FERC (finally) asking public opinion on intrastate pipeline capacity transfers

Photo by Glen Dillon. Some rights reserved.

FERC buy/sell transactions, in the words of Fulbright & Jaworski, “involve a holder of transportation rights buying gas, transporting the gas using its transportation capacity, and then reselling the gas to the entity from which the gas was originally purchased.” These types of arrangements are often prohibited by FERC because they “can (a) be motivated by a desire to circumvent the shipper-must-have-title rule and (b) deprive shippers of equal access to transportation capacity.” However, FERC recently opened up for discussion the permissibility of these transactions on section 311 and Hinshaw pipelines.

311 pipelines are intrastate pipelines that offer interstate natural gas transportation and storage services pursuant to section 311 of the Natural Gas Policy Act, and Hinshaw pipelines, according to a recent Sutherland Alert, “are pipelines that receive gas from interstate commerce but operate wholly within one state.” Both pipelines typically fall outside of FERC jurisdiction.

Earlier this year, in an Order issued by FERC in a case involving Arizona Public Service Company, FERC unexpectedly expanded the scope of its prohibition on buy/sell transactions to include transactions on these intrastate pipelines. Because the prohibition came about via an order rather than through traditional rulemaking, several industry participants filed a request for rehearing, complaining that “the Commission notice issued in [the Arizona Public Service Co] proceeding provided no indication that the subject matter of the proceeding was anything other than a transaction specific waiver request. It was only after an order was issued that the significance of this proceeding could be known by industry participants.”

While FERC denied the request and declined to reverse the ruling, they opted to open a Notice of Inquiry on the topic, soliciting public comment on “whether and how holders of firm capacity on intrastate natural gas pipelines providing interstate transportation and storage services […] should be permitted to allow others to make use of their firm interstate capacity.”

In the meantime, FERC is temporarily allowing all existing and new buy/sell transactions involving section 311 and Hinshaw pipelines to go forward. Stakeholders wishing to comment on the NOI should do so within 60 days of publication in the Federal Register (which is expected later this week). For further detail on this subject, I highly recommend the Fulbright article and the Sutherland Alert quoted at the beginning of this post.

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Tip for knowledgemosaic subscribers: to be kept informed of further developments, consider setting up a law firm memo alert using the term Hinshaw. You will be sent a daily email when newly posted memos match your search terms.

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