Tuesday, October 20, 2020
On October 15, 2020, the Federal Power Regulatory Fee (“Fee”) issued an order discovering that Northern Border Pipeline Firm awarded pipeline capability via pre-arranged offers that had been unduly preferential towards an affiliated pure gasoline producer, and unduly discriminatory in opposition to equally located shippers. The Fee rescinded the pre-arranged offers and capability awards and directed Northern Border to carry a brand new open season.
One of many Fee’s priorities in regulating the pure gasoline transportation market is that pipeline capability be made accessible on a clear, open-access foundation to make sure that the capability is allotted to the occasion that values it probably the most. The Fee permits pipelines to promote capability via pre-arranged offers with shippers, supplied that the pipeline first publicly put up the capability as accessible. If the pipeline enters right into a pre-arranged deal, it should then put up the phrases of the pre-arranged deal and supply all shippers a possibility to bid on the capability in an open season. If a shipper submits a bid with a higher web current worth (“NPV”) than that of the pre-arranged deal, the pre-arranged shipper could match that bid and acquire the capability. If the pre-arranged shipper declines to match, the pipeline should award the capability to the best bidder.
In February 2020, Northern Border held an open season for six packages of long-term capability that it meant to promote to an affiliate via pre-arranged offers, with service agreements to begin on June 1, 2020, or later. Northern Border had beforehand posted the capability as operationally or seasonally accessible, however had not posted the capability as accessible for long-term subscription. Northern Border’s pre-arranged deal open season imposed restrictions limiting the speed, time period, and volumes that events may embrace of their bids, and indicated that given the restrictions the pre-arranged offers supplied the best potential NPV for the capability. On the conclusion of the open season, Northern Border awarded the entire capability to the pre-arranged shipper.
Two teams of shippers subsequently filed complaints with the Fee, asserting that Northern Border had not posted the topic capability as typically accessible prior to creating the pre-arranged offers, and that the bid restrictions within the open season made it not possible for any shipper to supply bids with larger NPVs than the pre-arranged shipper’s bid. Northern Border responded that the open season was in line with its tariff, which didn’t require it to put up capability that may not be accessible inside 95 days. Northern Border additionally contended that the open season bid restrictions had been in line with Fee coverage allowing pipelines to specify bidding parameters in open seasons.
The Fee granted the complaints, discovering that Northern Border had conferred an undue choice upon its affiliate and unduly discriminated in opposition to equally located shippers, in violation of Part 5 of the Pure Fuel Act, the Fee’s laws, and the Fee’s Requirements of Conduct. The Fee discovered that Northern Border didn’t put up the capability earlier than getting into into the pre-arranged offers, such that shippers didn’t have equal entry to details about the capability. The Fee famous that despite the fact that Northern Border’s tariff didn’t expressly require it to put up capability that may not be accessible inside 95 days, Fee coverage requires capability to be posted earlier than it’s bought via pre-arranged offers within the absence of particular phrases on the contrary within the pipeline’s tariff. The Fee additionally discovered that Northern Border’s restrictions on charge, time period, and volumes that events may embrace of their bids assured that the capability would finally be awarded to Northern Border’s affiliate and denied different doubtlessly events a significant alternative to bid on the capability. The Fee discovered that these restrictions undermined its elementary open entry and nondiscrimination ideas and supplied no assurance that the pre-arranged offers allotted the capability to the occasion that values it the best.
The Fee rescinded the contracts, ordered Northern Border to carry a brand new open season for the capability, and directed Northern Border to make tariff revisions requiring it to put up capability on its web site earlier than getting into a pre-arranged deal.
On this order, the Fee confirmed its long-standing coverage that capability bought as a part of a pre-arranged deal should first be posted as accessible on the pipeline’s web site earlier than getting into right into a pre-arranged deal. The Northern Border order additionally makes clear that even when a pipeline has complied with the necessities of its tariff, the Fee could take motion to implement its insurance policies separate and distinct from tariff necessities, significantly with respect to elementary Fee priorities just like the preservation of a clear marketplace for pipeline capability.
Notably, the Fee’s treatment on this case goes farther than it has in related conditions. The Fee’s common observe of addressing improperly awarded contracts is to uphold the contracts and prohibit the pipeline from participating in related conduct sooner or later. Whereas the Fee’s rescission of Northern Border’s contracts was atypical, the Fee emphasised that the complaints had been filed shortly after the capability was awarded and earlier than service beneath the pre-arranged offers had begun. The Fee additionally famous there was no report proof in regards to the extent to which the shipper or different events had relied on the capability award and the events ought to have been conscious that the transactions concerned regulatory danger.
Though the Fee didn’t penalize the pipeline or provoke any formal proceedings to take a broader take a look at its processes of awarding capability, the order makes clear the Fee takes significantly alleged violations of the prohibitions in opposition to undue choice and discrimination.