Putting to rest the capacity release contract dispute raised by Tenaska Marketing Ventures against Northern Border Pipeline Co. in the wake of Enron Corp.’s bankruptcy, FERC ruled last Wednesday in favor of Northern Border, denying Tenaska’s complaint against the pipeline.

In November of 1999, Enron North America (ENA) and Enron Canada entered into an agreement with Tenaska and Tenaska Marketing Canada to allow the Tenaska companies to manage the transportation capacity for the Enron companies from the Aeco receipt point in Alberta to Northern Border’s Chicago delivery point. The arrangement encompassed the Enron companies temporarily releasing capacity to the Tenaska companies on the NOVA, Foothills and Northern Border systems, and Enron then selling gas to Tenaska at the Aeco receipt point at a price equal to the Chicago index price, less all transport fees.

In October 2001, Tenaska, ENA and Northern Border completed the temporary capacity release transactions for the period Nov. 1, 2001 through Oct. 31, 2002, for approximately 20 MMcf/d of capacity for which ENA was the primary shipper.

In its complaint, Tenaska said that soon after ENA’s bankruptcy in December 2001, Enron Canada stopped sales and deliveries to Tenaska Canada at the agreed upon price. However, Tenaska was still obligated for the payments on the released Northern Border capacity. Tenaska said it asked Northern Border to cancel the transportation agreements with the now bankrupt ENA, so that ENA’s capacity release to Tenaska would also terminate, but Northern Border refused.

Northern Border claimed that the capacity release created obligations for Tenaska independent of the service agreements it had with ENA. Furthermore, Northern Border said that Tenaska’s obligations would persist even if its agreement with ENA was cancelled.

The Federal Energy Regulatory Commission (FERC) found that because the contracts were separate, the replacement shipper’s (Tenaska) contract would not terminate automatically if the service agreement between the releasing shipper (ENA) and the pipeline (Northern Border) were terminated.

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