Tennessee Pipeline shippers are urging FERC to make certain adjustments for replacement shippers under the agency’s Order 712, which lifted the price ceiling on short-term releases of natural gas transportation capacity.

Indicated Shippers, which represent several producers, last Monday protested a proposed Tennessee tariff provision that would deny refunds to state retail marketer replacement shippers like those paid to releasing shippers. “Denial of refunds attributable to capacity releases as part of a retail unbundling program will have detrimental consequences on the market, gas consumers and competition,” said the group of producer-shippers, including BP America Inc., Chevron U.S.A., ConocoPhillips and Hess Corp. [RP09-282].

Because an identical issue was raised in a Texas Eastern Transmission (Tetco) case [RP09-70], Indicated Shippers asked the Federal Energy Regulatory Commission (FERC) to hold off issuing its decision in Tennessee until it rules on the group’s request for rehearing in the Tetco case. In a Dec. 31 order, the Commission accepted Tetco’s rejection of refund relief for replacement shippers. Indicated Shippers protested the action and filed for rehearing, which is pending at FERC. Tennessee’s proposed capacity release-related tariff revisions, which were filed in late January, are pending before the Commission as well.

Tetco called the Indicated Shippers’ protest a “collateral attack” on Order 712, which was issued last June (see NGI, June 23, 2008). “Only those customers that are paying…cost-based rates subject to the maximum rate can be entitled to a refund if and when the just and reasonable maximum rate is ultimately determined to be lower than the rate paid by such customers. Replacement customers that are paying market-based rates not subject to a maximum rate cap are not entitled to a refund because they could not have been paying a rate ultimately determined to be above a just and reasonable cost-based maximum rate,” Tetco argued at the time.

“Pipelines are not required to refund amounts to customers paying negotiated or market-based rates. If the replacement customer desires to pay a cost-based rate subject to refund, the replacement customer may purchase service directly from the pipeline.”

In the December order accepting Tetco’s proposed tariff changes related to capacity release procedures, FERC agreed with Tetco’s argument on refunds for replacement shippers. “Because the pipeline’s maximum rates do not apply to short-term capacity release transactions, replacement shippers are not entitled to any refunds when the Commission finds that the maximum rates proposed by a pipeline in a Section 4 rate case are too high.”

The two pipeline cases also raise an issue involving asset management arrangers (AMA) in the capacity of replacement shippers. Atmos Energy Corp. has called on FERC to require Tennessee to include in its proposed tariff revisions provisions that allow the “flow-through” of discounted commodity and fuel rates from releasing shippers to asset managers that are replacement shippers.

Allowance of flow-through would promote the “creation of an efficient and competitive capacity release program and [encourage] the use of asset management arrangements as a critical component to that program,” Atmos said. “Failure to require the ‘flow-through’ of discounts to asset managers, who [as replacement shippers] step into the shoes of the primary capacity holder for purposes of such transactions, will serve only to increase the cost of asset management arrangements involving discounted capacity, thereby inhibiting the formation of such beneficial arrangements.”

In the Tetco case FERC recognized the viability of the issues being raised with respect to AMAs. It called for comments on two issues: 1) whether the Commission should find that it would be unduly discriminatory for a pipeline to deny an asset manager replacement shipper the same discount of its usage charge as provided to the releasing shipper, at least during those periods when the asset manager is using the released capacity to satisfy the delivery or purchase obligation contained in the release to the AMA; and 2) if so, whether Tetco should be required to include in its tariff a provision concerning the circumstances under which it would provide similar usage charge discounts to an asset management replacement shipper. All comments were due at FERC at the end of January, and the issue still is pending.

AMAs represent a relatively new development in the natural gas industry. These arrangements are contractual relationships where a party agrees to manage gas supply and delivery arrangements, including transportation and storage capacity, for another entity.

The National Grid Gas Delivery Companies want FERC to require Tennessee to change its tariff so that releasing shippers will have the option to act as agent or be liable for the charges of their replacement shippers with respect to long-term releases (more than a year at maximum rates). Moreover, National Grid proposed that Tennessee be required to allow releasing shippers to elect to agree to assume the responsibility for their replacement shippers’ charges from pipelines, in lieu of any requirement that replacement shippers satisfy Tennessee’s creditworthiness standards.

“One of the benefits [of] including such a provision in Tennessee’s tariff is that local distribution companies would have more flexibility to release capacity to small marketers in state retail unbundling programs. In National Grid’s experience, certain small marketers may find it extremely burdensome to comply with pipeline creditworthiness requirements. Enabling releasing shippers to opt to be responsible for replacement shippers’ charges would further the Commission’s policy of facilitating capacity releases entered into pursuant to state retail access programs.”

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