FERC reaffirmed most of its initial decisions in Order 637 onrehearing last week, making minor adjustments to theright-of-first-refusal (ROFR), penalty and posting provisions inthe major natural gas rule. “…[O]n balance this is a solid,well-reasoned [rehearing] order that retains the character of theoriginal order,” said Commissioner William Massey.
With respect to ROFR, the Commission clarified that shipperswith multi-year contracts for a seasonal-only service will retainROFR protection, which gives a pipeline shipper with an expiringcontract the opportunity to retain the capacity by matching acompeting bid for a term of up to five years.
“I agree with petitioners that this modification is consistentwith the purpose of the right-of-first-refusal protection, and thatit will afford captive customers the contractual flexibility theyneed,” noted Commissioner Linda Breathitt.
However, FERC denied rehearing on ROFR pricing, or its so-calledroll-up policy. Under this policy, a pipeline that has completed anew expansion on which service will be priced incrementally cancompel ROFR shippers to pay higher incremental rates when theirexisting contracts expire. “One of the primary arguments [favoringrehearing was] that this policy will result in large rate increasesto captive customers at the end of their contracts,” Breathittsaid.
But “the policy we have established [in Order 637] containsprotections for captive customers. The pipeline cannot charge ahigher rate [to a ROFR shipper] unless its expansion is fullysubscribed and there is another bid for capacity at a rate abovethe vintage maximum rate paid by the shipper,” she noted.
“It is not expected that [this] pricing policy will result infrequent or large increases for captive customers since any rateincrease will be limited to what another shipper is willing to payfor the service.” Industrial gas customers also sought rehearing ofFERC’s decision not to extend ROFR protection to discount pipelineservices, but their request was denied.
In response to comments from the Natural Gas Supply Association,Amoco Production and other shippers that “posting available[pipeline] capacity on a daily basis is not adequate. the order onrehearing will now require that this information be posted withinone hour of close of the normal evening and intra-day nominationcycles,” said Massey.
Specifically, the NGSA asked FERC to, at a minimum, requirepipelines to post available design and scheduled capacity not onlyafter the normal or “timely” cycle (11:30 a.m. on the day beforeflow day), but also after the 6 p.m. evening cycle and, whereoperationally feasible, after the two intra-day cycles.
“This [posting] change will enhance the ability of shippers tonote the level of operationally available capacity in order torespond to nomination opportunities that may arise during the gasday,” he noted. FERC also changed the time in which pipelines mustfile transactional reports, said Massey, adding that he regardedthis to be an “unfortunate retreat” from Order 637.
The order “would alter the timing of the contemporaneous postingof transactional information from the time of contract execution tothe time of the first nomination prior to gas flow. It may appearto be a small change to some, but it is one that I stronglypreferred not to make.”
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