June 2024 Vol. 79 No. 6
Washington Watch
Washington Watch: Pipeline customers press pricing reduction initiatives
Stephen Barlas | Washington, D.C. Editor
(UI) — Pipeline customers have stimulated a two-pronged political attack on interstate pipeline pricing directed at the Federal Energy Regulatory Commission (FERC) and Congress.
FERC announced in late March it is responding to a 2022 petition from the American Gas Association (AGA), American Public Gas Association (APGA), Process Gas Consumers Group (PGC) and Natural Gas Supply Association (NGSA) that requested the commission initiate a rulemaking to consider precluding interstate natural gas pipelines from aggregating bids on non-contiguous and/or operationally unrelated capacity segments during open season auctions.
“We’re pleased that FERC is taking action to consider this practice that forces pipeline customers to bid on unwanted and operationally unrelated pipeline capacity or else lose access to the high-value capacity that is needed to get natural gas to customers,” stated Casey Hollers, NGSA’s senior director, regulatory affairs and policy.
“The practice has become increasingly common and unnecessarily inflates the price of pipeline service, thus harming shippers, especially captive industrial customers, local gas utilities, marketers and the millions of customers that together we serve.”
The Interstate Natural Gas Association of America (INGAA) said in a 2022 reply to the initial petition: “The Commission repeatedly has considered this practice and approved it as just and reasonable. Petitioners’ only allegations of harm are hypothetical, generalized, unsupported…”
In an unrelated, but politically parallel effort, the APGA, Industrial Energy Consumers of America (IECA) and consumer groups are pushing for the Making Pipelines Accountable to Consumers & Taxpayers (MPACT) Act introduced by Sens. Richard Blumenthal (D-Conn.) and Cindy Hyde Smith (R-Miss.). This bill would reform the Natural Gas Act (NGA) to allow FERC to remedy pipeline overcharges by authorizing refunds in section 5 rate cases.
“Interstate natural gas pipelines are monopolies and do not have any competition and are guaranteed a high fixed rate of return,” said Paul N. Cicio, president of IECA. “When the Federal Energy Regulatory Commission (FERC) determines that interstate pipelines have overcharged customers, it is common sense that overcharges be refunded from the date they intervened at FERC.”
The Blumenthal bill was introduced for the first time in 2022 and went nowhere. “We have many more organizations supporting the legislation now, than last Congress,” stated Cicio. “There is good momentum. If we do not get it done in this Congress, that momentum will carry over to the next.”
Amy Andryszak, INGAA president & CEO, argues the MPACT Act is not necessary to protect consumers. “The Natural Gas Act (NGA) already charges the Federal Energy Regulatory Commission (FERC) with ensuring that interstate natural gas pipelines’ rates are just and reasonable and authorizes FERC to reduce rates that the agency determines are unjust and unreasonable,” she stated.
“In almost all cases, each pipeline and its customers negotiate the pipeline’s authorized rates, and FERC approves the agreed-upon rates through an uncontested settlement.”
The FERC notice of inquiry (NOI), the first step in a possible rulemaking, deals with pipeline sales of firm capacity, typically in an auction. Pipelines accept bids for that capacity during an open season and decide which bids to accept, based on their net present value (NPV).
Pipeline customers allege that the pipelines combine attractive and unattractive segments – in this case non-contiguous and operationally unrelated segments – to maximize their sales of capacity. The argument against that practice, which opponents derisively call “junk-and-jewel” auctions, is that it leads to higher prices for gas customers, is that it denies shippers access to needed capacity and in practical terms results in undue discrimination and unjust and unreasonable rates,” according to a blog post from the law firm Troutman Pepper.
FERC, in its NOI, said, “The Commission has allowed the inclusion of non-contiguous and/or operationally unrelated segments in capacity postings because the practice allows the pipeline to sell more capacity than it otherwise would, potentially benefiting shippers in the long run. Specifically, the Commission has found that maximum revenues and increased use of pipeline capacity will increase billing determinants and thereby lower unit fixed costs in a pipeline’s next rate case.”
The FERC staff did an investigation of pipeline auctions in August 2023 and looked at the years 2019 and 2023. In 2019, there were 98 firm capacity auctions; in 2023 there were 85. For the surveyed periods in 2019 and 2023, staff identified 11 and seven examples, respectively, of postings for non-contiguous paths for which the rules of the pipeline’s NPV analysis stated that parties could increase the NPV of bids. However, staff could not determine whether any of these examples reflect the packaging of high-value capacity with low-value capacity.
Appeals Court approves pipeline construction extensions
The Sierra Club, a frequent filer of lawsuits seeking to stymie pipeline construction, took it on the chin once again when the Court of Appeals for Washington, D.C., rejected its attempts to halt construction of two pipelines. At issue were FERC’s approval of extended construction deadlines for the National Fuel Gas Supply Corp. Northern Access pipeline and Cheniere Corpus Christi LNG terminal and pipeline.
The New York State Department of Environmental Conservation had denied National Fuel’s Clean Water Act section 401 permit, which the pipeline needed in order to build the 99-mile Northern Access Pipeline across Pennsylvania and New York. FERC first approved the pipeline project in 2017, requiring it to be completed by Feb. 3, 2019. National Fuel sued New York and the pipeline won the case in 2021, but not in time for National Fuel to meet the original construction deadline. The company then asked FERC to extend that deadline and on Feb. 3, 2022, the commission gave National Fuel an additional 35 months. The Sierra Club protested the extension, and again lost, leading to its appeal to the Court of Appeal.
In the case of Cheniere, the company sought FERC’s approval to build a series of improvements to an existing liquefied natural gas (LNG) terminal on Texas’s Corpus Christi Bay and a related pipeline. FERC granted its approval in 2019. The authorization order required the project to be completed by Nov. 22, 2024. In 2021, Cheniere filed a request to extend the deadline for its project by 31 months, until June 30, 2027. Cheniere cited the COVID-19 pandemic as the reason for its delay.
The Sierra Club and Public Citizen filed motions to intervene in both instances and filed a protest opposing the extension and contesting good cause. The Appeals Court ruled that in both cases FERC had previously conducted lengthy review processes before approving the projects in the first place and, in considering the requests for extensions, FERC found that the project sponsors had demonstrated diligence in the continued pursuit of their projects.
With respect to National Fuel, FERC also determined that delays caused by litigation constituted good cause to grant an extension. For Cheniere, the Commission found that the COVID-19 pandemic caused logistical problems that amounted to good cause.
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