If a federal appeals court in Washington, DC, should decide to review and remand to FERC an order eliminating the contract term limit for matching competing bids by pipeline shippers exercising their right-of-first-refusal (ROFR) in replacing expiring contracts, Commission Chairman Pat Wood said Wednesday he hopes the court provides the agency with specific “Betty Crocker directions” on what it believes the term limit should be.
The issue involving the term limit for matching bids under ROFR has bounced back and forth between the Federal Energy Regulatory Commission and the U.S. Court of Appeals for the District of Columbia several times over the past decade. The Commission, exasperated with the issue, decided to eliminate the ROFR term cap altogether in an October 2002 order, rather than set another term cap and face the prospect of another court remand (see Daily GPI, Oct. 31, 2002).
The American Gas Association (AGA), which represents local distribution companies (LDCs), petitioned the appeals court last week to review the FERC ruling, arguing that “ROFR protects consumers from the exercise of market power by providing natural gas utilities the opportunity to negotiate contracts by matching the bid of another prospective shipper at reasonable terms.”
“I really don’t anticipate it [being remanded to FERC]. But if we get it back, I just hope it comes with Betty Crocker directions,” Wood told reporters following a speech to a conference sponsored by National Energy Marketers Association in Washington Wednesday.
He wants the court to offer specific guidance on an issue that has frustrated the Commission over the years. “I was there in [Order] 636 when we tried to do it. The court didn’t like 20 years [as a matching term cap]. The court didn’t like our defense of five years. What does the court like? Tell us how we can actually do this in a way that passes court muster, and we’ll put a term cap back in there.”
The courts “say ‘no’ to this [number]. The courts say ‘no’ to that. What…do you want?” Wood asked.
Since the courts have been routinely dissatisfied with FERC’s selection of a matching term cap and/or the agency’s justification for the number, Wood would like the court to recommend a specific number. “The court can say five [years]. It can say 15. Just tell me what the number [should be] as opposed to what we got, which is just kind of no answer at all.”
In April 2002, the appellate court remanded the ROFR matching cap issue to the Commission, saying the agency had failed to provide an “affirmative explanation” for its choice of five years for the matching cap. The remand was sort of the last straw for the agency, and caused it to eliminate the matching cap completely in October 2002.
Prior to the October 2002 ruling, an existing pipeline shipper whose contract was set to expire had to match a competitor’s bid up to a pipeline’s maximum rate, but only for a term of up to five years in order to keep his capacity. But as a result of the decision, an existing shipper seeking to renew his expiring contract now had to match the term in a third-party bid, regardless of the length — 10, 20 or 30 years. This pitted LDCs against gas-fired merchant power plants, which often have to lock in long-term gas supplies and transportation in order to satisfy their lenders.
The Commission reinforced its decision in an order on rehearing issued in January of this year.
The decision on rehearing, like the earlier one, was a major blow to existing pipeline shippers, especially LDCs and industrial gas users, who believed that FERC’s requirement of a five-year matching cap under ROFR helped to curtail potential pipeline abuse of shippers.
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