FERC Rejects Preferential Rates and Capacity Rights for Committed Shippers on Pre-Existing Oil Pipeline Capacity

The Federal Energy Regulatory Commission (FERC) issued an order on March 20, 2014, rejecting Colonial Pipeline Company’s (Colonial) petition for a declaratory order (PDO) that, for the first time ever, would have allowed an interstate oil pipeline to grant preferential rates and capacity rights to shippers making volume commitments through an open season process conducted outside the context of a pipeline project.

FERC has issued numerous declaratory orders since 1996, allowing pipelines to grant such preferential rights where volume commitments were necessary to support the financing and construction of a project, including new construction, capacity expansions, line reversals, and system realignments.  Colonial sought to extend that precedent.

FERC rejected Colonial’s attempt to extend its precedent for granting preferential rights by distinguishing between situations in which shippers make volume commitments to support the long-term viability of a new project and situations such as that posed here, where the volume commitments would do nothing but ensure the pipeline a “legally unassailable revenue stream whether or not committed shippers make any shipments and without any commitment that new capacity will be added to a constrained system.”  The order also emphasizes that existing shippers who decline to make a volume commitment would have their service rights degraded by virtue of the superior rights accorded to the volume-committed shippers.  Accordingly, FERC rejects Colonial’s proposal as unduly discriminatory.