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Producers, others squawk over fed’s rules Key stakeholders seek everything from tweaks to overhaul of FERC’s final ‘open season’ rules for Alaska gas pipeline Rose Ragsdale Petroleum News Contributing Writer
In a flurry of last-minute filings, major contenders in the current Alaska gas line debate weighed in with the Federal Energy Regulatory Commission on the final “open season” rules for Alaska gas pipeline projects. FERC issued Order No. 2005 on Feb. 9 and gave the public 30 days to make comments.
Open seasons are held whenever a pipeline is built to allow gas producers and shippers to identify each other, demonstrate interest in the pipeline and reach agreement with regulators on costs, tariffs and other considerations. Rules discriminate, producers say BP Exploration (Alaska) Inc., ConocoPhillips and Exxon Mobil Corp., who together own 95 percent of the 35 tcf of proven gas reserves on Alaska’s North Slope, filed a voluminous request March 11 for a rehearing on the rules, which would govern use of the Alaska gas pipeline.
The producers cited 11 problems with the regulation, including requirements they say discriminate against them in favor of mere shippers who will assume no risk in the project.
“The sponsor group is seeking a regulatory balance that provides the project sponsor and its initial shippers with the ability to design the pipeline efficiently and avoid unnecessary costs and delays, and investor risk, while, at the same time, ensuring they will provide open access to other parties consistent with FERC’s policies and regulations,” said ExxonMobil spokesman Bob Davis. “The bottom line is the FERC proposed rules add risk and potential cost to an already extremely risky project.”
Davis told Petroleum News April 1 that many of the problems the sponsor companies identified in the FERC regulation are technical but add potential cost to the gas line project.
The producers asked that five provisions be eliminated outright from the regulation. These are:
• The open-ended obligation requiring a project sponsor to consider bids after an open season;
• FERC’s ability to mandate a design change to the initial voluntary pipeline design to meet all qualified shipper requests received during or after the open season;
• The discriminatory treatment of pre-subscription capacity subscribers;
• The presumption of rolled-in rates on voluntary expansions; and
• The requirement that a project sponsor must determine what information is “in the hands of” potential bidders, including an affiliate, and provide copies of such information to all potential bidders.
The three companies also sought changes to other provisions, including converting the requirement of a mandatory pre-filing of the open-season bid package to a voluntary submission, and making the submission for FERC’s review only and not subject to third party intervention. The producers asked that the requirement for an in-state needs study be reworded by replacing “seek the State of Alaska’s approval, if practicable” with “consult with the State of Alaska;” and that FERC correct references to delivery points in various subparts of the regulations to tie-in points so they will be consistent with the Alaska Natural Gas Pipeline Act. In addition, the producers want to ensure that a requirement to provide estimated rates for in-state service during the open season does not create a requirement to offer such rates if the open season does not yield firm commitments; and that FERC provide non-substantive edits and corrections to the regulatory language to reduce confusion. Anadarko applauds commission’s work Anadarko Petroleum Corp., in sharp contrast to the producers’ plea, soundly applauded the final open season rule March 11, saying it “carefully balanced important and divergent interests” in light of Congress’ objectives.
Anadarko is an independent with substantial exploration acreage in gas prospective areas of the North Slope as well as a minority oil producer in the Alpine field.
Calling the regulations “flexible” and “appropriate,” Anadarko said the open season rules ensure that a gas pipeline will not inhibit competition in the production of Alaska natural gas nor restrict access by non-North Slope supplies.
“Anadarko believes FERC did a good job of following Congress’ mandate to encourage gas exploration and production with the open season rules,” said Mark Hanley, the company’s Alaska manager of public affairs. Others voice concerns, some praise Enbridge Inc., a Canadian pipeline company hoping to build at least part of the Alaska gas line, also filed a request for rehearing March 11, saying FERC erred in four areas of the regulation.
First, the commission is permitting late bidders, which “invites disputes over loosely defined standards nominally governing late bids and is unnecessary given various accommodations both the Commission and Congress have made for late-developing shipper requirements,” Enbridge said.
Second, by subjecting only pre-subscription agreements to the potential for pro rata capacity allocation, the regulation effectively eliminates the prospect that shippers will find pre-subscriptions an attractive alternative. Enbridge said this “disincentive” is exacerbated by the further requirement for public disclosure of pre-subscription terms prior to the announcement of an open season such that all open season bidders would have the competitive advantage of prior knowledge of pre-subscription bids.
Third, by requiring FERC’s pre-approval of the proposed open season notice and procedures, the regulation effectively extends the open season to at least 210 days when it should be no longer than 120 days, Enbridge said.
Lastly, by providing a rebuttal presumption of rolled-in pricing for voluntary expansions, without limiting the presumption to circumstances where the expansion rates are no higher than pre-existing rates, the regulation creates an entirely unsupported and unwarranted risk for initial shippers that may impair the project’s development, Enbridge said. In its current form, the provision could result in initial shippers having to pay higher rates in the future to accommodate rolled-in pricing for voluntary expansions, the pipeline company argued.
The Interstate Natural Gas Association also raised concerns about FERC’s final open season rule, noting that the commission “may be creating market uncertainty” by raising the specter of regulatory intervention in the gas line project.
ChevronTexaco, which owns a minority share of North Slope gas, praised the overall regulation in its March 11 filing. But the company asked FERC to rehear or clarify various aspects of the rule to avoid confusion, make certain gas agreements public and allow for voluntary, rather than government-mandated, design changes or expansion in the pipeline after an open season. Alaska offers constructive criticism The state of Alaska submitted comments, also in a March 11 filing, aimed at convincing FERC to tighten and clarify certain regulatory language in the rule, but applauded the overall regulation for striking “the right balance” between competing interests.
The state suggested that FERC modify the regulation’s language regarding consideration of late bids to avoid undermining the open season process and that the commission use more explicit language regarding its prohibition on “tying” to indicate that any proposed tying arrangements will be subject to an exacting inquiry and require compelling justification. “Tying” refers to the practice of bundling of services in a gas field with pipeline transportation services in determining shipping rates.
The state requested clarification of wording about capacity allocation for presubscribed capacity on the pipeline to clear up confusion in the final rule; to make very clear that in-state rates will be “distance sensitive” and not include costs to make gas deliveries outside Alaska; and to dispel the ambiguity regarding the rule’s application to a gas treatment plant that accompanies construction of a gas pipeline. Supporters rebut criticisms The Alaska Legislative Budget and Audit Committee and Anadarko took the unusual step of filing “answers” March 28 to rehearing requests from the producers, ChevronTexaco and Enbridge.
The LB&A asked for a waiver of FERC rules that typically do not allow “answers” to rehearing requests and praised the federal agency for “properly balancing all interests” in the regulation.
Though it does not agree with everything in FERC’s final open season rule, the legislative committee urged the agency to refuse to modify the regulation, saying it is based on “solid, legal” reasoning.
The fact that LB&A, along with many other parties, did not file for rehearing suggests the “breadth of support” for the final product of the commission’s labors, the committee said.
“In Order No. 2005 the Commission has recognized the policy tensions between: (1) getting a line built on the one hand; and (2) assuring that it is accessible by all interests and expanded as appropriate to maximize the development of the state’s resource base,” the committee added.
Anadarko’s Hanley said the producers essentially asked the commission to reverse their decision, a difficult undertaking since the final rule meets the statutory mandate provided by Congress.
“We think the congressional language is fair, and it provides equal access to the pipeline,” he added.
FERC has 30 days to respond to public comments. However the commission can give itself additional time to consider a number of requests in the same docket. The open season regulation will become law May 19, 90 days after it appeared in the Federal Register Feb. 18.
The commission believes it will have sufficient time to handle requests for rehearing and clarification and still meet the 90-day implementation deadline, a FERC spokeswoman said April 6.
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