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FERC issues open season rules for Alaska gas pipeline projects Commission adopts rolled-in pricing as basis for expansions, sets 90 day open season with 30 days notice Kristen Nelson Petroleum News Editor-in-Chief
The Federal Energy Regulatory Commission has issued its open-season rules for Alaska gas pipeline projects — rules the commission said balance the needs of those with gas reserves and those who are still in the exploration stage, and the risks project proponents will face in building a gas line with the interests of the state and in-state users of gas.
The rule, Order No. 2005 published Feb. 9, meets a mandate set by Congress, which gave FERC 120 days to establish open season rules when it passed the Alaska Natural Gas Pipeline Act in October.
The commission proposed rules Nov. 15, held a technical conference in Anchorage Dec. 3 and published the rules Feb. 9.
FERC approved an anchor shipper concept, but only for initial capacity, and rolled-in pricing for expansions, saying its goal was to balance the needs of current gas owners with those of companies still exploring for gas.
Anchor shippers are companies with known quantities of gas who pre-subscribe space on a proposed pipeline, providing the necessary shipping guarantees for the initial project. But FERC has allowed pre-subscription only for the initial project, meeting a concern expressed by explorers — companies without current gas reserves — that both initial and expansion capacity could be contracted by those with known gas supplies before open seasons were held.
FERC also made a significant pricing decision for pipeline expansions, saying its policy will be a “rebuttable presumption for rolled-in treatment” of expansion costs, an issue of concern to those who will not have gas discoveries in time to bid on initial capacity and will have to rely on space in expansions to move their gas.
Rolled-in tariffs, the pricing method used for expansions in Canada, include expansion costs with original costs and all shippers pay the same rate; in incremental pricing, the method the FERC has favored for expansion tariffs, those who need expansion capacity pay for it. Balance for pre-subscription On the anchor shipper issue the commission said it decided “the expense, risk, and long lead time involved in developing an Alaska natural gas transportation project justify allowing project sponsors the flexibility to enter into pre-subscription agreements…” The commission said it does not think that the federal loan guarantees reduce the risk of an Alaska project to the level where pre-subscription should not be allowed, “nor do we see pre-subscription as inherently anti-competitive.”
FERC is requiring, however, that all pre-subscription agreements be made public within 10 days of their execution, and that capacity on the line be offered to all prospective qualifying shippers on the same rates and terms as the pre-subscription agreements.
Project sponsors will be allowed to determine how to allocate capacity if the line is oversubscribed, but FERC said in the case of pre-subscribed capacity, project sponsors must either revise the project’s capacity to accommodate all qualified bids “or prorate only the capacity that was subject to the pre-subscription agreements or was bid for in the open season on the same rates, terms and conditions as any of the pre-subscription agreements.” Open season set at 90 days FERC set the open season at 90 days, and required public notice of the open season at least 30 days prior to the beginning of the open season, providing “a period of a minimum of 120 days in total to examine the information pertaining to any open season…” The commission said it balanced the amount of time it would take potential shippers to make a multi-year commitment with the congressional requirement that an application be filed for a project within 18 months of October 2004.
FERC also said that the minimum 120-day open season period established for the Alaska project “is substantially longer than any open season heretofore held for a major pipeline project.”
As for requests that FERC delay an open season, the commission said that while it is not imposing such a requirement, its rules do not become effective until 90 days after publication in the Federal Register, “which will prevent any open season for the first three months.”
And the commission also added a new rule, requiring a project proponent to consider bids tendered after the close of the open season by qualified bidders, “and may reject them only if they cannot be accommodated due to economic, engineering, or operational constraints, in which case the project sponsor must provide a detailed explanation for the rejection.”
And Alaska’s concerns about in-state shipping were met, FERC said, with a requirement that open season information include an assessment of in-state needs, a listing of prospective delivery points within Alaska and a proposed in-state transportation rate. Alaska pleased with results Alaska officials were pleased with the FERC’s response to its concerns.
Alaska Gov. Frank Murkowski said the FERC’s open season rules appear to follow closely the recommendations he made during the commission’s Anchorage meeting in December.
“My administration sought assistance from federal regulators in getting the pipeline project under way as soon as possible, making sure the project serves Alaska’s domestic needs and making sure it includes the proper access terms that allow explorers and pipeline owners to get their gas to markets. These open season rules appear to fall in line with the concerns I raised in my testimony in Anchorage,” he said.
Alaska legislators agreed.
We believe the commission’s rules “addressed most of the concerns we expressed during the rulemaking process and think it bodes well for the future of natural gas development in Alaska,” said Sen. Gene Therriault, R-North Pole, chairman of the Legislative Budget and Audit Committee. Rep. Ralph Samuels, R-Anchorage, vice chairman of the committee, said: “FERC’s determination on the rolled-in tariffs is critical to the long-term expansion of the pipeline.” Senator Murkowski welcomes rule Sen. Lisa Murkowski, R-Alaska, said Feb. 9 that when Congress passed financial incentives for a gas line last fall, “we wanted FERC to establish rules that will encourage companies to explore for and develop more natural gas in Alaska, not just our known reserves. We wanted the rules to guarantee that a pipeline be large enough to permit gas to be taken out of the pipeline for in-state heating, electricity generation and industrial and petrochemical use. And we wanted the rules to guarantee that anyone who finds more gas in the future can use the pipeline to get their gas to market.
“It appears that the rule will meet all of those needs and some of the other issues that Alaska wanted addressed,” the senator said.
Anadarko Petroleum, which doesn’t have gas reserves yet, but is sitting on a lot of prospective state oil and gas leases, also liked what it heard Feb. 9 about the FERC’s rule.
“We’re encouraged by what we’ve heard so far about the FERC’s proposed regulations,” Mark Hanley, Alaska public affairs manager for Anadarko Petroleum, told Petroleum News. “It sounds like many of the concerns of explorers have been addressed and that the rule should encourage gas exploration which we think will benefit consumers.”
Hanley said Anadarko appreciates “all the work done by the FERC commissioners and staff to gather input including holding a hearing in Alaska and the effort made to understand all of the issues and draft regulations to address concerns raised.”
BP Exploration (Alaska) and ConocoPhillips Alaska, two of the North Slope gas owners who are in negotiations with the state on fiscal terms for a gas pipeline, both said they would want to review the regulations before commenting.
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