On October 15, 2009, the Commission released an order addressing Texas Eastern Transmission LP’s (“Texas Eastern”) filing of two letter agreements and revised tariff sheets modifying previously filed negotiated rate agreements with New Jersey Natural Gas Company (“New Jersey”) and PSEG Power, LLC (“PSEG”). The modifications included negotiated fuel rate caps and a provision that the negotiated fuel rate cap would apply to any replacement shipper if New Jersey or PSEG released their capacity.
Separately, Texas Eastern filed a request that the Commission confirm that posting and bidding requirements for capacity release would not apply to the negotiated fuel rate caps and that the negotiated fuel rate cap does not require the filing of individual negotiated rate sheets with each replacement shipper.
FERC confirmed that a pipeline may negotiate usage and fuel charges with replacement shippers. The Commission determined that since a replacement shipper must negotiate usage and fuel charges directly with the pipeline without any participation by the releasing shipper, it is reasonable to afford the pipeline the same ability to negotiate rates with replacement shippers as it had with the primary shippers.
However, the Commission found it impermissible to include a provision in the original negotiated rate agreement which allows any replacement shipper the same negotiated fuel rate cap granted to New Jersey and PSEG. The Commission found that change in the agreement to be a material deviation from the form of service agreement and that Texas Eastern’s tariff contains no provision to offer a guarantee of a specific usage or fuel charge for a replacement shipper. FERC stated that a clause to give certain shippers, who were not parties to the underlying service agreement, the same negotiated fuel rate cap cannot be considered part of the original shipper’s negotiated rate. Therefore, the clause is a material deviation from the form of service agreement. The Commission required Texas Eastern to remove the provision in the service agreements or file generally applicable tariff provisions that would apply to other firm shippers.
In response to Texas Eastern’s request for clarification, FERC agreed that the posting and competitive bidding requirements of the capacity release regulations do not apply with respect to the negotiated fuel rate caps associated with the negotiated rate agreements with New Jersey and PSEG. These requirements apply to the releasing shipper’s selection of a replacement shipper based on an agreement as to the reservation charge component of the rate. Once the releasing shipper selects the replacement shipper, the replacement shipper must separately agree with the pipeline on usage and fuel charges.
The Commission, however, disagreed with Texas Eastern on the filing requirements. The Commission indicated there would be no additional burden for filing individual negotiated rate sheets with each replacement shipper receiving a negotiated fuel rate cap, and that Texas Eastern must make such a filing for each negotiated fuel rate cap it enters into with a replacement shipper.
The Commission’s order is available at: http://www.ferc.gov/whats-new/comm-meet/2009/101509/G-1.pdf.