Transcontinental Gas Pipe Line Corp. and Trunkline Gas pipeline contend that their existing tariff provisions governing discount rates at secondary transportation points fully comply with the Federal Energy Regulatory Commission’s discount policy. But if necessary, Transco, a Williams pipeline, said it was willing to remove certain words from its tariff to quell agency concerns about its discounting practices.

FERC in mid-December expressed interest in the discounting practices of Transco and Trunkline Gas Co., and ordered the two pipelines to explain how their currently effective tariff provisions on discounting rates at secondary points were consistent with Commission policy (see NGI, Dec. 29). Transco’s and Trunkline’s responses were filed last week [RP04-57, RP04-58].

The Commission raised questions about Transco’s and Trunkline’s discount rates in a Dec. 19 rehearing decision involving Horizon Pipeline Co. LLC. In that ruling, the agency upheld a June 4 order rejecting Horizon’s proposal to negotiate deep discounts at primary transportation points but only minor discounts at secondary points [RP02-153-004].

The Horizon proposal, if allowed, “could discourage a shipper from segmenting or releasing capacity in competition with the pipeline’s primary service, since substantially higher rates would apply to those transactions,” the order said.

In its reply to FERC, Transco said it “discounts its firm transportation rates infrequently, and when it does, [its] discount agreement specifies the discount to its firm transportation reservation rate that applies to the shipper’s firm transportation contract path. In other words, the discount agreement specifies the discounted rate that applies to firm transportation from the receipt point…to the delivery point under the shipper’s service agreement, and Transco does not specify in the discount agreement different discounted rates that apply to different points within the shipper’s firm transportation path.”

As a practical matter, “there is no ‘alternate point…expressly provided for in its discount agreement’ that could preclude a shipper from taking advantage of the application of the rebuttable presumption” under the Commission’s discount policy, the Williams pipeline said.

FERC has established a rebuttable presumption that a shipper holding a discount at a point will retain the discounted rate if it moves gas to another point — whether through segmentation, capacity release or the use of flexible receipt or delivery point rights — at which the pipeline has granted a discount for its transportation services.

The pipeline can rebut the presumption if it can show that a shipper seeking to move its discount is not similarly situated to other shippers receiving a discount at the alternate point.

The Transco tariff provision, which sparked FERC’s interest, specifically provides for that rebuttable presumption “along with a procedure for processing [shipper] requests to retain discounts” prior to a nomination to use an alternate point, the pipeline said.

Similarly, Trunkline said the discount provisions in its tariff, which FERC approved as part of its Order 637 settlement, establish a “rebuttable presumption that a segmenting shipper or shipper using receipt or delivery points on a secondary basis is entitled to the same discount Trunkline is providing to other similarly situated shippers at the alternate points.”

Therefore, Trunkline’s tariff is “fully consistent with the [Commission’s] discount policy and the Commission’s ruling in Horizon,” the Southern Union pipeline responded [RP04-58].

Trunkline said its discount practices do not “reconstruct barriers to competition” by locking in secondary point discount rates that are higher than primary discount rates.

Furthermore, because FERC approved Trunkline’s tariff as part of an Order 637 settlement, the pipeline argued that the Commission “cannot rewrite Trunkline’s [existing] contracts without meeting the stringent requirements of the Mobile-Sierra doctrine,” which bar the agency from revisiting contracts or settlement agreements unless public interest is threatened.

Given that Trunkline and its shippers have relied on the tariff language in the Order 637 settlement when negotiating contracts, “any additional change [by FERC] must be prospective only,” the pipeline said.

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