Not all back haul services are created equal

November 22, 2012
Shale Play

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.

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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.

FERC based its reversal on a prior decision and argument that this prohibition is not unreasonable where the back haul service is provided at reduced rates; that is, less expensive than the standard FTS.

This might raise the issue of whether discounted rate, standard FTS rate schedule service with primary points that reflect a back haul transaction might become subject to additional proposals to implement the same prohibition preventing use of that FTS for forward-haul transactions at secondary points.

Both types of back haul transactions (although under different rate schedules) would seem to be susceptible to the same argument: primary firm back haul contracts at less than the standard firm transportation rate are eligible for limits on the use of secondary points for forward-haul transactions.

 
 

 

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