United States: FERC Orders Technical Conference Regarding Algonquin's Proposed Alternative Capacity Release Provisions

On March 31, 2016, FERC issued an order (1) accepting and suspending Algonquin Gas Transmission, LLC's ("Alongquin") proposed tariff revisions exempting from FERC's capacity release bidding requirements certain types of capacity releases of firm transportation by electric distribution companies ("EDCs") that are participating in state-regulated electric reliability programs and (2) establishing a technical conference to determine whether the proposed tariff revisions are just and reasonable. 

On February 19, 2016, Algonquin filed a revised tariff record adding a section 14.16 to its General Terms and Conditions containing the alternative capacity release provisions. In its filing, Alongquin states that it is developing the Access Northeast Project to expand Algonquin's pipeline system and develop market area storage to deliver up to 900,000 Dth per day of natural gas for electric generation markets in New England. Algonquin also proposes to construct, as part of the project, a liquefied natural gas storage facility in Acushnet, Massachusetts to provide flexible hourly "reserved no-notice" service and to supplement supplies for natural gas-fired electric generators on cold winter days. Algonquin states that Eversource Energy ("Eversource") has executed two precedent agreements for transportation and storage on the Access Northeast Project and has filed an application with the Massachusetts Department of Public Utilities requesting approval of those agreements, as well as approval by the State of Eversource's proposed Electric Reliability Service Program ("ERSP"). Under Eversource's proposed ERSP, the EDCs would hire a capacity manager to administer the release of the EDCs' transportation capacity and/or gas supply to natural gas-fired electric generators located in ISO New England Inc. ("ISO-NE"). The release schedule would coincide with ISO-NE's Forward Capacity Market ("FCM") bidding windows to allow natural-gas fired electric generators to acquire capacity prior to commitments in the FCM. Algonquin also explains that the remainder of the pipeline capacity would be made available to natural gas-fired electric generators in bidding windows corresponding to the traditional natural gas trading periods. Algonquin states that Eversource's precedent agreements for the Access Northeast Project require Algonquin to receive FERC approval of a tariff provision that would allow the EDCs to release their capacity on a priority basis to natural gas-fired electric generators under a state-approved electric reliability program.

Under Algonquin's proposed tariff revisions, EDCs would be permitted to conduct prearranged releases of firm transportation capacity to an asset manager and/or to electric generators providing electric generation to the wholesale electric market serving the EDCs as part of a state-regulated electric reliability program, without subjecting those releases to the capacity release bidding requirements. Algonquin argues that natural gas pipeline infrastructure to supply generation in New England is critically constrained during the winter months, resulting in comparatively higher electricity prices and challenges to electric reliability in the region. Algonquin also argues that natural gas-fired generators do not have sufficient incentives to purchase year-round firm transportation and may be required to pay higher prices for either delivered supply or secondary market capacity during peak periods. In addition, Algonquin asserts that its proposed tariff changes would facilitate the release of firm capacity obtained by EDCs through state-regulated electric reliability programs for use by electric generators, which in turn would support generation of electricity to be delivered to the regional electricity grid for the benefit of EDCs' ratepayers. Algonquin further asserts that the proposed tariff revisions are in the public interest because they support the efforts of EDCs to increase the reliability of supply for natural gas-fired electric generators in New England and to address high electricity prices during peak demand.

In response to the proposal, several protestors argued that FERC should either summarily reject the proposal or suspend the proposal for the maximum period and convene a technical conference. Other protestors argued that such an exemption from FERC capacity release policies should be implemented through rulemaking procedures. Several parties argued that Algonquin's filing is premature and that FERC should refuse to consider the proposal until a state-regulated electric reliability program has been approved by Massachusetts or other New England states or until Algonquin can provide further details about its proposal. Additionally, some parties argued that Algonquin's proposal will result in undue discrimination between natural gas-fired electric generators connected to Algonquin that would be given the benefit of purchasing non-biddable, "subsidized" capacity from the EDCs through their asset manager and natural gas-fired electric generators connected to other pipelines. Some natural gas shippers argued that Algonquin's proposal would provide certain shippers with preferential treatment even though other shippers might be willing to pay more than the price obtained for the "preferentially released, non-biddable capacity." In response to the protests, EDCs argued that FERC has the authority to find that the public interest supports Algonquin's proposal in light of FERC precedent allowing exemptions from capacity release bidding requirements for state natural gas retail access programs and for asset manager arrangements. In its answer, Algonquin argued, among other things, that its filing demonstrates that market conditions in New England support the need to address electric reliability, that prices would not be artificially suppressed, and that price signals would not be distorted.

In its order, FERC states that Algonquin's proposal raises numerous issues that are best addressed at a technical conference. Thus, FERC directs FERC Staff to hold a technical conference to examine the issues relating to Algonquin's proposal within 120 days of issuance of the order.  In particular, FERC states that, at the technical conference, Algonquin and the parties protesting the proposal should address the need for the waiver from FERC's capacity release bidding requirements. Accordingly, FERC accepted and suspended Algonquin's proposed tariff revisions, to be effective the earlier of September 1, 2016 or the date specified in a later order, subject to refund and the outcome of the technical conference.

A copy of the 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.

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