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) requesting that the commission initiate a
rulemaking to consider precluding interstate natural gas pipelines from
aggregating bids on non-contiguous and 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,” said
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 2022 in 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-CT) and Cindy Hyde Smith (R-MS).
This bill would reform the Natural Gas
Act (NGA) to allow the 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,” says Paul N. Cicio, president of the 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 the 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,” states
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 said. “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 are alleging 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, lead 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.
The
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 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
examples 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.
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 the Washington, D.C. rejected its attempts
to halt construction of two pipelines.
At issue were the Federal Energy Regulatory
Commission’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
a 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 for the FERC to
extend that deadline and in 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 a 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. P&GJ