On October 21, 2021, FERC denied multiple complaints against Panhandle Eastern Pipe Line Company, LP (“Panhandle”) regarding its refusal to waive all penalties associated with Operational Flow Orders (“OFO”) issued during the extreme Storm Uri weather event in February 2021. In doing so, FERC upheld penalties levied against Panhandle customers who argued they were forced to use the pipeline contrary to the OFO order to ensure reliable service for their own end-use customers.
On the evening of February 15, 2021, Panhandle issued an OFO pursuant to its tariff directing customers to reduce all auto-unpark nominations to zero in Panhandle’s Field Zone and requiring all nominations for receipts to match the flow of gas volumes physically delivered to receipt points in the Field Zone. The February 15, 2021 OFO required shippers to comply within 2 hours of the notice and stated that it would remain in effect until further notice. Ultimately, the OFO remained in effect from the evening of February 15, 2021 (Gas Day 15) until February 19, 2021 (Gas Day 18). During this time, Panhandle customers incurred penalties in excess of $121 million for failing to comply with the OFO.
On March 9, 2021, as supplemented on March 10, 2021, Panhandle submitted a filing with FERC seeking approval to waive approximately $50 million of penalties associated with Gas Day 15, explaining that because customers effectively had only one hour notice, compliance with the OFO was impracticable. Commenters requested Panhandle provide a similar waiver for Gas Days 16, 17, and 18, which Panhandle rejected. Shortly thereafter, FERC issued an order allowing partial waiver, finding that the request for additional waiver was beyond the scope of that proceeding, and noting that shippers could file a complaint under section 5 of the Natural Gas Act (“NGA”). Various complaints were then filed, requesting that FERC direct Panhandle to waive all OFO penalties, rather than only those associated with Gas Day 15.
FERC denied the complaints, finding that Panhandle’s waiver of only a portion of the OFO penalties was consistent with its tariff as well as FERC policy and precedent. FERC explained that Panhandle’s tariff expressly provides Panhandle the discretion to waive some or all penalties incurred by shippers as the result of an OFO violation on a not unduly discriminatory basis. FERC found that the partial waiver was not unduly discriminatory because Panhandle did not dot distinguish between similarly situated shippers, but instead waived all penalties incurred on Gas Day 15. While FERC noted that the penalized shippers on Gas Day 15 did not have sufficient time to comply with the OFO, FERC found that Panhandle reasonably justified declining to waive penalties for Gas Days 16, 17, and 18 because shippers had adequate time to comply with the OFO. Although FERC has previously approved waivers for the full OFO period, FERC concluded that it has never stated that complete waivers were the only waivers permitted. And while FERC recognized that customers (and Panhandle) faced the unprecedented impact of extreme weather during Storm Uri, FERC emphasized the importance of compliance with OFOs to ensure system reliability.
Commissioner James Danly issued a separate concurrence, explaining that although Panhandle complied with its tariff and Commission policy, he remained concerned with the section of Panhandle’s tariff that it utilized to waive the OFO penalties, which allows Panhandle to waive any rights or obligations of shippers under the tariff on a not unduly discriminatory basis. Commissioner Danly stated that he believed this section is overbroad and that FERC should exercise its authority under NGA section 5 to direct Panhandle to modify this section or explain why it should not be required to do so.
A copy of the order is available here.