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Reminder: Commitments in Precedent Agreements May Later Be Rejected by FERC

FERC’s October 5 Order on Rehearing in Equitrans, L.P. provides a good reminder to market participants that the commitments made in a precedent agreement may subsequently be rejected by FERC when the negotiated rate transportation agreement is filed for Commission approval. Equitrans, L.P. (Equitrans) filed a non-conforming negotiated rate transportation agreement that it entered into with EQT Energy, LLC (EQT Energy) for new service on Equitrans’ Ohio Valley Connector Project. The agreement included the following three non-conforming provisions for service:

  1. A provision that gave EQT Energy the right to participate in any future open season for an expansion of the system with the benefits and designation of a Foundation Shipper (the Foundation Shipper provision);

  2. A provision that gave EQT Energy most-favored nation status, which would allow EQT Energy to match the decreased negotiated rate if Equitrans contracts for a lower negotiated rate with another shipper; and

  3. A provision that imposed stricter creditworthiness requirements for EQT Energy.

FERC rejected the Foundation Shipper provision and accepted the other two non-conforming provisions. It found that the Foundation Shipper provision was potentially unduly discriminatory and conditioned acceptance of the agreement on its removal. Equitrans sought rehearing of FERC’s rejection of the Foundation Shipper provision.

In denying rehearing, FERC reminded the parties that non-conforming provisions must be filed with and approved by FERC before they can take effect. Even if the parties rely on the commitments in the precedent agreements, both parties bear the risk that FERC could reject the provisions until the non-conforming provisions are approved. FERC explained that the Foundation Shipper provision gives EQT Energy a potentially more advantageous opportunity to participate in future expansions of the Ohio Valley Connector Project and poses a significant risk of undue discrimination on future expansions. FERC stated that even if the undue discrimination concerns are speculative, FERC has an affirmative duty to prevent and remedy undue discrimination and does not need to wait for the discrimination to occur before acting.

FERC’s October 5 order serves as a reminder to developers and sponsors of natural gas pipeline infrastructure, including laterals to as well as developers and sponsors of gas-fired generation projects, that the provisions resulting from precedent agreement negotiation must still pass regulatory muster, including those that must be later incorporated into a non-conforming service agreement or negotiated rate agreement. As a result, contracting parties should consider whether to include in the precedent agreement a remedy to address FERC’s subsequent modification or rejection of these provisions in later proceedings.

Copyright © 2019 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

Kirstin Gibbs, Morgan Lewis, Energy and Compliance Attorney
Partner

Kirstin Gibbs focuses her practice on Federal Energy Regulatory Commission (FERC) compliance and enforcement issues involving natural gas companies, as well as all aspects of interstate oil and gas pipeline rates and tariffs, including matters involving administrative and appellate litigation. Clients, including pipelines, producers, traders, marketers, utilities, and end users, turn to Kirstin for advice on transactional matters related to the development of new oil and gas infrastructure and she regularly provides assistance with negotiation of midstream transportation...

202-739-5026
Levi McAllister, energy attorney, Morgan Lewis
Partner

Levi McAllister advises clients subject to regulatory oversight in the natural gas, crude oil, natural gas liquids (NGLs), and electric power sectors of the energy industry. Levi’s practice largely focuses on compliance with regulatory provisions administered by the Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC) that affect the energy industry. Levi also advises clients on transactional matters in the energy industry concerning acquisitions, divestitures, mergers, and development of oil and gas infrastructure.

202-739-5837