The Federal Energy Regulatory Commission has rejected a complaint in which Pan-Alberta Gas (US) Inc. (PAGUS) accused Enron-affiliated Northern Border Pipeline Co. of trying to “subvert” its rights to match competing third-party bids for pipeline capacity under the right-of-first refusal (ROFR) process.

In a complaint filed in October, PAGUS argued that an incumbent shipper retains matching rights up until the time its contract expires, in the event none of the capacity under its expiring contract receives an acceptable bid from third-party shippers or the shipper exercising the ROFR (in this case, PAGUS). Northern Border countered that the ROFR was not an ongoing process, but rather it ends after a reasonable time when neither a third-party shipper or PAGUS submits a favorable bid.

FERC agreed with Northern Border. “The Commission finds that, in the situation where there are no acceptable third-party bids, once the pipeline has given the existing shipper a reasonable time to make its own bid and that shipper has not made an acceptable bid, then the ROFR process has been completed and the shipper’s ROFR rights expire,” said the order, which was issued Tuesday [RP03-16]. The shipper would then lose its rights to retain capacity under an expiring contract.

PAGUS “misapprehends” the ROFR process, which renders many of its assertions against Northern Border “invalid,” the order noted. “The ROFR process is intended to protect captive customers that have no other alternatives from losing their capacity. It is not intended, as Pan-Alberta supposes, to require the pipeline to sell capacity to the existing capacity holder at some market price that is less than the just and reasonable maximum rate established by the Commission.”

To avoid further controversy in the future, the Commission ordered Northern Border to clarify its tariff provisions that address the time frame for the pipeline’s ROFR process when there are no acceptable third-party bids, and to spell out “what happens when the ROFR process is completed and there has been no award of capacity.”

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