FERC approves Denali open season plan

Some changes made in proposed plan following comments; FERC rejects state’s assertion that it should have wide access to data rooms

Kristen Nelson

Petroleum News

The Federal Energy Regulatory Commission approved Denali’s open season plan June 7, conditioned on some modifications, setting the stage for the company’s open season to begin in July.

“This approval confirms that Denali’s plan is complete and consistent with FERC requirements,” said Bud Fackrell, president of Denali — The Alaska Gas Pipeline LLC, in a June 7 statement.

Denali spokesman Dave MacDowell said in a June 7 e-mail that the company was not concerned about anything in the order. “We believe we can comply with the points FERC raised, and we will start our open season on July 6th.”

FERC said in its June 7 order that its “approval of Denali’s open season plan does not constitute a binding determination with regard to the substance of Denali’s submission. We encourage Denali and potential shippers to work together to resolve any issues arising during the implementation of the open season plan, during the open season, or during negotiations after the close of the open season.”

FERC said that many of the issues raised by those commenting on the proposed plan “deal with rate and tariff matters that either we will address in the future or may be resolved through negotiations between Denali and prospective shippers.” The commission also said parties can raise these issues at a later stage.

What the commission discussed at some length were concerns that it said “could have a significant impact on the open season process itself rather than just the proposed terms and conditions of service and thus merit our consideration at this time.”

Not all required changes

For example, in response to a concern by BP Exploration that Denali’s creditworthiness requirements discriminated among shippers by requiring that foundation shippers and subsidiaries carry the same credit rating as a parent, while other shippers must only carry an investment grade rating.

Denali told FERC that the provisions were designed to address a situation where a shipper created a shell company “to limit or avoid potential liability to Denali,” hence the requirement that subsidiaries maintain the same credit rating as the parent.

FERC did not require Denali to modify its requirements, stating that “although Denali’s creditworthiness provisions establish different criteria depending on the shipper’s status as a subsidiary, this differentiation is not discriminatory as long as similarly situated shippers are treated the same.”

Reductions of maximum daily quantities

FERC said that in response to similar concerns the project sponsors in the TransCanada project agreed to provide shippers with the opportunity to decline reduced capacity awards, and said it would “direct Denali to more clearly delineate in its open season notice the procedures it will follow for notifying bidders of any reduction in their maximum daily quantity allotment and also to explicitly provide bidders the opportunity to decline any reduced award of capacity.”

ConocoPhillips was also concerned about notification of any design reconfiguration and an opportunity to withdraw bids as a result of reconfiguration or revised rate estimates.

FERC directed Denali to include a process for notifying bidders of “any design reconfiguration that results in a material change in transportation rates or capacity allotment as a result of section 4.3 of the precedent agreement and to provide bidders an opportunity to modify or withdraw their bids if there are changes in their capacity allotment or if rates are revised due to a reconfiguration of the system.”

BP Exploration was concerned about a requirement that bidders resubmit bids in the event FERC requires Denali to hold a revised open season.

FERC said that could require a prospective shipper to bid on capacity at a rate or under terms it no longer considered acceptable; it directed Denali to remove that provision.

State and reading rooms

The state argued that Denali’s confidentiality agreement limited access to its reading rooms to potential shippers meeting certain creditworthiness requirements; the state — but only in its capacity as a potential shipper; and regulatory agencies having open season jurisdiction.

Alaska said the provisions are too restrictive, “and would unreasonably deny access of state representatives with a legitimate interest in reviewing Denali’s reading room materials.”

In addition to the possibility that Alaska might acquire released capacity in the line outside of the open season, the state said “that as a royalty owner and tax collector it has an interest in the reading room materials because Denali’s rates for transportation and gas treatment services are directly related to wellhead prices.”

Alaska also said that because of the importance of the gas pipeline project to the state it “should be an interested or affected governmental authority with access to the reading room, regardless of its status as a prospective shipper, provided the state representatives with access to the reading room do not share reading room information with a competing project or its representatives.”

Alaska also argued that Denali’s confidentiality agreement required parties signing the agreement to indemnify Denali against third-party claims arising from unauthorized use or disclosure and required parties reviewing documents to consent in advance that a breach of the agreement causes irreparable harm.

Alaska said its constitution restricts agencies from entering into indemnification provisions, which could preclude state representatives from reviewing reading room material.

Denali said that its procedures for reading room access, including confidentiality agreements, were structured to ensure that all shippers were equally informed on matters affecting decisions on whether to bid for capacity on the line, while protecting against unauthorized disclosure. Denali said it was particularly concerned about “sharing confidential, proprietary, and competitively sensitive reading room information with Alaska representatives who are also involved in the management of the state’s interests in the Alaska Pipeline Project.”

FERC sides with Denali on access

With the unique competitive circumstances surrounding the two Alaska gas line projects and the state’s relationship to the Alaska Pipeline Project, “we do not find unreasonable Denali’s concerns that the confidential, proprietary, and competitively sensitive reading room information not be shared with Alaska representatives involved in the management oversight of the state’s interests in a competing pipeline project or for purposes other than acquiring capacity in Denali’s open season.”

FERC said the state has agreed to permitted use restrictions in a protective order issued in a Trans-Alaska Pipeline System proceeding, where representatives of Alaska were not required to sign the non-disclosure certificate but the state was required to provide a list of employees to be granted access to protected materials and those employees were required to treat the materials as confidential under Alaska’s Executive Branch Ethics Act.

“Such a provision was deemed there to be sufficient to ensure that Alaska would be able to meet the permitted use requirements, and such a provision should be workable here, as well.”

FERC also noted that in the previously cited instance, the parties did not waive any right to pursue any legal or equitable remedies in the event of a breach of the confidentiality agreement, and said that should suffice here.

The commission said that in Order No. 2005-A, it “recognized that the parties would have to address the matter of dealing with confidential or sensitive ‘protected information,’ and we also stated that the Commission and its staff would assist the parties in resolving any disputes in this area. We reaffirm that commitment here.”