be grandfathered, and the ROFR will apply to theservice at the expiration of the contact. However, the ROFR willnot apply to future negotiated-rate contracts,” but would extendonly to contracts for recourse service under a pipeline’s maximumrate. In Order 637, the Commission limited ROFR solely topre-existing discount rate contracts.
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