On October 15, 2015, in response to requests for clarification from several parties, FERC established default interpretations for capacity release transactions that specify that a releasing shipper may recall capacity at the first only, second only, or both existing intraday nominations, with such default interpretations to be applicable April 1, 2016 and thereafter when there will be three, rather than two, intraday nominations. FERC also set filing deadlines of November 13, 2015 and December 14, 2015 for releasing and replacement shippers who disagree with the applicable default interpretation and do not agree on an alternative.
FERC permits releasing shippers to specify which releases are recallable and to select which nomination cycles are subject to recall rights. Pursuant to FERC’s Order No. 809, the natural gas industry will switch on April 1, 2016 from having two intraday nominations (i.e., nominations during the current natural gas day) with deadlines of 10 A.M. and 5 P.M. CCT, to having three intraday nominations, with deadlines of 10 A.M., 2:30 P.M. and 7 P.M. CCT.
Absent agreement of the parties otherwise in a capacity release transaction’s existing provisions, the default interpretations applicable April 1, 2016 and thereafter are:
- where the agreement states that recalls are permitted at both the Intraday 1 and Intraday 2 Nomination Cycles, it will be interpreted as permitting recalls at the new Intraday 1, 2 and 3 Nomination Cycles;
- where the agreement states that recalls are permitted only at the Intraday 1 Nomination Cycle, it will be interpreted as permitting recalls only at the new Intraday 1 Nomination Cycle; and
- where the agreement states that recalls are permitted only at the Intraday 2 Nomination Cycle, it will be interpreted as permitting recalls only at the new Intraday 3 Nomination Cycle.
FERC noted that since issuance of Order No. 809, shippers could have begun specifying special recall provisions applicable to the period on or after April 1, 2016 in the special terms and conditions section of their capacity release transaction agreements. To the extent parties have included such provisions, FERC expects pipelines to honor them. FERC stated that while a releasing shipper has the right to exercise all recall conditions in a release agreement, FERC will not provide the releasing shipper with an additional right to terminate a release agreement prior to its expiration date where the releasing and replacement shipper cannot reach agreement on the recall rights to be available under the agreement on April 1, 2016 and thereafter (unless such a termination right is specified in the agreement).
Where the parties disagree with the default interpretation and are unable to agree on alternative recall rights, the releasing shipper is required to notify the applicable pipeline and the replacement shipper by November 13, 2015 that the parties disagree on alternative recall rights and specify what the releasing shipper believes should be the alternative recall rights. In the absence of such notification, the applicable default interpretation will control on April 1, 2016. If the replacement shipper disagrees with the releasing shipper’s designated alternative, it should file a complaint with FERC by December 14, 2015, providing transaction specific justifications for adopting a different contractual interpretation. In a footnote, FERC stated that while it will act on complaints filed after December 14, 2015, it will give priority to timely complaints in an effort to resolve them before April 1, 2016. If the replacement shipper does not file a complaint, the releasing shipper’s designation of alternative recall rights will apply.
A copy of the order is available here.