FERC last week denied a complaint in which several Nevadaindustrial shippers sought exemption from continual must-flowoperational flow orders (OFOs) on Northwest Pipeline’s system, andto be reimbursed for the costs of complying with those OFOs. Butthe Commission did hold out some hope for the shippers, saying itwould consider proposals to provide future relief from thepipeline’s constant OFOs.
In a Section 5 complaint filed in December, a group of northernNevada industrial gas users claimed that Northwest was violatingits tariff by holding them hostage to the must-flow OFOs eventhough — after “good faith efforts” on their part — they wereunable to obtain gas at reasonable prices to comply with orders.They urged FERC to order the pipeline to “cease and desist” thealleged violation.
The Commission last week found that Northwest had not run afoulof its existing tariff, but rather “has reasonably interpreted itsmust-flow OFO provisions in light of precedent.” Consequently, “theCommission will not direct Northwest to cease and desist issuingmust-flow OFOs when it is necessary for the operational integrityof its system,” the order said [RP01-189].
The Northwest system is heavily dependent on displacementcapacity to maintain operational integrity because its contractdemand outstrips its physical capacity. Northwest’s contractualdemand is 720,000 Dth/d, but its physical capacity is only 474,000Dth/d. Pan-Alberta Gas (U.S.) Inc. provides 144,000 Dth/d through adisplacement arrangement, while other Northwest shippers (thoseflowing north to south) are left to make up the remaining 102,000Dth/d. When there is inadequate north-to-south flow, the pipeline’stariff permits it to issue must-flow OFOs so it can fulfill itscontract obligations.
The Nevada industrial users argued that they shouldn’t bepenalized in the event they can’t comply with the must-flow OFOsbecause Northwest’s tariff specifically exempts shippers that havemade “good faith efforts” to obtain gas supply, but wereunsuccessful. At issue in the complaint case was whether “goodfaith efforts” exemptions applied when shippers were unable toobtain gas at reasonable costs, which was how the industrialsinterpreted the tariff, or whether shippers that were subject tothe must-flow OFOs were required to buy gas – irrespective of theprice.
The interpretation of the northern Nevada industrial group “isin error,” the order said. It noted that Northwest’s tariff exemptsonly those shippers that are unable to “physically obtain” gassupply after making “good faith efforts,” which wasn’t the case inthis complaint. The industrial group “is able to obtain gas supply,but at spot market (albeit high) prices,” the order said.
The Commission denied reimbursement because it said themust-flow costs incurred by the industrials “were caused in largepart by the business choices” that they made. They “purchaseddeeply discounted capacity with the knowledge that their primarypoints were at Stanfield (OR) and Muddy Creek (WY) and that theycould be required to flow from those points to create displacementcapacity. At that time, other (but more expensive) capacity wasavailable that would not have been subject to the must-flow OFO,”the order noted. As a result, the industrial group “chose not toreduce its risk of having to comply with a must-flow OFO even whenit had notice that an OFO was imminent.”
In their complaint, the industrials wanted FERC to go beyondjust interpreting the “good faith efforts” exemption in theirfavor. They also asked the Commission to find that Northwest’stariff allowing must-flow OFOs “as currently structured” has become”unreasonable and unduly discriminatory.” It requires shippers onthe northern end of the pipe to pay all of the costs to providedisplaced capacity for the shippers at the southern end of thesystem, the industrials said. The southern shippers get all of thebenefits, they noted, but foot none of the costs.
While the industrials lost on the first count, FERC last weekappeared willing to at least consider the possibility thatNorthwest’s OFO tariff provisions may need to be revised. But thecomplaint case was not the “most appropriate forum” to review theissue, it said. Rather, it should be analyzed as part ofNorthwest’s Order 637 compliance proceeding, along with a number ofrelated issues — segmentation, imbalance provisions, schedulingand capacity release.
It directed interested parties to file “limited additionalcomments” on Northwest’s OFO tariff provisions and penalty levelsin the pipeline’s Order 637 compliance proceeding within 15 days ofits order.
Alternative proposals to Northwest’s existing must-flow OFOs —such as requiring the pipeline’s shippers who benefit to maintainthe displacement capacity, requiring Northwest to invest infacilities to expand its physical capacity, or Duke’s suggestion toallow OFO-recipients to invoke the ‘good faith” exemption whentheir losses approach $35/Dth — will be entertained, the ordersaid. The Nevada industrial group recommended the first twoproposals as possible solutions.
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