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:
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);
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
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.