Regulation

PL04 Order 436 (“Open Access” Pipeline Transportation)

Described as “one of the three great regulatory milestones of the industry” by the reviewing court, Order 436 initiated the restructuring of interstate pipelines from merchant sellers and transporters of gas into transportation only businesses.  

The principal feature of the regulations was a regulatory “bargain” under which pipelines that committed to provide “open access” transportation service – i.e., service that would not favor transportation of gas sold by the pipeline, and which would be offered on a "first-come, first-served" basis when capacity was fully committed -- could take advantage of "blanket certification" of new transportation.  That is, new transportation services would be authorized generically, eliminating the need for long and costly individual certification proceedings. 

Other principal features of the Order included:

(1)  the freedom to adjust rates within a maximum-minimum range, including the ability to offer discounts to customers on a non-discriminatory basis;

(2)  a requirement that participating pipelines allow their LDC customers to convert existing "contract demand" for bundled gas and transportation service into an obligation to take the pipeline’s transportation services only;

(3)  issuance of "Optional, Expedited Certificates" for new facilities, services and operations where the pipeline undertakes the entire economic risk of the project.

While the reviewing court upheld most of the fundamental features of the Order 436, the court sent it back to the Commission to address the question of how pipelines could meet their increasing “take-or-pay” obligations to producers [see discussion above] if their customers were to be relieved of their obligation to the pay the pipelines for the gas.