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Steptoe & Johnson PLLC: FERC Allows Pipeline to Prohibit Backhaul Shippers From Nominating Forward Haul Service

By Kurt Krieger

Shippers with firm transportation capacity on interstate pipelines often nominate their contracts to move gas in numerous directions on the pipeline on a secondary point basis, subject to the pipeline's tariff scheduling priorities. Those with firm primary forward haul capacity might nominate to back haul gas on a secondary point basis. Some pipelines sell back haul service at primary points - perhaps at discounted firm transportation rates. Other pipelines provide separate services (rate schedules) for back haul transportation service between primary points, but, case in point, not all back haul services are created equal.

The Federal Energy Regulatory Commission (FERC) approved a pipeline's proposal for a new back haul service (separate rate schedule service), but initially rejected one feature of the proposal to prohibit shippers under that service from using it for forward haul transactions at secondary points. FERC initially rejected this limitation holding that it violated FERC's policy of flexible receipt and delivery points. In support of the proposal, the pipeline noted that the back haul rate schedule service's rates were derived based on a two-thirds percentage of its standard firm transportation service (FTS), thus justifying limiting this limitation on forward haul use of the new back haul service.

In a more recent order on rehearing, FERC reversed its position. In its reversal, FERC approved of the pipeline's proposal to prohibit shippers under the new back haul service rate schedule from using it for forward haul transactions at secondary points.

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Kurt Krieger focuses his practice in the area of energy law with experience representing interstate natural gas pipeline companies, midstream companies and public utilities before the Federal Energy Regulatory Commission (FERC), and state and commonwealth public service (or utility) commissions.

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