APP’s TransCanada, Alaska Receives FERC Order Approving Open Season Plan

Release Date:

03/31/2010

By: WIlliam Doyle

On March 31, 2010, TC Alaska received approval with modification from the FERC for its detailed plan for conducting an open season to make binding commitments for initial capacity on its natural gas Alaska pipeline project.

TC Alaska plans to issue its open season notice no later than April 30, 2010 and expects to close it 90 days later on July 30, 2010.

Two options will be submitted for shipper assessment in the open season. The first option is a 1,700-mile line from Alaska's North Slope to Alberta, from where the gas could be delivered on existing pipeline systems to the US. The second option would transport gas 800 miles from ANS to Valdez, Alaska, where it would be converted to LNG in a facility to be built by others and then delivered by ship to North American and other international markets.

Both options would allow off-take by Alaskan customers. Both also would include a gas treatment plant and a 58-mile pipeline from Point Thomson fields to the plant and main transmission line.

The Alaska Pipeline Project (APP), as it is called, is being advanced on behalf of TC Alaska by TransCanada Alaska Development Inc. (TransCanada Alaska Development) and ExxonMobil Alaska Midstream Gas Investments Inc. (EMAMGI), along with a respective affiliate of each company in Canada (collectively, the "APP Parties" or "project sponsors")

TC Alaska's Open Season Timeline as proposed:

The FERC order pertaining to the APP Parties issued on March 31, 2010 is summarized below:

With respect to some of the objections and concerns raised by some of the potential shippers FERC states: "It was not the Commission's intent in establishing the open season procedures to create a forum in which to pre-litigate issues that may arise during certificate and rate proceedings. Rather, the intent of the pre-open season review is to determine whether potential bidders will be treated in a non-discriminatory manner. Consequently, we agree with those parties who urge a relatively limited review of TC Alaska's filing. . . In any case, BP Exploration's objections do not demonstrate discrimination and are thus not within the scope of our review here."
The FERC Commissioners noted: "Moreover, we are not persuaded by BP Exploration's assertion that unless the issues it raises regarding the rates, terms, and conditions of service are resolved during the pre-approval process, the resulting economic uncertainty will render prospective bidders either unable or unwilling to make informed bids. . . There is no basis to question TC Alaska's interest in resolving any issues that would preclude prospective shippers from bidding on its proposal, given the time, effort and expense involved. TC Alaska is also mindful, no doubt, that another prospective applicant has announced its intention to soon file its request for pre-approval of an open season plan. Thus, if TC Alaska is unable or unwilling to satisfy the informational requirements of any prospective bidders, those potential bidders will be presented with another option to consider for meeting their needs."
There were also questions raised by prospective shippers regarding credit worthiness. On the count, the FERC found: "While the creditworthiness provisions in Exhibit B to the precedent agreement state that the project sponsor will determine a shipper's creditworthiness in its sole discretion, the Commission does not believe this to be discriminatory since Exhibit B provides clear criteria for determining whether a shipper is creditworthy."
BP Exploration asked the FERC to require TC Alaska to include a means for shippers to include in their bids the volumes of incremental firm capacity that will be available along with any firm capacity awarded in the open season. BP Exploration asserts that TC Alaska has neither provided information to enable bidders to assess the amount of seasonal capacity other than their MDQ, nor provided a way for shippers to include that seasonal capacity in their bids. On this FERC ruled : "This is clearly an issue that fall outside the scope of the open season pre-approval process, as is reflected by our treatment of a similar question in Alliance Pipeline, L.P. . . . Only operational experience can determine the volume that a pipeline can consistently deliver on year-round basis to determine available pipeline capacity."
Based on access to information concerns, the FERC will require that TC Alaska immediately open its data rooms to allow inspection of documents and information. FERC will not require that TC Alaska change its planned open season commencement date of April 30, 2010. Should TC Alaska promptly open the data rooms, there will be no reason to alter the proposed open season schedule. If, however, there is an undue delay in opening the rooms and any party makes a showing that it has been significantly disadvantaged as a result, FERC will consider requiring an appropriate delay in the commencement date of the open season or extending its closing date.
FERC accepted TC Alaska's March 16, 2010 explanation of the Dempster Lateral and the Canada Open Season process as acceptable. Dempster is a dead issue and the Canada Open Season process is fine.
The State of Alaska expressed concerns about standards of conduct. This issue is related to ensuring that a project applicant conducting an open season functions "independently from any affiliated organizational units involved in the production of natural gas" in Alaska or marketing or selling natural gas from Alaska so that affiliates do not have unfair advantage in an open season. TC Alaska is not a gas producer or marketer, but the standards are applied to ExxonMobil, and compliance procedures in the open season plan "spell out ExxonMobil's structural separation, as well as the firewalls and standards of conduct that are in place."
APP Parties state that once the FERC approves the open season plan, they intend to issue the open season notice no later than April 30, 2010.
APP Parties state that the open season will run for the minimum of 90 days required by the FERC's regulations and, thus, is expected to close on July 30, 2010.
APP Parties state that actual notice of the open season will be provided to the FERC, the State of Alaska and to the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, as required by the FERC's Open Season regulations.
Reading rooms will be located in Houston, Texas; Anchorage, Alaska; Whitehorse, Yukon and Calgary, Alberta.
To be considered a bona fide bid, the precedent agreement must be signed by an authorized representative of the bidding company or entity. Each potential shipper must meet and continue to meet the creditworthy requirements appended to the precedent agreement. In the precedent agreement, the potential shipper must state the maximum daily quantity that it wants to transport on the pipeline and, if desired, the maximum treatment quantity that it might want to process at the gas treatment plant. The potential shipper must also name the primary receipt and delivery points it seeks to use and whether it intends to pay recourse rates or seek negotiated rates. The potential shipper can also request a primary term for such services (20-25, 30, or 35 years for negotiated rates and 25 years for recourse rates).
APP Parties state that shippers that make commitments to use capacity of at least 200,000 British thermal units (MMBtu) per day (about 200,000 Mcf per day) will be considered foundation shippers.
Within five business days after the close of the open season, the project sponsors will notify each bidder whether it has submitted a conforming bid and will provide a written explanation to those bidders whose bids have been rejected as non-conforming.
Potential shippers will be notified by September 1, 2010, whether the project sponsors intend to proceed to design, permit and construct either of the alternative projects.
There will be no continuing obligations with respect to a alternative route not selected by the project sponsors.
On or before October 31, 2010, the project sponsors will notify conforming bidders of the impact on the project of the total aggregated capacity from conforming bids for the selected route.
After the close of the open season, the project sponsors plan to seek mutual agreement with potential shippers on negotiated rates and other conditions proposed to the precedent agreements.
On or before November 30, 2010, the project sponsors will provide conforming bidders with the final version of the precedent agreement that must be executed no later than December 31, 2010.
Within 10 days after precedent agreements have been executed by both parties, the project sponsors will make public the name of the prospective shipper(s), the amount of capacity awarded, and the term of the agreement(s).
Within 20 days after precedent agreements have been executed by both parties, the project sponsors will submit to the FERC copies of each precedent agreement and copies of any relevant correspondence with bidders who were not allocated capacity, identifying why such bids were not accepted.