Northern Natural Gas does not have to continue providing Transwestern Pipeline customers a free ride on a portion of its system under an agreement that the two pipelines entered into a decade ago, the Federal Energy Regulatory Commission said last Wednesday in dismissing a show-cause proceeding against Northern Natural.
The focus of the show-cause case was an operational balancing agreement (OBA) that Northern Natural entered into with Transwestern in February 1994, which allowed gas to pass through Northern Natural’s Beaver Interconnect into Transwestern’s system for free. Northern Natural contends, however, that the OBA is no longer operating as an OBA.
Last year, Northern Natural said it reviewed the Transwestern OBA volumes and found that the imbalance volumes had substantially increased. The operational imbalance at the Beaver Interconnect, located in Beaver County, OK, had grown from a 7% variance during 1998 to 2000 to a 100% variance from 2001 and 2003, according the MidAmerican Energy pipeline subsidiary.
Northern Natural concluded that the OBA was no longer functioning as a balancing agreement as contemplated, but rather it has “morphed” into a cost-free exchange service for certain shippers, the pipeline told FERC. It argued that it would be “unduly discriminatory” for Northern Natural to continue allowing Transwestern to use the OBA as a cost-free displacement service while its shippers pay for a displacement service at the Beaver Interconnect.
FERC agreed that Northern Natural’s customers would be discriminated against “if they pay a fee for this service, while other customers of Transwestern receive the service for free under the guise of a balancing agreement,” the order said [RP04-103].
“While the operating practice between the pipelines began as a legitimate balancing agreement, it has become apparent, due to the dramatic increase in volumes, that over time it evolved into a loophole allowing Transwestern’s customers the use of Northern Natural’s pipeline capacity without proper compensation,” it noted.
“At first, the amounts were small enough that they did not arouse suspicion. Over time, however, the amounts of gas transported increased from 7% to 100%. Northern Natural finally realized that its tariff required it to close this loophole…and require those who had availed themselves to begin paying for the capacity. The protestors now argue that since they had come to rely on the practice, the Commission should not allow Northern Natural to ‘abandon’ its practice now.” But FERC said it was a weak argument.
“The fact that Northern Natural may have taken longer than could have been expected to discover the significant increase in the volumes does not mean that it is obliged now to permit the continued advantage inuring to these shippers,” the Commission said.
“If the protestors wish to obtain service on Northern Natural in order to facilitate further transportation of their gas to Transwestern’s system, then they may do so by contracting with Northern Natural directly,” FERC said in a companion order [RP03-546] .
In the companion order, the Commission accepted a report in which Transwestern alerted the agency of its plan to eliminate 31 receipt points on the far eastern portion of its system — the Panhandle lateral. Transwestern said this action was prompted by Northern Natural’s decision to discontinue the cost-free exchange service for Transwestern customers.
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