The Federal Energy Regulatory Commission (FERC) issued a policy statement regarding natural gas quality and interchangeability at its June 15, 2006 meeting. Recognizing that a rigid one-size-fits-all approach could stifle the introduction of additional natural gas supply, the Commission opted to resolve future gas quality and interchangeability disputes on a case-by-case basis using the generic guidelines established in the policy statement to provide direction as to how these matters will be addressed.

In response to the rising number of disputes involving such matters, the Commission adopted an industry-backed framework and five principles that seek to facilitate the resolution of gas quality and interchangeability disputes. FERC believes the policy statement "achieves a balanced approach by providing certainty, ensuring safety and reliability of the nation’s gas grid, and recognizing concerns about natural gas quality and interchangeability, while providing pipelines and their customers the flexibility necessary to maximize the introduction of new supply into the grid."

The Commission endorsed the Natural Gas Council Plus (NGC+) interim guidelines as the starting point and default basis for all new and amended gas quality and interchangeability requirements. The NGC+ guidelines were established by a broad range of natural gas industry participants, including pipelines, local distribution companies, liquefied natural gas (LNG) terminal operators, shippers, process gas users and end users. The interim guidelines will be applied by the Commission to the extent that a pipeline does not already maintain acceptable gas quality and interchangeability provisions in its tariff. The NGC+ group recommended the adoption of interim guidelines so that further scientific research can be conducted on gas quality and interchangeability issues.

The policy statement’s five basic principles will serve as the Commission’s framework when considering disputes between pipelines and their customers regarding gas quality and interchangeability.

  • First, FERC will only enforce gas quality and interchangeability standards contained in a Commission-approved tariff.
  • Second, pipeline tariff provisions on gas quality and interchangeability must be flexible enough to maximize supply in a manner that is safe for pipeline infrastructure.
  • Third, pipelines and their customers should develop gas quality and interchangeability specifications based on sound technical, engineering and scientific considerations.
  • Fourth, when negotiating specifications, pipelines and their customers are strongly encouraged to use the NGC+ guidelines as a common reference point for resolving their differences. Pipelines that adopt standards that deviate from the NGC+ guidelines must explain to the Commission how the proposed methods differ from the interim guidelines.
  • Finally, in the event that negotiating parties are unable to resolve gas quality and interchangeability disputes, the parties may bring the contested issues before the Commission to be resolved.

© 2006 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purposes and is not intended to constitute legal advice.