Transwestern Revises Capacity Release Provisions

Commission Accepts Pipeline’s Compliance Filing, Subject to Additional Modifications
Mark Reishus
August 12, 2019 at 11:02:02 ET
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On Aug. 9, 2019, FERC accepted tariff records from Transwestern Pipeline Co. LLC (Transwestern) to comply with an April 18, 2019 order finding that its natural gas pipeline capacity release provisions were not in compliance with the Commission’s policies. In the earlier order, FERC objected to the practice of requiring replacement shippers to negotiate with Transwestern the rates to be paid for use of secondary points outside their primary path but within their rate zones. Among other things, the tariff records clarify that the requirement in question does not apply to a replacement shipper, if the secondary points are within the rate zones for which the replacement shipper is paying.

April 18 Order

In Transwestern Pipeline Co. LLC, Order on Reserved Capacity Release Issue, 167 FERC ¶61,040 (2019) [Docket No. RP15-23-000] (April 18 Order), FERC addressed a dispute between Transwestern and some of its shippers concerning Transwestern’s practice of requiring replacement shippers to pay additional charges when they use secondary points outside the primary path of released capacity. The shippers argued that Transwestern must offer a replacement shipper the same discounted rates for use of secondary points outside the primary path that it has agreed to provide the releasing shipper for such service. Transwestern argued that the replacement shipper must negotiate the rate it will pay for use of secondary points outside the primary path directly with Transwestern, without regard to either the rate paid to Transwestern by the releasing shipper for such service or the rate in the release agreement between the releasing and replacement shippers.

FERC concluded that “neither the shippers nor Transwestern have correctly interpreted the Commission’s policy concerning the pricing of capacity releases. … [T]he rate paid by a replacement shipper for service within the rate zone or zones included in a release is established by the release agreement between the releasing shipper and the replacement shipper. Thus, the replacement shipper is not automatically entitled to pay a discounted rate included in the releasing shipper’s contract with the pipeline, nor is Transwestern entitled to require the replacement shipper to pay a different rate than in the release agreement for service within the rate zone or zones included in a release. However, to the extent the replacement shipper uses a secondary point not covered by the releasing shipper’s discount agreement, Transwestern may charge the releasing shipper additional reservation charges, but may not exceed the applicable maximum rate.”

Put another way, “the reservation charge component of the replacement shipper’s rate for all service within the applicable rate zone, both within and outside the primary path, must be the capacity release rate determined through negotiations between the releasing and replacement shippers and any required bidding on the release. This is true, regardless of whether the reservation charge component of the release rate is billed on a volumetric basis or is a fixed reservation charge. However, if the replacement shipper seeks to use a secondary point outside the rate zone(s) included in the release, Transwestern may require it to pay an additional charge to be negotiated between Transwestern and the replacement shipper.”

According to FERC, “Transwestern must permit replacement shippers to use any secondary point in their rate zones while continuing to pay the reservation charge agreed to between the releasing shipper and the replacement shipper through bidding or otherwise. … [I]f the replacement shipper uses a point at which the releasing shipper does not have a discount, Transwestern may require the releasing shipper to pay any amount by which the maximum reservation charge exceeds the replacement shipper’s reservation charge. The releasing shipper may protect itself by including a condition in the release that the replacement shipper may not use secondary points at which the releasing shipper does not have a discount or must compensate the releasing shipper for any additional charges that it incurs.”

FERC directed Transwestern to modify Section 3.1(b) of each of its firm rate schedules to clarify that the requirements concerning the rates to be paid for use of secondary points outside a shipper’s primary path do not apply to replacement shippers, if the secondary points are within the rate zones for which the replacement shipper is paying. However, FERC noted that “Transwestern may require a replacement shipper to pay an additional charge for use of secondary points outside the rate zones for which it is paying.” FERC gave Transwestern 30 days to submit a compliance filing implementing these changes.

Finally, FERC explained that it “permits pipelines to offer discounts to their primary shippers that are limited to service along a particular path, while not providing discounts to the same shipper for service at other points. Section 3.1(b) of Transwestern’s firm rate schedules provides firm shippers notice that it limits the discounts in a service agreement to service along their primary path and that the rates for service at other points must be separately negotiated when that service is used. This approach to discounting firm service is permissible, so long as it is limited to Transwestern’s primary shippers and not extended to replacement shippers. However, we remind Transwestern that it must permit a primary shipper to use points outside its primary path but within its rate zones, if the shipper is willing to pay the maximum rate and capacity is available.”

Compliance Filing

In its May 17, 2019 compliance filing, Transwestern proposed that paragraph 3.1(b)(1) would read: “If a Shipper nominates and transports using Alternate Receipt Point(s) or Alternate Delivery Point(s) that are outside the Shipper's Primary Path, then Shipper will pay an additional Reservation Charge, not to exceed the maximum applicable tariff rate, as negotiated between Shipper and Transporter, applicable to such service outside the Primary Path. The additional reservation rate will apply on a daily basis for as long as any alternate point outside the Primary Path is utilized.”

Proposed paragraph 3.1(b)(2) reads: “If a Replacement Shipper nominates and transports using Alternate Receipt Point(s) or Alternate Delivery Point(s) that are outside the Primary Path but are within the rate zones comprising the Primary Path, any additional Reservation Charge shall not apply to the Replacement Shipper but shall apply to the initial Releasing Shipper in accordance with its Service Agreement. The additional Reservation Charge will apply on a daily basis for as long as such alternate point(s) is utilized.”

Proposed paragraph 3.1(b)(3) reads: “If a Replacement Shipper nominates and transports using Alternate Receipt Point(s) or Alternate Delivery Point(s) that are outside the rate zones comprising the Primary Path or outside any other rate zone(s) that the Replacement Shipper is paying per the terms of the release between Releasing Shipper and Replacement Shipper, the Replacement Shipper shall pay an additional Reservation Charge at the maximum tariff rate for such zone, unless otherwise negotiated between Replacement Shipper and Transporter. Such additional Reservation Charge will apply on a daily basis for as long as the Replacement Shipper utilizes such Alternate Receipt Point(s) or Alternate Delivery Point(s) that are outside the rate zone(s) that the Replacement Shipper is paying.”

Objections and Responses

In adverse comments and a protest, shippers asserted that there needs to be a requirement that the additional reservation charge paragraph 3.1(b)(2) allows Transwestern to require the releasing shipper to pay be limited to the maximum reservation rate specified in the tariff.

Transwestern asserted that its proposed language already provides that the releasing shipper will not have to pay an additional reservation charge higher than the maximum applicable tariff rate because it states that “any additional Reservation Charge … shall apply to the initial Releasing Shipper in accordance with its Service Agreement,” and the terms of the service agreement set out the rate of any additional reservation charge that the initial releasing shipper will pay, which, pursuant to paragraph 3.1(b)(1), cannot exceed the maximum applicable tariff rate. While no revisions are necessary, Transwestern said it was willing to revise paragraph (b)(2) to expressly refer back to paragraph 3.1(b)(1).

Shippers argued that paragraph 3.1(b)(3) does not provide for the possibility that the releasing and replacement shippers may have agreed to specific rates that would apply to points that are in rate zones that are not within the same rate zone as the primary path. They asked FERC to require Transwestern to add language addressing this possibility.

Transwestern asserted that no additional language is necessary because paragraph (3) provides for just this potential scenario. According to the pipeline, paragraph (3) only applies if a replacement shipper uses alternate points that are (1) “outside the rate zones comprising the Primary Path” or (2) “outside any other rate zone(s) that the Replacement Shipper is paying per the terms of the release between Releasing Shipper and Replacement Shipper.”

The shippers also pointed out two minor typographical errors, which Transwestern agreed to correct.

FERC's Rulings

FERC found that the shippers’ concerns about paragraph 3.1(b)(2) are adequately addressed by Transwestern’s offer to revise the text to refer back to paragraph 3.1(b)(1). Any additional reservation charge incurred by the releasing shipper under paragraph 3.1(b)(2) may not exceed the maximum applicable tariff rate.

FERC also denied the shippers’ request to add language to paragraph (b)(3). “We agree with Transwestern that the currently proposed language adequately limits the requirement that the replacement shipper pay an additional reservation charge in situations where it uses a secondary point outside the rate zones for which it is paying.” If the replacement shipper uses a secondary point in a rate zone outside the replacement shipper’s primary path but in a zone for which the replacement shipper is paying pursuant to the terms of the release, “Transwestern will not charge the replacement shipper an additional reservation charge beyond the charge agreed to between the releasing and replacement shippers.”

FERC accepted Transwestern’s tariff records, effective Aug. 9, 2019, subject to Transwestern submitting an additional compliance filing incorporating the changes it agreed to make within 30 days.

For More Information

See ¶443-6: Rates for more information on the rates paid by replacement shippers.

Transwestern Pipeline Co. LLC, Order on Compliance Filing, 168 FERC ¶61,082 (2019) [Docket No. RP15-23-011].

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