FERC gave CNG Transmission a slap on the hand last week andordered the pipeline to honor a shipper’s right of first refusal(ROFR) on a 13,350 Dth/d package of capacity that was sold toanother party last month. The Commission also intends to take acloser look at CNG’s capacity reservation and posting practices.

In an order granting a complaint against CNG by North AmericanEnergy Conservation (NAEC), the Commission said it wants thepipeline to explain why it discriminated against NAEC in awardingits capacity to TXU Energy following a brief four-day biddingperiod during the first week in August.

CNG awarded the capacity despite receiving a letter from NAEC onAug. 6 indicating that the company wanted to exercise its ROFR fora portion of the space, which was under contract until Nov. 1. Inits Aug. 20 complaint, NAEC said it matched the highest bid for thelongest term and should have been awarded the contract extension.

CNG, however, argued that the contract terms were for less thana full year and as a result did not qualify for the ROFR. But theCommission found that to be inaccurate because NAEC originally bidon capacity under a 15-month term before being told by CNG to signseparate short-term agreements covering storage and transportationservices.

“Executing two separate agreements does not change the fact thatthe shipper and the pipeline have agreed to 15 months of continuingfirm transportation service,” FERC said. “Pipelines should not bepermitted to use the expedient of requiring shippers to sign twoless-than-one-year agreements as a way to avoid the imposition ofthe right of first refusal.”

CNG also had argued that NAEC did not give reasonable noticethat it wanted to exercise its ROFR because it submitted a letterto CNG on the last day of a four-day bid posting. But theCommission noted that Aug. 6 was “well before” the contractexpiration date of Nov. 1. It also found CNG violated its owntariff, which requires the pipeline to post long-term agreementcapacity for a bidding period of at least 30 days.

“NAEC’s complaint raises several troubling questions about CNG’scapacity reservation and posting practices,” FERC said. “…CNG isdirected to file an explanation, together with copies of anyrelevant, executed contracts, as to how this practice comports withCNG’s tariff and with Commission policy and regulations.”

Regarding any harm done to TXU because the capacity it wasawarded now must be returned to NAEC, the Commission said CNG andTXU “should have been aware [when NAEC submitted its ROFR letter]that TXU may be harmed” if FERC found NAEC’s claim to be correct.

Rocco Canonica

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