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April 2010

Vol. 15, No. 14 Week of April 04, 2010

FERC approves TC Alaska open season plan

Requires immediate opening of data rooms, some revisions in standards of conduct; rejects BP arguments for extensive review

Kristen Nelson

Petroleum News

The Federal Energy Regulatory Commission has approved, with modifications, TransCanada Alaska’s plan for conducting an open season for the Alaska Pipeline Project.

FERC said in a March 31 order that the TC Alaska plan generally complies with its open season regulations, but required two modifications.

The commission is requiring TC Alaska to immediately open its data rooms and is also requiring some revisions in the plan to comply with FERC’s standards of conduct.

Tony Palmer, president of TransCanada Alaska, said TransCanada is “very pleased that FERC has approved our open season plan,” but said he couldn’t immediately comment on the requirement to open the data rooms or on revisions to the standards of conduct.

He told Petroleum News March 31 that he was just leaving Houston after appearing on a panel and hadn’t had a chance to read the order in detail.

The plan had been to open the data rooms effective May 1, he said.

Limited issues

One thing which was strongly argued in filings on the open season plan was what issues the commission should consider in evaluating the plan.

FERC said TC Alaska described an evaluation of whether the open season proposal was “in conformance with the open season rules,” rather than an examination of substantive issues.

While ExxonMobil Gas & Power, the State of Alaska and Denali agreed, BP Exploration told FERC that the open season filing required a much more comprehensive review.

FERC said it was not its “intent in establishing the open season procedures to create a forum in which to pre-litigate issues that may arise during certificate and rate proceedings. Rather, the intent of the pre-open season review is to determine whether potential bidders will be treated in a non-discriminatory manner.” FERC said it agreed “with those parties who urge a relatively limited review of TC Alaska’s filing.”

FERC said it made clear in Order No. 2005 that open season regulations for the Alaska project “represented an effort to balance a project sponsor’s need for flexibility to design and finance a viable project with the ‘equally compelling needs to ensure fair competition in the transportation and sale of natural gas, promote the development of natural gas resources in addition to those in the North Slope, and consider Alaskan in-state requirements.’”

In an extensive discussion of the issues raised by BP Exploration, FERC said it was not persuaded by BP’s “assertion that unless the issues it raises regarding the rates, terms, and conditions of service are resolved during the pre-approval process, the resulting economic uncertainty will render prospective bidders either unable or unwilling to make informed bids. We will not prescribe in our pre-approval process what we chose not to prescribe in the Open Season regulations themselves.”

FERC said it concluded “that our pre-approval of a prospective applicant’s plan for conducting an open season pursuant to the Open Season regulations does not contemplate a close examination of the prospective applicant’s costs and tariff.”

Data rooms need to be open

BP also argued that timing and substance of information under the open season plan were inadequate.

The commission agreed on the timing issue, saying that “it is clear, as BP Exploration contends, the Open Season regulations require that all the information filed … must be available to prospective shippers at the time the … request for pre-approval is filed, whether the information be published in the notice or accessible by way of a reading/data room.”

The commission said in its order that it “will require that TC Alaska immediately open its data rooms to allow inspection of documents and information,” but said it would not require TC Alaska to change the April 30 date it has set for the beginning of its open season.

“Should TC Alaska promptly open the data rooms, there will be no reason to alter the proposed open season schedule. If, however, there is an undue delay in opening the rooms and any party makes a showing that it has been significantly disadvantaged as a result, we will consider requiring an appropriate delay in the commencement date of the open season or extending its closing date.”

BP also argued that TC Alaska was not providing enough information.

The commission said that once the data rooms are open, what BP described as “the vast majority of information within TransCanada’s control” withheld to date will be available to BP and other prospective shippers.

On BP’s requests for additional information on the Canadian portion of the line and on the Dempster Later, FERC said it believed those issues had been adequately addressed by TC Alaska in mid-March.

State concerns

The State of Alaska expressed concerns about standards of conduct. This is a firewall issue related to ensuring that a project applicant conducting an open season functions “independently from any affiliated organizational units involved in the production of natural gas” in Alaska or marketing or selling natural gas from Alaska so that affiliates do not have unfair advantage in an open season.

TransCanada is not a gas producer or marketer, but the standards are applied to ExxonMobil, and compliance procedures in the open season plan “spell out ExxonMobil’s structural separation, as well as the firewalls and standards of conduct that are in place,” the commission said.

The State of Alaska asked that FERC clarify the standards of conduct; the commission complied.

And, in response to a request from BG Alaska that the commission review closely the details to the compliance procedures to ensure they comply with FERC’s open season regulations, FERC said TC Alaska narrowed the phrase marketing affiliates by added those involved in marketing or sale of natural gas from Alaska. The commission said that in order No. 2005 it intended for the standards of conduct “to apply to all marketing affiliates during the open season, not only those involved in marketing or sales of natural gas” from Alaska; it is requiring TC Alaska to revise its compliance procedures to remove the language narrowing the scope of marketing affiliates.

FERC said that TC Alaska’s language that standards of conduct apply to producer affiliates involved in Alaska is acceptable.

Alleged discriminatory provisions

The commission also addressed provisions which BP Exploration and ConocoPhillips described as discriminatory.

Among those issues, BP said the proposed creditworthiness provisions were discriminatory, citing a lack of standards and unrestricted exercise of discretion by the project sponsor. The commission said it agreed the precedent agreement says the project sponsor would determine creditworthiness, but said it does not believe that is discriminatory since Exhibit B to the precedent agreement “provides clear criteria for determining whether a shipper is creditworthy.”

In response to BP’s assertion that FERC should require TC Alaska to have a means for shippers to include in their bids volumes of incremental firm capacity that will be available due to colder temperatures, FERC said that falls outside the scope of open season pre-approval as reflected in its treatment of a similar question related to the Alliance Pipeline.

ConocoPhillips raised concerns in its initial comments about the open season process, including when bidders would be notified of open season results and notification of rejected bids. TC Alaska said in reply comments that it had been its intent to act as ConocoPhillips suggested, and clarified its proposed open season notice correspondingly.

In response to ConocoPhillips’ assertion that the methodology for awarding capacity in case of over subscription required revision, TC Alaska said in reply comments that it believed its provisions provided bidders an opportunity to decline capacity if the capacity bid for was reduced on a pro-rata basis, and said it had no objection to making the bidder’s opportunity to decline prorated capacity more explicit and revised its proposed open season notice accordingly.






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