There is no need for FERC to change its overall transportation policy regarding long vs. short hauls in order to address the “idiosyncratic situation” existing on a part of Northern Border Pipeline’s system, U.S. and Canadian producers have told the Commission, suggesting instead that it could grant a waiver addressing the specific circumstances to prevent a short-haul shipper from effectively stranding upstream and downstream capacity.

Option three, of four options proposed by FERC last April, appears to be the best way of dealing with the situation, both the Canadian Association of Petroleum Producers (CAPP) and the Natural Gas Supply Association (NGSA) said in responses earlier this month (RP03-563). This would require Northern Border — if it fails to sell long-haul capacity — to sell capacity to a short-haul shipper at the maximum rate, if the bid is the highest-valued bid. However, at reasonable intervals the pipeline could repost the capacity, with the existing shipper being given a ROFR to match a long-haul bid (up to the original capacity path).

This would discourage “the potential for shippers to opportunistically bottleneck a system,” CAPP said. NGSA agreed, suggesting that “reasonable intervals” for reposting capacity should be not less than twice a year on a seasonal basis (for example April 1 and Oct. 31).” NGSA rejected, as has FERC, Northern Border’s original proposal to accept short-haul bids of only 31 days duration. The producers urged the Commission not to tamper with its overall policy and regulations, but to allow “narrowly crafted exception[s]” in “very rare” circumstances.

In denying Northern Border’s move to limit short-haul contracts to 31 days, the Commission had asked for industry comment on whether it should change its policy, listing four possible options (see Daily GPI, April 19). LDCs and end-users submitted comments arguing strongly against a change in policy, saying that requiring short-haul sales of capacity that has not sold on a long-haul basis is an efficient allocation of capacity.

Northern Border had pointed out that the configuration of the disputed line segment, with almost no customers along the line and no convenient storage, set it apart from other pipelines. The pipeline said shippers view the level of the basis differential as all-important in their decision to contract for capacity. The fact that the differential is volatile means the capacity must be available when the basis differential price is right.

The pipeline said a shipper who captured a critical short-haul could actually benefit if stranded upstream capacity went for a discount or on an interruptible basis. It could then contract for the upstream capacity at the cheaper rate and have the use of the full path at less than a long-haul shipper would have paid. “Alternatively, the short-haul shipper may seek discounted commodity prices at the point of the bottleneck as various upstream shippers vie to sell their gas at the bottleneck.”

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