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FERC Signals Shift Away from Individual Negotiated Pipe Deals
The Federal Energy Regulatory Commission signaled a key shift in its policy on negotiated transactions Tuesday, saying now it will require pipelines negotiating individual deals that include “material deviations” from their form of service agreements to offer the service to other similarly situated shippers on their systems.
“What you are seeing is the pendulum swing back to standardized service” for pipelines at the Commission, a FERC source told NGI. “There is a push away from [individual] negotiated deals.”
The new policy moves the Commission away from the issue of trying to “pigeonhole” whether proposed pipeline negotiated agreements address just rates, or whether they include terms and conditions of service, which were barred under Order 637. The new focus is on whether a “material deviation” in an individual negotiated transaction poses the risk of undue discrimination to other shippers on the pipeline’s system, according to another staff member. A “material deviation” was defined as any provision that “goes beyond filling in the spaces in the [form of] service agreement with the appropriate information provided for in the tariff, and that affects the substantive rates of the party.”
Since the enactment of Order 637, “we [FERC] have had endless debates over whether the pipeline negotiated [proposals] that have come in the door are rate, or term and condition proposals. This has created confusion about what the policy is,” said the FERC staffer, adding that the Commission’s action Tuesday was aimed at eliminating this.
The new policy clarification was outlined in five separate orders in which FERC prohibited the pipelines from providing buy-out provisions to individual customers in negotiated transactions unless they also were offered “subject to reasonable conditions” as part of the pipelines’ general applicable tariffs. The Commission took this action because similar buy-out provisions were not provided under the pipelines’ recourse service.
The decision reversed Commission precedent, which allowed customers to terminate or buy out all or some of their contract demand before the end of their contracts as part of individually negotiated agreements (RP96-312, GT01-25, RP99-301, RP99-301 and CP01-70).
“It’s important, even in an industry that’s further down the road as gas is, to make sure that the opportunities for disparate treatment [don’t exist]…This is still a monopoly,” said Chairman Pat Wood. “…[W]e want to make sure all the customers are treated with non-discriminatory practices by the regulated pipeline.”
The Commission “[is] adopting a policy that I believe is more pragmatic and clear with respect to what kinds of contractual provisions may be individually negotiated. We’re not saying that they can’t be. We’re just saying that we need to be clear as to whether it’s a rate or a term and condition, and if it is, it needs to be offered to all similarly situated [shippers].” said Commissioner Linda Breathitt.
“So the new analysis shifts the emphasis away from…this confusion [of] rates vs. terms and conditions to, I think, the common sense question of whether a provision can be permitted without substantial risk of undue discrimination,” she noted. “Over the past few years, the fact that the Commission permits individual negotiation of rates and not terms and conditions has played out in this tug of war, which really hasn’t served our objective of ensuring non-discriminatory rates and service.”
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