FERC rejects Colonial history transfer change

OREANDA-NEWS. July 04, 2016. The Federal Energy Regulatory Commission (FERC) has rejected Colonial Pipeline's months-long campaign to restrict transfers of shipper history in concert with a lottery for new shippers seeking to gain access to the massive refined products system that feeds the US Atlantic coast.

FERC ruled that both Colonial's lottery proposal and its attempts to restrict shipper history transfers violate a requirement by the Interstate Commerce Act (ICA) that shippers have an opportunity to have access "upon reasonable request."

"Given the nearly impossible odds of a new shipper obtaining sufficient capacity allocations through the lottery to establish a shipper history that confers rights to prorationed capacity, the practice effect of Colonial's lottery proposal is to eliminate the lottery as a means of obtaining reasonable access to the system," FERC said in its order.

Colonial said it was reviewing the order and had no immediate comment.

A shipper's history of moving volumes across the 5,500-mile (8,851km) Colonial system can determine the company's future access to the pipelines. The major gasoline and diesel pipelines moving product from Pasadena, Texas, to the east coast have remained almost constantly full for the past four years.

Long-time, or regular, shippers moving volumes on the line receive space proportional to their history for 95pc of the pipeline's capacity. Shippers hoping to gain access on the line must win a lottery for the remaining capacity.

Regular shippers have sought to preserve every gallon of space as competition for the pipeline grows, creating incentives to move product even when arbitrage would not support shipments. The scarce access led to the emergence of two-legged deals called line space trades that exchange volumes at origin and destination points along the system that reflect arbitrage.

New shippers unlikely to win the repeated lotteries needed to ascend to more firm access can either purchase volumes through line space deals or permanently buy a regular shipper's history. But Colonial's proposed restrictions on transferring histories, coupled with the lottery, created what FERC considered to be an unfair barrier to access.