- Commission Clarifies Policy on Flow-Through of Discounted or Negotiated Usage and Fuel Charges to Asset Managers
- October 21, 2009
- Law Firm: Troutman Sanders LLP - Atlanta Office
On October 15, 2009, the Commission issued an order regarding the usage and fuel charges to be paid by an asset manager replacement shipper under the Commission’s capacity release program. Several parties had raised questions about whether asset manager replacement shippers should receive the same discounts given to a primary firm shipper under an asset management agreement (“AMA”). The Commission declined to adopt a blanket requirement and determined that pipelines should apply the selective discounting policy on a case-by-case basis in deciding whether to grant a discounted or negotiated fuel or usage charge to an asset manager replacement shipper.
Order No. 712 modified capacity release requirements to eliminate the price cap on short term capacity releases. The order also aimed to facilitate AMAs by easing the prohibition on tying capacity releases to extraneous conditions and eliminating the bidding requirements for capacity releases used for instituting AMAs. The Commission stated that AMAs are different from standard capacity releases because they are designed to serve the supply needs of the original shipper. Thus, Order No. 712 requires a substantial delivery or purchase obligation on the asset manager that must be fulfilled for the release to be determined an AMA.
In deciding not to establish a blanket rule that pipelines must give the same discounted fuel or usage rates to an asset manager replacement shipper that it gives a primary firm shipper, FERC found asset managers are not similarly situated to a releasing shipper in every situation. FERC precedent allows for selective discounting based on varying demand characteristics of pipeline customers. However, in keeping with the Commission’s general policy that rates must not be given on an unduly discriminatory basis to similarly situated shippers, the Commission noted if the shippers are similarly situated, the pipeline must pass on the discounted negotiated rate to the asset manager.
FERC stated that it is more likely than not under an AMA for the asset manager to be similarly situated to the releasing shipper because under an AMA the releasing shipper transfers their capacity to the asset manager who will use the capacity to continue serving the releasing shipper’s needs while maximizing the value of the releasing shipper’s capacity when it is not needed by the releasing shipper. FERC also stated that when a pipeline gives the releasing shipper a discount at the delivery point and the asset manager uses the released capacity to deliver to the releasing shipper at that point, then the Commission “cannot envision a scenario where the asset manager replacement shipper would not be deemed similarly situated to the releasing shipper.”