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Power & Pipes

FERC, CFTC, and State Energy Law Developments

On August 11, Midcontinent Express Pipeline LLC (MEP) filed proposed tariff revisions in Docket No. RP16-1168 that, if adopted, would reflect one of the first instances in which an interstate pipeline proposed tariff revisions for the stated purpose of addressing changing market conditions and the effect of those conditions on producer shippers. As proposed, MEP and a shipper may agree to reduce the Maximum Daily Quantity of an existing Rate Schedule FTS transportation agreement or terminate an existing Rate Schedule FTS transportation agreement in certain circumstances in exchange for a payment to MEP of all or a portion of the reservation charges for the agreement’s remaining term. MEP explains that it is proposing the provision to “provide flexibility to its shippers in implementing transfers of producing acreage to other entities and in light of significant changes in commodity markets that have affected the financial condition of some of its shippers.”

Under the revised tariff provision, a shipper would be able to pay a fee (which could be all or a portion of the remaining reservation charge fees under the contract) and reduce the maximum daily quantity of its contracts. This option would be available to all shippers under certain circumstances. In particular, (i) as part of a transfer of producing acreage or other producing assets from an existing shipper to another entity or (ii) in response to an observable deterioration of a shipper’s financial ability to perform the payment of obligations due to MEP over the existing agreement’s term.

This proposal may generate some questions and comments about whether it is just and reasonable (the FERC standard for accepting tariff revisions). If accepted, the proposal will serve as one of the first ways that pipelines have revised their tariffs to adapt to changing market conditions and to the risks posed by contracts with their producer customers. Comments and interventions are due on August 23, 2016.