FERC has upheld an order approving Tennessee Gas Pipeline’s newtransportation service agreements with six shippers, casting asideproducer arguments that the contracts included negotiated terms andconditions and raised right-of-first-refusal (ROFR) issues.

Indicated Shippers, which represent major producers, argued thecontracts included “partial rate zone turnback provisions” thatwere negotiated terms and conditions not offered to other firmshippers on Tennessee’s system. Moreover, the producer groupinsisted such provisions will frustrate the underlying purpose ofthe ROFR regulations, as well as will amount to an invalid exerciseof the shippers’ ROFR.

FERC initially approved the contracts in early October, but gaveIndicated Shippers and other parties a second chance to comment onthe agreements after they had a chance to review information thatpreviously wasn’t available. Nevertheless, the Commission majorityagain accepted the Tennessee contracts without condition.”Indicated Shippers have raised nothing in their protest to warrantany change in our action,” the order said [RP96-312-018].Commissioners William Massey and Linda Breathitt dissented on thenegotiated-rate issue, as they did in the original order.

In all six agreements, firm shippers had exercised rights toextend their contracts under a unique tariff provision that stemmedfrom a 1997 settlement between Tennessee and existing long-termfirm shippers. “Thus, since the extensions are pursuant tonegotiated contract term extension agreements, the…..contractextensions [at issue] are not subject to the Commission’s ROFRregulations,” the order noted. “Therefore, Indicated Shippers’argument that the contracts raise ROFR issues…..[is] withoutmerit.”

Nor did the contracts provisions deviate from Tennessee’s tariffor constitute a shift in Commission policy by allowing pipes tonegotiate terms and conditions of service, as Indicated Shippershad claimed, the order said. Rather, they were “mere contractextensions,” it noted. “The parties to contracts may negotiatechanges in points, volumes, rates and the term of the contract and,unless operating conditions are changed (which is not the casehere), such changes are not considered changes in service.”Specifically, the changes in primary points under the contracts atissue “are not precluded by any Commission policy on negotiatedrates; nor are they barred by anything in Tennessee’s tariff.”Susan Parker

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