FERC adopts gas interchangeability policy

The US Federal Energy Regulatory Commission adopted a natural gas interchangeability policy when it said on Apr. 19 that it would not accept requests from natural gas pipelines to compensate customers and other downstream users for costs incurred from using supplies that include revaporized gas that meets approved gas quality and interchangeability standards.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Apr. 23 -- The US Federal Energy Regulatory Commission adopted a natural gas interchangeability policy when it said on Apr. 19 that it would not accept requests from natural gas pipelines to compensate customers and other downstream users for costs incurred from using supplies that include revaporized gas that meets approved gas quality and interchangeability standards.

FERC announced the new policy in a case involving a complaint filed by AES Ocean Express LLC against Florida Gas Transmission Co. The commission today generally affirmed an administrative law judge's ruling and approved standards proposed by Florida Gas to receive AES Ocean's revaporized LNG, which will be imported from facilities proposed to be built in the Bahamas.

"This order provides greater regulatory certainty with respect to how the Commission will address gas interchangeability issues associated with LNG import projects. This is critical if the United States is going to be successful in its competition with Europe and Asia for LNG imports," FERC Chairman Joseph T. Kelliher said.

In a January 2004 order, the commission said AES Ocean Express could construct and operate a gas pipeline to transport regasified LNG to onshore delivery points in Broward County, Fla. from an offshore receipt point at the boundary between the US Exclusive Economic Zone and the Bahamas (OGJ Feb. 19, 2007, p. 48). AES Ocean Express intends to connect its planned pipeline to FGT's system and deliver regasified LNG to FGT's market area. When the two companies could not agree, AES Ocean Express formally complained to FERC, which ordered a hearing before an administrative law judge.

At that hearing, FGT proposed more stringent interchangeability standards because electricity generators use more than 80% of its total throughput and have special needs. The commission backed the ALJ's recommendation that the new standards be accepted but said they should be applied to all LNG that FGT receives and not just that from AES Ocean Express.

Cost recovery
During the hearing before the ALJ, the companies argued that FERC was responsible for establishing a means by which downstream users could seek compensation for costs resulting from using supplies that include LNG, which has a higher heat content than most conventional natural gas.

The ALJ disagreed, saying that such a mechanism would be "a prescription for unnecessary or inflated costs and endless bickering." FERC backed the ruling, adding that no specific testing program has been established, and it would not be appropriate for the commission to propose or supervise one and monitor its costs.

FERC said that while the AES Ocean Express complaint was before the ALJ, FGT entered into arrangements with other LNG suppliers. They included Southern Natural Gas Co., which constructed new facilities to interconnect LNG imported to its Elba Island terminal near Savannah, Ga. It has been operating since February. Cypress Pipeline Project also plans to construct a pipeline into the Florida Gas system from the Elba Island terminal.

The commission said the Florida Gas tariffs for providing services to its customers will control the gas quality and gas interchangeability standards that Southern must meet to deliver revaporized LNG to Florida Gas' pipeline.

Although the Cypress pipeline is under construction and due to go into service in May, the AES Ocean Express project is no longer imminent, FERC said, as the AES Corp. division sought and received an extension until Jan. 29, 2009, to complete the project and put it into service.

Contact Nick Snow at nsnow@cox.net.

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