United States: FERC Rejects Interstate Pipeline's Reliance On " Memphis Clause" In Transportation Service Agreement And Pipeline's Attempt To Remove Overrun Transportation Service From Its Tariff, While Reaffirming FERC Policy That Overrun Service...

On November 19, 2015, FERC issued an order granting rehearing of its prior June 30, 2015 order accepting and suspending tariff records, subject to refund, filed by Alliance Pipeline L.P. ("Alliance"). In the prior order, FERC had set for hearing, among other issues, Alliance's proposal to eliminate Authorized Overrun Service ("AOS service") from its Rate Schedule FT-1. In the rehearing order, FERC held that Alliance could not eliminate AOS service from its Rate Schedule FT-1, because it had entered into negotiated agreements that set specific, negotiated rates for AOS service, and hence removal of AOS service from its tariff would violate these negotiated transportation service agreements without justification. FERC held that the Memphis Clause in each of the negotiated transportation service agreements would permit Alliance to modify tariff provisions of general applicability to all shippers where the Commission determined such modification to be just and reasonable, but did not support modifying, without some further justification, rates or services specifically negotiated over and agreed upon in the negotiated transportation service agreements. On the other hand, FERC directed Alliance to eliminate from the GT&C section of its tariff provisions providing that AOS service would have priority over IT service. FERC held that these provisions were both (1) contrary to its policy that overrun service and IT service should have equal priority and (2) not the subject of specific negotiation and agreement in the negotiated transportation service agreements.

Presently, Alliance's tariff provides certain shippers under Rate Schedule FT-1 with access to both firm capacity up to their contractual maximum daily quantity, plus all of the additional capacity that Alliance can make available on a best efforts, or interruptible, basis, with such additional capacity provided as AOS service. The tariff sets a maximum recourse rate for AOS service of $0.5283/Dth, the same as the maximum recourse rate for IT service. At the time Alliance filed its May 29, 2015 NGA Section 4 tariff filing giving rise to this proceeding, the GT&C section of its tariff also provided that such AOS service would have priority over IT service. Alliance had also entered into several negotiated transportation service agreements, with unexpired terms, under which Alliance had agreed to provide AOS service to specific shippers at either rates below the tariff maximum rate for AOS service or at a rate of $0.00.

In its May 2015 tariff filing, Alliance proposed to remove all references to AOS service from its FT-1 Rate Schedule and to remove the AOS charges from its Statement of Recourse Rates. The Commission found that if such were effected, firm shippers on Alliance's system seeking capacity above their contractual maximum daily quantity would be required to use IT service, were it available, and pay the recourse rate for IT service. Alliance provided numerous grounds in support of its proposed elimination of AOS service. First, Alliance noted that the GT&C provisions providing that AOS service took priority over IT service were contrary to Commission policy holding that overrun and IT services are both interruptible services and should have comparable priority. Second, Alliance stated that elimination of OAS service did not violate its negotiated TSAs. In this regard, Alliance noted that each negotiated TSA contained a Memphis Clause, which stated that:

Transporter shall perform and Shipper shall receive Firm Transportation Service in accordance with the provisions of Transporter's effective Rate Schedule FT-1 and the applicable [GT&C] of Transporter's FERC Gas Tariff on file with the [Commission] as the same may be amended or superseded in accordance with the Rules and Regulations of the Commission.

According to Alliance, the Memphis Clauses showed that revisions to the Alliance tariff were contemplated by the negotiated TSAs, and the elimination of AOS service from the Alliance tariff was, in fact, contractually permissible. Alliance further maintained that Alliance and its shippers did not negotiate terms and conditions as part of their negotiated contracts, but merely filled in new rates. More specifically, Alliance maintained that the pipeline and its shippers had not negotiated and executed non-conforming agreements for AOS service; rather, the terms for AOS service were embodied in the tariff; the tariff governed such service, and Alliance was contractually free to alter or eliminate AOS service from the tariff. Alliance also dismissed the notion that the presence of a negotiated rate for AOS service in each negotiated contract – a rate lower than the maximum rate for AOS service in the tariff and hence a rate that was the subject of negotiation and agreement – could provide a basis for requiring Alliance to continue to provide AOS service. Alliance contended that the rate language in the negotiated agreements did not create a perpetual right of shippers to receive AOS service, but only addressed the rate to be charged in the event AOS service was available. Alliance also claimed that its shippers were attempting to avoid the consequences of not having signed non-conforming agreements that specifically addressed AOS service. Alliance also reiterated that maintaining AOS service with a higher priority than IT service contravened established Commission policy.

In its November 19, 2015 order on rehearing, the Commission noted that it had a "longstanding policy" providing that "although authorized overrun service is associated with a firm service contract, nevertheless, it is still an interruptible service" and should be offered with "the same scheduling and curtailment priority" as interruptible service. The Commission further found that the priority accorded OAS service was not the subject of negotiation in Alliance's negotiated contracts and, hence, the GT&C tariff provisions granting a priority to AOS service should be eliminated, and could be eliminated with violating the negotiated TSAs.

With respect to AOS service itself, however, the Commission held that Alliance's negotiated rate agreements with various shippers required Alliance to provide AOS service to those shippers at the agreed-upon negotiated rates for the remaining terms of those contracts. The Commission noted that the only "free" AOS service that Alliance provides is the AOS service it provides under the negotiated rate agreements, and that Alliance's proposal to remove OAS service could "only mean that Alliance proposes to terminate its contractual obligations to provide authorized overrun service at the AOS negotiated rates in its negotiated rate agreements."

The Commission also rejected Alliance's claim that the Memphis Clause in each negotiated contract authorized Alliance to propose, and the Commission to accept, elimination of the AOS service. The Commission stated that it has held that a Memphis clause authorizes a pipeline to make unilateral NGA Section 4 filings with the Commission proposing changes in the "generally applicable maximum and minimum rates and other terms and conditions set forth in the tariff," and, if the Commission finds such changes to be just and reasonable, the Memphis clause automatically incorporates them into the shippers' service agreements. However, the Commission has also held that "Memphis clauses do not authorize the pipeline to make unilateral changes in the individually negotiated provisions of a particular service agreement, such as a customer's discounted rate or its contract demand." The Commission noted that each negotiated agreement had a negotiated rate for AOS service and such negotiated rate was to remain in effect for the entire primary contract term and any extension thereof. In one or more of the negotiated agreements the parties also "agree[d] not to take any action to frustrate the continued ability of such rates to be charged for the transportation service under this Firm Transportation Agreement."

The Commission further noted that "the Commission traditionally considers authorized overrun and interruptible service as identical," and that in the circumstances of this case, "the only substantive purpose served by" the proposal to eliminate AOS service was "to nullify" the pipeline's "contractually agreed-upon negotiated AOS rates." Such nullification, the Commission held, would be contrary to the Commission's holding in a prior case that "a Memphis clause does not ordinarily authorize a pipeline to unilaterally modify a contractually-agreed upon" rate. The Commission concluded that the proposal to remove OAS service from the tariff was not in accordance with the Commission's rules and regulations, was not just and reasonable "because it would result in modification of individually negotiated rates without justification," and should be rejected.

The Commission's order is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions