In a March 20, 2014, Notice of Proposed Rulemaking (Proposed Rule), the Federal Energy Regulatory Commission (FERC) proposed, among other things, a requirement that all interstate pipelines offer multiparty firm transportation contracts, whereby multiple shippers can share interstate gas pipeline capacity through a single service agreement.  FERC noted that, under its proposal, “[P]ermitting such entities to enter into a single contract with the pipeline gives those entities the flexibility to choose contracting partners with complementary needs for pipeline capacity and to enter into an ongoing contractual relationship concerning how they will share the capacity.”  FERC also suggested that the new requirement could make the purchase of firm pipeline capacity more affordable.  Currently, the Proposed Rule applies only to firm capacity, but FERC is also seeking comments on whether it should require companies to offer multiparty interruptible service agreements.

FERC’s Proposed Rule marks a significant shift in FERC’s approach toward inter-affiliate service agreements.  FERC has historically followed the approach that inter-affiliate sharing of firm transportation service violates the “shipper must have title” policy, a FERC requirement that all shippers must have title to the gas at the time the gas is delivered to the transporter and while the gas is being transported.  However, in some circumstances, FERC has permitted the use of a single firm transportation service agreement for multiple shippers affiliated with a single agent.  If adopted, the Proposed Rule would require interstate pipelines to offer multiparty transportation contracts, even those between affiliates.  Additionally, to comply with FERC’s “shipper must have title” policy, interstate pipelines would also need to propose tariff provisions ensuring joint and several liability for all obligations for all shippers under the service agreement.

The electric and natural gas industries, through the North American Energy Standards Board (NAESB), have 180 days after the Proposed Rule’s publication in the Federal Register in which to reach a consensus on revisions to the Proposed Rule.  Regardless of whether or not NAESB is able to reach consensus on any revisions to the Commission’s proposals, comments are to be filed within 240 days after publication of the Proposed Rule.

The Proposed Rule is available in its entirety at: http://www.ferc.gov/whats-new/comm-meet/2014/032014/M-1.pdf.