111 FERC ¶ 61,332 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 157 

(Docket No. RM05-1-001; Order No. 2005-A ) 

Regulations Governing the Conduct of Open Seasons for Alaska Natural Gas 

Transportation Projects 

(Issued June 1, 2005) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Final Rule; Order on Rehearing. 

SUMMARY: The Federal Energy Regulatory Commission (Commission) generally 

reaffirms its determinations in Order No. 2005. Order No. 2005 establishes requirements 

governing the conduct of open seasons for proposals to construct Alaska natural gas 

transportation projects, including procedures for allocation of capacity. Pursuant to the 

directive of section 103(e)(2) of the Alaska Natural Gas Pipeline Act, enacted on 

October 13, 2004, the regulations promulgated in Order No. 2005 (1) include the criteria 

for and timing of any open season, (2) promote competition in the exploration, 

development, and production of Alaska natural gas, and (3) for any open seasons for 

capacity exceeding the initial capacity, provide for the opportunity for the transportation 

of natural gas other than from the Prudhoe Bay and Point Thomson units. 

 In this order, the Commission addresses the requests for rehearing and/or 

clarification of Order No. 2005. Here, we grant rehearing in part, deny rehearing in part, 

and provide clarification of Order No. 2005. In specific, we: (1) clarify that the 
Docket No. RM05-1-001 - 2 - 

Commission may require design changes necessary to ensure that some portion of a 

proposed voluntary expansion will be allocated to new shippers or shippers seeking to 

transport gas from areas other than Prudhoe Bay or Point Thomson, provided such 

shippers are willing to sign qualifying long-term firm transportation agreements; 

(2) codify the expanded criteria for evaluating late bids for capacity and the requirement 

that any late bid contain a good faith showing; (3) in the case of the mandatory prereview, codify that the plan to be filed by the Commission must contain the open season 

notice, and eliminates the 30-day prior notice requirement; (4) discuss how the open 

season rules may apply to jurisdictional gas treatment plants; (5) clarify that capacity bid 

for in the open season is exempt from allocation only in a case where there is also 

presubscribed capacity, and that in the event there are more than one pre-subscription 

agreement, bidders in the open season may not cherry-pick among the provisions of the 

several agreements; (6) clarify the project applicant’s obligation to establish a separate 

entity to conduct the open season; and (7) further codify the requirements of the catchall 

provision regarding information to be include in an open season notice. 

EFFECTIVE DATE: Revisions in this order on rehearing will become effective on the 

date this order is published in the Federal Register.
Docket No. RM05-1-001 - 3 - 

FOR FURTHER INFORMATION CONTACT: 

Whit Holden, Office of the General Counsel, (202) 502-8089, edwin.holden@ferc.gov; 

Richard Foley, Office of Energy Projects, (202) 502-8955, richard.foley@ferc.gov; 

Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426 

SUPLEMENTARY INFORMATION: 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Pat Wood, III, Chairman; 

 Nora Mead Brownell, Joseph T. Kelliher, 

 and Suedeen G. Kelly. 

Regulations Governing the Conduct of Open Docket No. RM05-1-001 

Seasons for Alaska Natural Gas Transportation 

Projects 

 ORDER NO. 2005-A 

 ORDER ON REHEARING AND CLARIFICATION 

(Issued June 1, 2005) 

1. On February 9, 2005, the Federal Energy Regulatory Commission (Commission) 

issued a Final Rule, Order No. 2005,1

 amending its regulations by adding Subpart B to 

Part 157 to establish requirements governing the conduct of open seasons for capacity on 

proposals to construct Alaska natural gas transportation projects. Order No. 2005 

fulfilled the Commission’s responsibilities to issue open season regulations under 

section 103 of the Alaska Natural Gas Pipeline Act (ANGPA or the Act), enacted on 

October 13, 2004. Section 103(e)(1) of the Act directs the Commission, within 120 days 

from enactment of the Act, to promulgate regulations governing the conduct of open 

seasons for Alaska natural gas transportation projects, including procedures for allocation 

of capacity. As required by section 103(e)(2) of the Act, the regulations promulgated in 

Order No. 2005 (1) include the criteria for and timing of any open season, (2) promote 

competition in the exploration, development, and production of Alaska natural gas, and 

(3) for any open seasons for capacity exceeding the initial capacity, provide for the 

 

1 Regulations Governing the Conduct of Open Seasons for Alaska Natural Gas 

Transportation Projects, RM05-1-000, Order No. 2005, FERC Stats. and Regs. 

¶ 31,174 (2005). 
Docket No. RM05-1-001 - 2 -

opportunity for the transportation of natural gas other than from the Prudhoe Bay and 

Point Thomson units. 

2. The Commission affirms here the legal and policy conclusions on which Order 

No. 2005 was based. As stated in Order No. 2005, the goal of the open season 

regulations is to design an open season process that provides non-discriminatory access to 

capacity on any Alaska natural gas transportation project and, at the same time, allows 

sufficient economic certainty to support the construction of the pipeline and thereby 

provide a stimulus for exploration, development, and production of Alaska natural gas. 

We find that Order No. 2005’s open season rules as revised and clarified herein, satisfy 

that goal and, therefore, are in the public interest. 

Background

3. ANGPA mandates the expedited processing by the Commission of any application 

for an Alaska natural gas transportation project. To this end, as stated above, 

section 103(e)(1) of the Act specifically directs the Commission to prescribe the rules 

which shall apply to any open season held for the purpose of soliciting interest in, or 

making binding commitments to the acquisition of capacity on, any Alaska natural gas 

transportation project, including the criteria for allocating capacity among competing 

bidders. In this regard, Congress instructed the Commission to include in its regulations 

the criteria for, and timing of, any open season, and to design its open season regulations 

to promote competition in the exploration, development, and production of Alaska 

natural gas and, as to any open season for the voluntary expansion2

 of the initial capacity 

of any Alaska natural gas transportation project, to specifically provide the opportunity 

for gas other than Prudhoe Bay and Point Thomson production to have access to the 

pipeline. 

4. In response to the Act’s directive, on November 15, 2004, the Commission issued 

in Docket No. RM05-1-000 a Notice of Proposed Rulemaking (NOPR) in this proceeding 

 

2

 Excluded from the scope of the open season rules are expansions compelled by 

the Commission pursuant to section 105 of the Act. Section 105 authorizes the 

Commission to order these “involuntary” expansions upon the request of one or more 

persons, and upon the satisfaction of certain statutory criteria. 
Docket No. RM05-1-001 - 3 -

containing the Commission’s proposed Alaska natural gas transportation project open 

season regulations. Also, the Commission held a public technical conference in 

Anchorage, Alaska on December 3, 2004 to develop a record in this proceeding. The 

Commission received 25 comments in response to the NOPR. 

 

5. On February 9, 2005, the Commission issued Order No. 2005. The open season 

regulations contained in Order No. 2005 apply to any application for a certificate or other 

Commission authorization for an Alaska natural gas transportation project, whether filed 

pursuant to the NGA, the Alaska Natural Gas Transportation Act of 1976, or ANGPA, as 

well as to any voluntary applications for expansions of such a project. 

6. The Final Rule adopted the NOPR’s proposed requirements that the applicant 

provide a 30-day prior public notice containing extensive information intended to allow 

all interested persons to decide whether to participate in the open season, followed by an 

actual open season period of at least 90 days. The regulations in the Final Rule also 

adopted the NOPR’s approach of allowing prospective applicants to develop and state in 

detail the methodologies for determining the value of bids and for allocating capacity, 

subject to the requirement that all capacity be awarded without undue discrimination or 

preference of any kind. In addition, the Final Rule required that at least 90 days prior to 

providing the open season notice, the prospective applicant must file its open season plan 

with the Commission for approval, and that the Commission will act on the plan within 

60 days of its filing. 

7. The Final Rule provided that prospective applicants must conduct or adopt a study 

of Alaska’s in-state needs, and use the study results to design capacity needs for use 

within the state, and design in-state delivery points and in-state transportation rates as 

part of an open season. Moreover, bidding on in-state capacity must be conducted 

independent of out-of-state deliveries during a prospective applicant’s open season. 

8. In order to further the Commission’s goal of a non-discriminatory open season, the 

Final Rule applied certain of the Standards of Conduct requirements of Order No. 2004, 

including the establishment of an independent, functionally-separate unit to conduct the 

open season. In addition, the open season notice must identify the prospective 

applicant’s affiliates involved in the production of natural gas in the state of Alaska, and 

all information about the open season disclosed to any potential shippers must be made 

available to all potential shippers. 

9. The Final Rule permitted pre-subscription by anchor shippers, limited to initial 

capacity only, in order to facilitate the development of an Alaska pipeline project. 

However, to ensure that all other potential shippers have an equal opportunity to obtain 
Docket No. RM05-1-001 - 4 -

access to capacity on the project in the open season, all pre-subscription agreements must 

be made public within ten days of their execution, and capacity on the proposed project 

must be offered to all prospective qualifying shippers under the same terms and 

conditions and at the same rates as the pre-subscription agreements. In addition, if 

capacity is oversubscribed in the open season and it is not feasible to redesign the 

proposed project to meet both the pre-subscription shippers’ and the open season 

shippers’ capacity needs, then capacity bid for in the open season will not be reduced, but 

all capacity subject to the terms and conditions of pre-subscription agreements will be 

allocated pro rata. 

10. In an effort to allow as many potential shippers as possible the opportunity to 

acquire capacity in the initial open season, the Final Rule required that the project 

sponsor must consider any qualifying bids tendered after the expiration of the open 

season, and reject them only if they cannot be accommodated due to economic, 

engineering, or operational constraints. 

11. The Final Rule stated that, within ten days after precedent agreements have been 

executed for capacity acquired in the open season, the prospective applicant shall make 

public the results of the open season, including the names of the prospective shippers, 

amount of capacity awarded, and the terms of the agreements. Within 20 days after 

precedent agreements have been executed, copies of all precedent agreements, as well as 

copies of any correspondence with bidders whose bids were not accepted, must be filed 

with the Commission. 

12. In another provision, the Final Rule stated that, as a part of the Commission’s 

review of any application for an Alaska natural gas transportation project, it will consider 

the extent to which the proposed project has been designed to accommodate the needs of 

shippers who have made conforming bids during an open season, as well as the extent to 

which the project can accommodate low-cost expansion, and the Commission may 

require changes in the project’s design necessary to promote competition and offer a 

reasonable opportunity for access to the project. 

13. Finally, to provide guidance to interested parties on the important subject of 

expansion rate treatment, the Final Rule establishes a presumption in favor of rolled-in 

pricing for expansions up to the point that it would cause there to be a subsidy of 

expansion shippers by initial shippers. 

14. Requests for rehearing and/or clarification were filed jointly by BP Exploration 

(Alaska), Inc., ConocoPhillips Company and Exxon Mobile Corporation (the North Slope 

Producers), by Enbridge, Inc. (Enbridge), by ChevronTexaco Natural Gas, a division of 
Docket No. RM05-1-001 - 5 -

Chevron U.S.A. Inc. (ChevronTexaco), and by the State of Alaska. In addition, 

Anadarko Petroleum Corporation (Anadarko) and the Legislative Budget and Audit 

Committee of the Alaska State Legislature (Alaska Legislators) filed responses to the 

rehearing requests.3

Discussion 

I. Mandating Pipeline Design 

 A. The Final Rule - §§ 157.36 and 157.37 

 

15. Section 157.36 requires that any open season for expansion capacity of an Alaska 

natural gas transportation project must provide the opportunity for the transportation of 

gas other than Prudhoe Bay or Point Thomson production, and that the Commission, in 

considering any proposed voluntary expansion of an Alaska natural gas pipeline project, 

“may require design changes to ensure that all who are willing to sign long-term firm 

transportation contracts that some portion of the expansion capacity be allocated to new 

shippers or shippers seeking to transport natural gas from areas other than Prudhoe Bay 

and Point Thomson.” Section 157.37 states that, in reviewing any application for an 

Alaska natural gas pipeline project, the Commission “may require changes in the project 

design necess[ary] to promote competition and offer a reasonable opportunity for access 

 

3

 Under Rule 213 of the Commission’s Rules of Practice and Procedure, answers 

to rehearing requests are not permitted. However, the Commission has discretion to 

waive this rule when it finds that the answers will help provide a complete record in the 

proceeding or allow a better understanding of the issues. This proceeding involves the 

establishment of open season rules for capacity on an Alaska natural gas transportation 

project, and is critical to the development of Alaska’s vast natural gas resources to meet 

anticipated national demand for natural gas, thereby enhancing national security. The 

Commission finds that the answers will provide necessary information to provide a full 

and complete record, which will assist the Commission in addressing the issues on 

rehearing pertaining to the complex and unique circumstances surrounding the 

development of an Alaska natural gas transportation project. Therefore, Anadarko’s and 

the State of Alaska’s answers to the rehearing requests are accepted. See 18 C.F.R 

§ 385.213 (2004). 
Docket No. RM05-1-001 - 6 -

to the project, taking into account the extent to which the proposed project design 

accommodates the open season’s conforming bids as well as low-cost expansion.”4

 

These provisions were included in the Final Rule in response to concerns of non-North 

Slope producers that they have access to capacity on an Alaska natural gas transportation 

project when their potential gas reserves are commercially developed. 

 B. Rehearing/clarification requests

16. The North Slope Producers and ChevronTexaco object to the provisions contained 

in sections 157.36 and 157.37 to the extent that they authorize the Commission to require 

changes in the design of an Alaska natural gas transportation project. The North Slope 

Producers object to these provisions on a number of grounds. First, they contend that it is 

beyond the Commission’s NGA authority to mandate changes in the design of a pipeline, 

either to provide additional capacity or to enhance future expandability. The North Slope 

Producers contend that, in either case, the result is a mandatory expansion of the project, 

which according to section 7(a) of the NGA, is outside the Commission’s authority to 

require.5

 The North Slope Producers maintain that this limitation on the Commission’s 

authority is reflected in the Commission’s regulations providing that open access 

pipelines are “not required to provide any requested transportation service for which 

capacity is not available or that would require the construction or acquisition of any new 

facilities,”6

 and in judicial precedent.7 According to the North Slope Producers, the 

Commission has acted unreasonably in “morphing” ANGPA’s vague and undefined open 

 

4

 “Necessity” in section 157.37 is revised to read “necessary.” 

5

 Section 7(a) of the NGA provides “[t]hat the Commission shall have no authority 

to compel the enlargement of transportation facilities...” 15 U.S.C. 717f(a). 

6

 18 C.F.R. §284.7(f). 

 

7

 The North Slope Producers cite Panhandle Eastern Pipe Line Co., 204 F.2d 675 

(3rd Cir. 1953) in which the court stated that “[i]n light of Section 7(a) we are compelled 

to conclude that Congress meant to leave the question whether to employ additional 

capital in the enlargement of its pipeline facilities to the unfettered judgment of the 

stockholders and directors of each natural gas company involved.” 204 F.2d at 680. 
Docket No. RM05-1-001 - 7 -

season requirements pertaining to competition in the exploration, development, and 

production of Alaska gas and sufficient opportunity for future access for the 

transportation of non-Prudhoe Bay/Point Thomson gas into factors to be considered by 

the Commission in its NGA section 7 review of a certificate applications for Alaska 

natural gas transportation projects. 

17. Second, the North Slope Producers assert that ANGPA section 105 further limits 

the Commission’s authority to require an expansion of an Alaska natural gas 

transportation project sections. The North Slope Producers state that before an 

involuntary expansion can be ordered by the Commission, section 105 lists a number of 

statutory requirements that must be met which are designed to balance potential future 

shippers’ interests with the need to protect the pipeline and existing shippers and to 

protect against uneconomic overbuilding. The North Slope Producers state that none of 

these statutory requirements are referenced in or satisfied by section 157.36 or 157.37. 

18. Third, the North Slope Producers argue that the Commission appears to 

mistakenly “assume that a pipeline can, in all circumstances, be efficiently designed to 

accommodate all qualifying bids.” The North Slope Producers assert that the most 

efficient and economic pipeline design might not be one which can accommodate 100 

percent of the capacity bid for in the open season. In fact, according to the North Slope 

Producers, it is possible that a pipeline designed to accommodate all the capacity bid in 

the open season “could result in a design that is inefficient and/or negatively impacts 

future expansion design alternatives.” 

19. Fourth, the North Slope Producers maintain that to the extent that it authorizes a 

set-aside of capacity, section 157.36 violates the Order No. 636’s goal of eliminating 

impediments to the transmission of proper pricing signals between producers and 

consumers, as well as the Commission’s non-discrimination policies. The North Slope 

Producers point to the second sentence of section 157.36, which states: 

“In considering a proposed voluntary expansion of an Alaska natural gas 

pipeline project, the Commission will consider the extent to which the 

expansion will be utilized by shippers other than those who are the initial 

shippers on the project, and in order to promote competition and open 

access on the project, may require design changes to ensure that all who 

are willing to sign long-term firm transportation contracts to some portion 

of the expansion capacity be allocated to new shippers or shipper s seeking 

to transport natural gas from areas other than Prudhoe Bay and Point 

Thomson.” (Emphasis added). 
Docket No. RM05-1-001 - 8 -

 

The North Slope Producers assert that if this “indecipherable” language is intended to set 

aside capacity for new shippers or shippers of gas from areas other than Prudhoe Bay and 

Point Thomson, then the Commission is favoring one shipper’s bid over another bid that 

otherwise meets all of the bid criteria. The North Slope Producers assert that ANGPA’s 

section 103(e)(2)(C) requirement that open season regulations for voluntary expansions 

are to “provide an opportunity for the transportation of gas other than Prudhoe Bay and 

Point Thomson gas” does not support section 157.36’s apparent set-aside or preference. 

The North Slope Producers state that not only is such a preference inconsistent with the 

Commission’s open access policies, it is patently discriminatory and anti-competitive and 

unlawful under the NGA. The North Slope Producers contend that allocating pipeline 

capacity in an open season to customers who value it most, i.e., through the use of the 

Commission-favored net present value capacity allocation methodology, ensures 

pipelines and shippers that capacity will be allocated in a non-discriminatory and 

economically efficient manner. The North Slope Producers also assert that development 

of multi-owner fields could be delayed or hampered if one group of shipper/owners had a 

competitive advantage over another shipper/owner group due to a capacity allocation 

advantage or preference. 

20. Finally, the North Slope Producers maintain that sections 157.36 and 157.37 are 

contrary to the Commission’s reliance on market forces, on which its existing policies are 

based. Specifically, the North Slope Producers claim that Order No. 2005 fails to 

reconcile Subparts 157.36 and 157.37 with current Commission policies in favor of 

“facilitate[ing] the unimpeded operation of market forces to stimulate the production of 

natural gas,”8

 and against the subsidization of new services by existing shippers. The 

North Slope Producers state that it would be unreasonable to expect that the pipeline 

sponsors would simply assume the financial risk for significant amounts of uncontracted 

capacity on such an enormous project, yet Order No. 2005 fails to address cost recovery 

issues associated with any mandated design changes that might be ordered. 

21. ChevronTexaco claims that the regulations promulgated in Order No. 2005 apply 

to open seasons for initial or voluntary expansion capacity; therefore, the idea of postopen season Commission-mandated design changes is inconsistent with and outside the 

8

 Order No. 636, FERC Stats. and Regs. ¶ 30,939 at 30,393 (1992), quoting S.Rep. 

No. 30 9, 101st Cong., 1st Sess. at p.2 (1989). 
Docket No. RM05-1-001 - 9 -

scope of this rulemaking. Moreover, ChevronTexaco asserts that the design change 

provisions of sections 157.36 and 157.37 should be deleted from the open season 

regulations because the subject was not included in the Notice of Proposed Rulemaking. 

ChevronTexaco states that absent removing sections 157.36 and 157.37 from the open 

season regulations, the Commission should provide that it would not require project 

design changes if doing so would negatively impact the rates, terms or conditions of 

service for initial shippers or otherwise adversely affect pipeline operations of efficiency. 

22. In its response to the rehearing requests, Anadarko argues that ANGPA and the 

NGA provide the Commission with ample authority to require changes in the design of 

an initial or expanded Alaska natural gas transportation project necessary to meet the 

statutory objectives of promoting competition and provide a reasonable opportunity for 

access to all shippers who have made conforming bids during the open season. Anadarko 

states that clearly there is interplay between the NGA and ANGPA. Specifically, states 

Anadarko, section 7(e) of the NGA provides that a “certificate shall be issued ... if it is 

found that proposed service, sale, operation, construction... to the extent authorized by 

the certificate, is or will be required by the present or future public convenience and 

necessity.” Anadarko states that the Commission considers many factors in making this 

public convenience and necessity finding, and, in the case of an Alaska natural gas 

transportation project, should consider the requirements of ANGPA. 

23. Anadarko asserts that the Commission often imposes conditions to its certificates 

requiring routing or design modifications in order to support a finding that a particular 

project is in the public convenience and necessity. In any event, sections 157.36 and 

157.37 do not mandate an expansion, according to Anadarko, because the applicant may 

choose not to accept a certificate that requires that the project be redesigned. Anadarko 

states that the regulations merely put the applicant on notice that its proposed project 

design might be rejected as failing to meet the objectives of ANGPA, and consequently, 

not being required by the public convenience and necessity. 

24. In response to the North Slope Producers’ charge that section 157.36 provides for 

discriminatory reallocation of capacity contrary to existing Commission policy, 

Anadarko contends that the Commission is merely following the mandate of ANGPA 

section 103(e)(2)(C). Anadarko states that under section 103(e)(2)(C), the Commission’s 

regulations must ensure that any open season for expansion capacity provides the 

opportunity for the transportation of natural gas other than from Prudhoe Bay/Point 

Thomson, and section 157.36 seeks to do just that. 

25. Anadarko also disputes the North Slope Producers’ claim that parties were not 

adequately notified in the NOPR that pipeline design would be a subject of the 
Docket No. RM05-1-001 - 10 -

 

rulemaking. Anadarko maintains that the regulations contained in sections 157.36 and 

157.37 reasonably respond to many concerns expressed throughout the rulemaking 

process.9

 Anadarko contends that under the Administrative Procedure Act (APA), the 

Commission was required in this informal rulemaking proceeding to provide either the 

terms or substance of the proposed rule or a description of the subjects and issues 

involved.10 Moreover, Anadarko points out that the courts have held that “even if the 

final rule deviates from the proposed rule,’[s]o long as the final rule promulgated by the 

agency is a ‘logical outgrowth’ of the proposed rule... the purposes of the notice and 

comment have been adequately served .”11 Anadarko states that Order No. 2005’s 

pipeline design provisions were a “logical outgrowth” of the NOPR and the issues 

discussed therein, e.g., the major goals of ANGPA, concerns over potential 

discrimination, producer/sponsor preferences, the role of pre-subscriptions, and tensions 

between ANGPA’s goals and the application of existing policies to an Alaska project. 

26. Lastly, Anadarko contends that the Commission provided ample support for not 

following current Commission policies that favor reliance on market forces. Anadarko 

states that the rulemaking record in Order No. 2005 thoroughly discusses the conditions 

and circumstances in Alaska that are much different than those found in the lower 

48 states, requiring the appropriate regulatory action taken in sections 157.36 and 157.37. 

In conclusion, Anadarko disagrees that 157.36 is “indecipherable” as claimed by the 

North Slope Producers. 

27. The Alaska Legislators maintain that sections 157.36 and 157.37 are well within 

the Commission’s broad power to attach to certificates any conditions that may be found 

to be required by the public convenience and necessity. They claim that the “forced 

expansion” argument fails to acknowledge that ANGPA has injected into the public 

convenience and necessity standard of the NGA a new statutory standard, i.e., the 

promotion of competition in the exploration, development and production of Alaska 

9

 Anadarko identifies comments addressing pipeline size both at the technical 

conference and written. See Anadarko’s March 29, 2005 response at 15 -16. 

10 See 5 U.S.C.A. 553(b)(3). 

11 Appalachian Power Co. v. EPA, 135 F.3d 791, 804 n.22 (D.C. Cir. 1998). 

 
Docket No. RM05-1-001 - 11 -

natural gas with respect to Alaska natural gas transportation projects. Moreover, the 

Alaska Legislators contend that the Commission’s pipeline design concerns are required 

not only by the mandate of ANGPA, but also by the economic realities in Alaska, where 

virtually all of the proven reserves are held by the North Slope Producers. The Alaska 

Legislators state that the Commission is simply announcing in sections 157.36 and 

157.37 that it may condition the approval of the certificate upon the applicant’s making 

necessary design changes required to satisfy the public convenience and necessity 

standard, including the “promote competition” standard, which is uniquely applicable to 

an Alaska natural gas transportation project. 

28. Addressing the North Slope Producers’ claim that section 157.36 provides for an 

unduly discriminatory set aside of capacity for non-North Slope shippers, the Alaska 

Legislators agree with Anadarko that ANGPA mandates that in the case of an expansion 

of an Alaska natural gas transportation project, the Commission must provide an 

opportunity for the transportation of natural gas other than from Prudhoe Bay and Point 

Thomson units in its open season rules. Alaska Legislators state that section 157.36 is 

consistent with that mandate. 

29. The Alaska Legislators also defend the Commission’s “proactive” approach 

through which it fashioned the open season rules in recognition of the recognized 

differences between competitive forces in the lower 48 states and the lack of competition 

in Alaska. Given these differences, the Alaska Legislators maintain that the Commission 

was right to depart from existing Commission policy. They assert that the fact that 

Congress required the Commission to promulgate the Alaska open season rules in place 

of the Commission’s long-standing policy of evaluating open seasons on a case-by-case, 

after-the-fact basis, is an illustration of the need for different approach based on the 

unique circumstances surrounding an Alaska pipeline. The Alaska Legislators conclude 

that, unlike the situation in the lower 48 states, there is no existing or foreseeable 

competitive environment in Alaska, where the North Slope Produces not only control all 

the known gas reserves, but also may become the sponsors of the Alaska pipeline. 

Therefore, the Commission was right to not rely on market forces in Alaska to ensure the 

development, routing, sizing and timing of an Alaska pipeline. 

30. Finally, the State of Alaska suggests that section 157.36 be expanded to better 

reflect its intent. According to the State of Alaska, section 157.36 should read: 

“In considering a proposed voluntary expansion of an Alaska natural gas 

transportation project, the Commission will consider the extent to which the 

expansion will be utilized by shippers other than those who are the initial 

shippers on the project and, in order to promote competition and open 
Docket No. RM05-1-001 - 12 -

access to the project, may require design changes to ensure that new 

shippers willing to sign long-term firm transportation contracts or shippers 

seeking to transport natural gas from areas other than Prudhoe Bay or Point 

Thomson who are willing to sign long-term contracts can have access to 

some portion of the expansion capacity.” 

C. Commission Response

31. The North Slope Producers’ assertion that the Commission has no authority under 

the NGA to require changes in the design of an proposed Alaska natural gas 

transportation project in connection with an application for authorization either to 

construct the project, or to expand the project is inconsistent with law and precedent. At 

the outset, we reject the notion that any design change that might be required under either 

section 157.36 or 157.37 would constitute a mandatory expansion of the project. First, in 

every case in which the section 7(a) limitation has been addressed, the facilities involved 

were existing facilities subject to existing certificate authorization. The reasoning behind 

this limitation is clear. Once a natural gas company accepts a certificate and in reliance 

thereof expends resources to construct the facilities authorized therein, the pipeline and 

its customers should have the right to rely on the authorizations contained in that 

certificate. It is quite another thing where the Commission tells a certificate applicant 

that unless it agrees to certain changes (including cost allocations and the design of initial 

service rates), its proposal will not be found to be in the public convenience and 

necessity. In such case, if the applicant does not want to change its proposed project 

design, it is not required to accept the certificate. Furthermore, because design changes 

under either 157.36 or 157.37 would not constitute a mandatory project expansion, the 

statutory requirements of ANGPA section 105 have no application. 

32. In considering an application for a certificate of public convenience and necessity 

under section 7 of the NGA, the Commission has the authority to consider all factors 
Docket No. RM05-1-001 - 13 -

 

bearing on the public interest,12 and in particular, the Commission “certainly has the right 

to consider a congressional expression of fundamental national policy as bearing upon the 

question whether a particular certificate is required by the public convenience and 

necessity.”13 In the case of an Alaska natural gas transportation project, these factors 

would properly include the requirements of ANGPA, including the statutory objectives of 

promoting competition and provide a reasonable opportunity for access to all shippers 

who have made conforming bids during the open season. 

33. The Commission has authority under NGA section 7(e) to attach to a certificate of 

public convenience and necessity any conditions it deems necessary to meet the public 

interest.14 The Commission has exercised this conditioning authority to require routing 

or design modifications in order to support a finding that a particular project is in the 

public convenience and necessity.15 Sections 157.36 and 157.37 merely codify our 

existing authority and practice. 

34. The North Slope Producers’ claim that sections 157.36 and 157.37 are predicated 

on the Commission’s erroneous assumption “that a pipeline can, in all circumstances, be 

efficiently designed to accommodate all qualifying bids.” This is inaccurate. We noted 

in Order No. 2005 that both the North Slope Producers and Enbridge maintained that an 

Alaska pipeline could be designed and built with sufficient capacity to accommodate the 

12 See, e.g., FPC v.Transcontinental Gas Pipe Line Corporation, 365 U.S. 1, 

81 S.Ct. 435 (1961); Office of Consumers’ Counsel v. FERC, 655 F.2d 1132, 210 

U.S.App. D.C. 315 (1980). 

 

13 City of Pittsburgh v. FPC, 237 F.2d 741 at 754 (D.C. Cir. 1965). 

14 See, e.g., FPC v. Hunt, 376 U.S. 515, 525 -527, 84 S.Ct. 861 (1964); Atlantic 

Refining Co. v. Public Service Commission of New York, 360 U.S. 378 (1959). 

15 See, e.g., Vector Pipeline, L.P., 87 FERC ¶ 61,225 at 61,892-893 (1999); 

Maritimes & Northeast Pipelines, L.L.C., 80 FERC ¶ 61,345 (1997); NE Hub Partners, 

L.P., 83 FERC ¶ 61,043 (1998); see also, Transcontinental Gas Pipe Line Corp v. 

FERC, 589 F.2d 186 (5th Cir.), cert. denied , 445 U.S. 915 (1979). 
Docket No. RM05-1-001 - 14 -

 

needs of every qualified shipper.16 Our expectation is that an Alaska natural gas 

transportation project will be designed and built, to the extent possible, to accommodate 

all qualified shippers who are ready to sign firm transportation agreements. Nonetheless, 

in Order No. 2005 we certainly did not rule out the possibility that a project, with or 

without pre-subscription agreements, might be oversubscribed.17 On this note, we should 

emphasize that in our review of any application for initial Alaska project or any 

expansion thereof, our consideration of the project design will be driven by our need to 

find that the proposal is in the public convenience and necessity. Any conditions we 

impose must be required by the public interest, and be based on substantial evidence. 

 

35. The North Slope Producers’ claim that section 157.36 provides for an unduly 

discriminatory set-aside of capacity for non-North Slope shippers discounts, if not 

ignores, the Congressional mandate of ANGPA section 103(e)(2)(C) that requires our 

open season regulations to ensure that any open season for expansion capacity provides 

the opportunity for the transportation of natural gas other than from Prudhoe Bay/Point 

Thomson. Section 157.36 does so in a reasonable manner. In any event, our regulations 

do not require that an expansion proposal must, regardless of economic and technical 

considerations, provide transportation of gas other than Prudhoe Bay/Point Thomson 

volumes. The regulations simply require that an opportunity for such transportation be 

provided. 

 

36. As pointed out elsewhere in this order, and throughout Order No. 2005, a number 

of existing Commission policies predicated on competitive conditions in the lower 48 

states are ill-suited for application in the case of an Alaska natural gas transportation 

project, particularly in view of ANGPA’s directives. As we stated in Order No. 2005, a 

successful Alaska natural gas transportation project will have to overcome a variety of 

significant obstacles, including unique and complex competitive conditions. Those 

competitive conditions, we said, are intensified by the generally agreed-upon fact that 

16 See, e.g., Order No. 2005 at P 29, 37, and 88. 

17 See id. at P 37; see also § 157.34(c)(15). 

 
Docket No. RM05-1-001 - 15 -

 

there will be only one such Alaska pipeline for the foreseeable future.18 Against that 

backdrop, we affirm the conclusions of Order No. 2005, which serve as the 

underpinnings of the Final Rule’s regulations, including the need in certain instances to 

accommodate existing Commission policy to the unique circumstances surrounding the 

exploration, production, development, and transportation to market of Alaska natural gas. 

37. Finally, while due process and the APA impose an obligation on agencies to 

provide adequate notice of issues to be considered,19 that obligation is satisfied in this 

informal rulemaking by providing either the terms or substance of the proposed rule or a 

description of the subjects and issues involved.20 Order No. 2005’s pipeline design 

provisions were a logical outgrowth of the NOPR and the issues discussed therein, e.g., 

major goals of ANGPA, concerns over potential discrimination, producer/sponsor 

preferences, potential role of pre-subscriptions, tensions between ANGPA’s goals, and 

application of existing policies to the circumstances of an Alaska project. Indeed, the 

critical importance of properly sizing the pipeline was a recurring theme throughout this 

proceeding, and was raised by several parties at the technical conference, and in later 

comments and reply comments.21 Thus, Order No. 2005 does not unduly change the 

scope of this proceeding. In any event, the parties’ ability to seek rehearing resolves any 

due process issues. 

38. Although the North Slope Producers describe section 157.36 to be 

“indecipherable,” their comments demonstrate that they understand its intent. 

18 The North Slope Producers, in their rehearing request, claim that it is too early 

to conclude that only one Alaska pipeline will ever be built. We find nothing in the 

record to support a contrary conclusion. 

19 Public Service Commission of the Commonwealth of Kentucky v. FERC, 

397 F.3d 1004 ( D.C. Cir. 2005), citing Williston Basin Interstate Pipeline Co. v. FERC, 

165 F.3d 54 (D.C. Cir. 1999); see 5 U.S.C. § 554(b)(3). 

20 See 5 U.S.C. 553(b)(3). 

21 See n. 8, supra. 
Docket No. RM05-1-001 - 16 -

Section 157.36 is intended to provide that the Commission may require design changes 

necessary to ensure that some portion of a proposed voluntary expansion will be allocated 

to new shippers or shippers seeking to transport gas from areas other than Prudhoe Bay or 

Point Thomson, provided such shippers are willing to sign qualifying long-term firm 

transportation agreements. To ensure clarity, we will revise section 157.36 to read as 

follows: 

“In considering a proposed voluntary expansion of an Alaska natural gas 

transportation project, the Commission will consider the extent to which the 

expansion will be utilized by shippers other than those who are the initial 

shippers on the project and, in order to promote competition and open 

access to the project, may require design changes to ensure that some 

portion of the expansion capacity will be allocated to new shippers willing 

to sign qualifying long-term firm transportation contracts, including 

shippers seeking to transport natural gas from areas other than Prudhoe Bay 

or Point Thomson.” 

II. Presumption of Rolled-in Rates for Expansions

A. Final Rule - § 157.39

39. Section 157.39 states that “[t]here shall be a rebuttable presumption that rates for 

any expansion of an Alaska natural gas transportation project shall be determined on a 

rolled-in basis.” The Commission stated in Order No. 2005 that by providing for this 

presumption, the Commission is advising potential shippers, in advance of any initial 

Alaska natural gas transportation project open season, of its intention to harmonize the 

objective of rate predictability for initial shippers with the objective of reducing barriers 

to future exploration and production in designing rates for future expansions of any 

Alaska natural gas transportation project. The Commission concluded in Order 

No. 2005 that section 157.39 is consistent with “our guiding principle that competition 

favors all of the Commission’s customers, as well as with the objectives of the Act, to 

adopt rolled-in rate treatment up to the point that would cause there to be a subsidy of 

expansion shippers by initial shippers, if any subsidy were to be found.” 

B. Rehearing/Clarification Requests

40. The North Slope Producers, Enbridge, and ChevronTexaco assert that the 

presumption in favor of rolled-in rates for voluntary expansions established in 

section 157.39 creates uncertainty for shippers and project sponsors, and, therefore, 

section 157.39 should be eliminated from the regulations or substantially revised. The 
Docket No. RM05-1-001 - 17 -

North Slope Producers and Enbridge claim that prospective initial shippers, fearing that 

in the future their rates may be increased to subsidize the cost of expansion facilities, will 

be less willing to make the long-term commitments necessary to support an Alaska 

project. This uncertainty, they predict, will discourage rather than advance the 

development of an Alaska pipeline or any voluntary expansion thereof – a result clearly 

inconsistent with ANGPA’s primary goal. Moreover, the North Slope Producers and 

Enbridge suggest that mandatory expansions pursuant to ANGPA section 105 will 

become more attractive than voluntary expansions because of the explicit rate protection 

for existing shippers in section 105. 

41. The North Slope Producers contend that section 157.39 is unjustifiably 

inconsistent with the Commission’s current policy regarding rate treatment of 

expansions, which is to discourage uneconomic expansions and assure that expansions 

will not be subsidized by existing shippers. They assert that even if, as claimed by the 

Commission, only one pipeline will be built in Alaska, that distinction does not justify 

deviating from the Commission’s current policy. 

42. The North Slope Producers charge that the Commission acted arbitrarily and 

capriciously in relying on ANGPA section 103(e) to justify its conclusion to provide for a 

presumption of rolled-in rates for expansions. Although the North Slope Producers 

concede that the Commission clearly has the authority under ANGPA and the NGA to 

approve rates for Alaska natural gas transportation projects, they claim that ANGPA 

section 103(e) has nothing to do with rate regulation. Furthermore, state the North Slope 

Producers, even if section 103 could be read to give the Commission authority to include 

rate regulations in its open season rules, the proper course would be to remove 

section 157.39 from the open season rules and instead address rate policy issues only 

after the parties have the opportunity of developing a complete factual record. Failing 

this, the North Slope Producers state that the Commission should revise section 157.39 to 

provide that the Commission’s current rate policies will apply to Alaska projects. 

43. Enbridge also argues that the Commission acted arbitrarily and capriciously by 

imposing a rebuttable rolled-in presumption, even where rolled-in pricing would increase 

existing shippers’ rates. According to Enbridge, Order No. 2005 identifies two 

considerations, namely the Commission’s disfavor of existing shippers subsidizing the 

rates of new shippers, and the Commission’s reluctance to authorize an expansion rate 

that would have an unduly negative impact on the exploration and development of Alaska 

reserves. Enbridge contends that the presumption should be “scaled back” to apply only 

to cases where expansion rates are no higher than pre-existing rates. Enbridge points to 

the Commission’s acknowledgement in Order No. 2005 that it “cannot at this point, 

without a specific project proposal or the facts surrounding a proposed expansion before 
Docket No. RM05-1-001 - 18 -

us, define exactly what will be required to overcome the presumption.” Enbridge 

contends that the Commission’s inability to explain how the presumption can be rebutted 

renders rolled-in pricing mandatory, leaving the question of whether a rolled-in 

expansion rate that is higher than original rates is a subsidy to be resolved in a future 

NGA section 7 filing. 

44. ChevronTexaco stresses that because the text of Order No. 2005 recognizes that 

“without a specific project proposal or the facts surrounding a proposed expansion” the 

Commission cannot determine what is needed to overcome the presumption favoring 

rolled-in rates, the Commission should defer any determination of rate treatment for 

expansions until a record can be developed after a specific proposal is made. According 

to ChevronTexaco, this inability to articulate when the presumption will be applied 

creates uncertainty that inhibits the development of any Alaska project. 

45. ChevronTexaco states that inconsistency between the text of order and the text of 

the regulations creates further uncertainty. ChevronTexaco states that while the 

regulations state that the presumption applies to “any expansion,” Order No. 2005’s text, 

at paragraphs 124 and 125, suggests that rolled-in rates are appropriate only if there is no 

increase in rates for existing shippers. ChevronTexaco urges the Commission to clarify 

section 157.39 to state that no cross-subsidy is intended. Otherwise, the Commission 

should consider issuing, in lieu of a regulation, a policy statement which outlines the 

general direction that the Commission intends to take. 

46. The Alaska Legislators and Anadarko contend that rolled-in pricing is essential 

and justified. Anadarko asserts that the Commission clearly has the statutory authority to 

establish a presumption of rolled-in pricing for future expansions in the open season 

regulations. Both Anadarko and the Alaska Legislators contend that the significant 

differences identified in the record between an Alaskan pipeline project and a pipeline in 

the lower 48 states provide ample justification for departing from the current pricing 

policy. The Alaska Legislators contend that even if there were some factual reason for 

applying the current policy, that policy cannot be reconciled with the policy 

considerations stated in ANGPA. Both Anadarko and the Alaska Legislators state that 

incremental pricing of expansions cannot be reconciled with ANGPA’s goals of 

promoting competition in the exploration, development, and production of Alaska natural 

gas, and providing for the transportation of natural gas other than from the Prudhoe Bay 

and Point Thomson units in any expansions of the Alaska pipeline facilities. The Alaska 

Legislators estimate that expanding a pipeline, through looping, to a capacity of 7 billion 

cubic feet (Bcf), would result in an expansion rate 50 percent higher than existing rates if 

incrementally priced. Anadarko predicts that incremental pricing of expansions of an 

Alaskan pipeline beyond 6 Bcf would cause the pipeline to be capped at 6 Bcf. 
Docket No. RM05-1-001 - 19 -

 C. Commission Response

47. ANGPA section 103(i) gives the Commission broad authority to establish “such 

regulations as are necessary” for the conduct of open seasons. In this regard, the 

Commission believes that it is appropriate to establish rate criteria that will assist 

potential shippers to make informed open season bids, and will promote competition, as 

required by ANGPA. As discussed in detail in Order No. 2005, these criteria include 

projected rates for in-state deliveries of gas, as well as a presumption for rolled-in rate 

treatment for future pipeline expansions. 

48. In adopting the presumption for rolled-in rate treatment, the Commission balanced 

rate predictability for initial shippers with the objective of reducing barriers to future 

exploration, development and production of Alaska natural gas. The Commission was 

concerned that the prospect of high incremental transportation rates might increase risks 

to Alaskan producers and serve as a disincentive to future exploration and development 

of potentially valuable natural gas resources. On the other hand, the Commission does 

not wish to discourage voluntary capacity expansions. 

49. The rolled-in rate presumption was not an abandonment of our current policy of 

not favoring rate subsidization by existing customers of capacity expansions as suggested 

in the requests for rehearing. The Commission did, however, suggest that because of the 

likelihood of a single Alaskan pipeline project, it would consider alternatives to our 

current policy on how to define or quantify subsidization by current customers. Current 

policy primarily considers whether the expansion project will result in a rate higher than 

the existing transportation rate for existing customers. An alternative consideration or 

definition of subsidization could be whether the expansion rate is no higher than the 

actual initial rate or of an initial rate without built-in subsidies. The Commission 

believed and continues to believe that the appropriate place to review this issue is in the 

context of a future NGA section 7 filing. In such a proceeding, if the pipeline owners can 

show that the initial pipeline was sized appropriately, i.e., it was uneconomic or 

inefficient to build a larger capacity pipeline, the Commission would consider this in 

overcoming the rolled-in rate presumption. 

 

50. The text of Order No. 2005 referred to by ChevronTexaco does not simply state 

that rolled-in rates are appropriate only if there is no increase in rates for existing 

shippers; it suggests that a rolled-in expansion rate that is higher than the original rate is 

not necessarily a subsidy. As noted above, we will determine whether a particular rate 

amounts to a subsidy when the issue is presented to us. 
Docket No. RM05-1-001 - 20 -

51. Nothing in the requests for rehearing causes us to question our conclusion that a 

rebuttal presumption of rolled-in treatment for the expansion of an Alaska Project is a 

reasonable approach to the difficult issues we, and prospective pipeline proponents and 

shippers, may face on the future. We think that the signal we are sending is a positive 

one that will help spur natural gas exploration and development in Alaska. At the same 

time, we have not prejudged how we will resolve future proceedings, and all parties will 

have the opportunity to convince us of appropriate rate treatment if and when expansion 

proposals for an Alaska project are developed. We therefore will not change the rule on 

this matter. 

III. Late Bids 

 A. The Final Rule - § 157.34(d)(2)

52. Order No. 2005 added a new provision in the Final Rule, section 157.34(d)(2), that 

a project sponsor must consider any bids tendered after the expiration of the open season 

by qualified bidders, and may reject them only if they cannot be accommodated due to 

economic, engineering, or operational constraints, in which case the project sponsor must 

provide a detailed explanation for the rejection. The Commission explained that this 

requirement is designed to allow reasonable access to those shippers who may not be 

ready to participate during the established open season period, and at the same time 

provide the sponsor with flexibility in the timing of its open season. 

B. Rehearing/Clarification Requests

53. The North Slope Producers and Enbridge contend that it is important for the 

timely development of any project that the project sponsors be able to rely on an open 

season that has a definite term. They state that the open season results are needed to 

permit the project sponsor to gauge demand and in turn finalize pipeline design. They 

assert that the late bid provisions of section 157.34(d)(2) will result in unreasonable risks 

and costs to the project sponsor by creating a never-ending, open-ended open season in 

which the project sponsor will be required, for each and every late bid received, to divert 

resources and incur additional costs to evaluate whether bid can be accommodated. In 

addition, they state that there is tremendous potential for delay at each step of the 

development of the project, if the project sponsor must stop and make design changes at 

every stage to accommodate a late bid. Thus, they state, section 157.34(d)(2) would 

frustrate the Commission’s stated goal of adopting open season regulations that ensure 

sufficient economic certainty to support the construction of a pipeline. 
Docket No. RM05-1-001 - 21 -

54. The North Slope Producers add that financing cannot be secured until pipeline 

design and development costs are known and precedent agreements are in place. 

Consequently, they claim, the prospect of having to make changes to key project 

components to accommodate late bids jeopardizes the project sponsor’s ability to obtain 

financing in a timely manner. 

55. Both Enbridge and the North Slope Producers also state that section 157.34(d)(2) 

fails to provide a clear standard under which the project sponsor must evaluate late bids. 

This failure, they claim, presents another risk of uncertainty and delay. Enbridge argues 

that, even if it is necessary to significantly re-design a project in order to satisfy a late 

bid, the regulation would require that such a bid be accepted if the re-designed project 

remains feasible from an “economic, engineering or operational” perspective. 

56. The North Slope Producers state that another effect of the late bid provision is that 

potential shippers will be discouraged from participating in an open season if they can 

submit a late bid. They worry that this would diminish the open season’s ability to 

accurately demonstrate the demand for pipeline capacity. Enbridge also claims that, 

absent a good faith requirement in connection with submitting late bids, 

section 157.34(d)(2) permits such gamesmanship. Enbridge states that at a minimum, 

section 157.34(d)(2) should put “the burden on the bidder to demonstrate compelling 

circumstances that prevented participation in open season, and that the bid can be 

accommodated without changing system design, requiring capacity to be allocated away 

from other shippers, or otherwise adversely impacting the project’s development and 

timing.” In this regard, the State of Alaska maintains the Commission should include 

language in section 157.34(d)(2) that requires late bidders to provide adequate 

justification for their late bids. 

57. Additionally, the North Slope Producers assert that, to the extent a project sponsor 

would be required to expand the project to accommodate late bids, the Commission is in 

effect ordering an expansion of the pipeline. In such a case, section 157.34(d)(2) raises 

the same issues regarding forced expansions as are raised by sections 157.36 and 157.37. 

The North Slope Producers contend that whereas the Commission may require an 

expansion under section 105, that section places the burden on the party seeking such 

expansion to establish that specific conditions are met, section 157.34(d)(2) appears to 

place the burden on the pipeline to justify why it cannot expand the project to 

accommodate a late bid. 

58. Enbridge states that in any event there is little or no reason for 

section 157.34(d)(2) “given the other measures instituted by Order No. 2005 to protect 

the interests of late developing shippers.” Specifically, Enbridge refers to the 
Docket No. RM05-1-001 - 22 -

unprecedented level of information required in the open season notice on which bidders 

will be able to base their long-term capacity decisions, Order No. 2005’s emphasis on 

requiring that the project’s design demonstrate a capability for low-cost expansion, and, 

finally, the mandatory expansion provisions of ANGPA 105. Enbridge contends that to 

the extent late bids can be accommodated without adversely impacting the project’s 

development, it is in the project sponsor’s economic interests to do so. 

59. ChevronTexaco requests that the Commission clarify that project sponsors will be 

required to consider late bids only if there is excess capacity after capacity is allocated to 

those open who bid in the open season. ChevronTexaco states that one of the major 

purposes of the open season is provide a level playing field for all participants, thereby 

eliminating the advantages of possessing superior or advance information. 

ChevronTexaco cannot understand the Commission’s reasoning in giving special 

consideration to one specific parameter of a conforming bid, namely, the timing of the 

bid. According to ChevronTexaco, late bidders should not be allowed to put new burdens 

on the project or to adversely affect timely open season bidders. 

60. Anadarko states that section 157.34(d)(2) is a reasonable compromise balancing 

concerns that the open season could be held prematurely with a project sponsor’s desire 

to control open season timing. Anadarko also states that it is possible to accommodate all 

qualified bidders up to the time the pipeline design is finalized. 

C. Commission Response

61. Under the Commission’s open access policy and rules, all operating interstate 

pipelines have an obligation to receive and respond to new requests for service, even if no 

capacity is available. All operating pipelines have provisions in their FERC tariffs 

governing the procedures that the pipeline will use in evaluating requests for service. 

Absent an expansion,22 capacity could still be made available to a prospective shipper via 

capacity release or the capacity turnback provisions of an interstate pipeline’s FERC 

 

22 Interstate pipelines, other than an Alaska pipeline, cannot be required to expand 

their systems, but pipelines are required to respond to those who request service, even 

when none is available. 
Docket No. RM05-1-001 - 23 -

tariff. During the several years between the time that the open season ends and an 

Alaskan pipeline goes into service, there will be no tariff with provisions like those 

described above in effect for that pipeline. Without the late bidder provisions of 

section 157.34(d), late-developing prospective shippers would have no formal way of 

seeking capacity on the pipeline after the open season ends. As revised herein, the 

Commission believes that the late bidder provision is a fair and necessary addition to the 

open season process for an Alaska natural gas transportation project. 

 

62. The project sponsor’s obligation under section 157.34(d)(2) is not “unbounded” or 

“open-ended,” as North Slope Producers contend. We added this requirement in 

recognition of the possibility that an appreciable amount of time might pass between the 

close of the open season and the project sponsor’s finalizing the details of the proposed 

pipeline design and associated development costs, given the size and scope of an Alaska 

natural gas pipeline project. During that time, it is possible that producers of Alaska 

natural gas who were not in a position to commit to long-term capacity commitments 

during the open season, might then be in a position to request capacity consistent with the 

open season notice (except, of course, that the bid is tendered out of time). We felt it 

proper to require the project sponsor to consider such a request. At the same time, we 

appreciated that at some point in time, either before or after the proposed pipeline design 

is finalized, the project sponsor might not be able to accommodate reasonably a late 

request. For that reason, we provided that late requests could be rejected on the basis of 

“economic, engineering or operational constraints.” This is far from an unbounded, 

open-ended obligation. Indeed, as noted above, Enbridge points out that to the extent that 

late bids can be accommodated without adversely impacting the project’s development, it 

is in the project sponsor’s economic interest to do so. We see no harm in requiring that 

result. 

63. We will however, revise the requirements of section 157.34(d)(2) in response to 

the complaints that the “economic, engineering or operational constraints” standard for 

rejecting late bids is too vague. Specifically, we are clarifying the criteria for rejecting 

late bids in section 157.34(d)(2) to be “economic, engineering, design, capacity or 

operational constraints, or accommodating the request would otherwise adversely impact 
Docket No. RM05-1-001 - 24 -

the timely development of the project.”23 Additionally, we are adding a provision to the 

section which will enable the project sponsor, at the appropriate time in the development 

of its project and subject to Commission approval, to determine, based on the above 

criteria, that no further bids can be accepted. We will also revise section 157.34(d)(2) to 

provide that any bid tendered after the expiration of an open season must contain a good 

faith showing, including a statement of the circumstances which prevented the bidder 

from tendering a timely bid, and how those circumstances have changed. This 

requirement is consistent with the underlying premise of section 157.34(d)(2) in the Final 

Rule, and should serve to protect against “gamesmanship.” With these revisions and 

clarifications, we believe that the late bid provision will permit late-developing shippers 

to obtain capacity after the expiration of the open season, while also providing the 

prospective applicant the assurance that it will be able to design and develop its project 

according to its own schedule. 

V. Mandatory Pre-Approval 

 A. The Final Rule - § 157.38

64. Section 157.38 requires that, at least 90 days prior to providing its notice of open 

season, an applicant must file, for Commission approval, a detailed plan for conducting 

the open season in conformance with the regulations. The Commission will establish a 

date by which comments on the request for approval are due, and the Commission, unless 

it directs otherwise, will act on the request within 60 days of its filing. The Commission 

concluded in Order No. 2005 that this requirement would allow for the resolution of 

disputes or dissatisfaction with an open season at the earliest possible time, thereby 

reducing the risk of having to require a second remedial open season because the first one 

did not conform to the regulations. 

 

23 We are retaining the requirement that the prospective applicant must provide a 

detailed explanation for its rejection, at least until such time as it has determined, subject 

to Commission approval, that no further late bids can be accepted. We find that, based 

on the prospective applicant’s position, it is easier for it to evaluate why a late bid cannot 

be accepted, than it is for a later bidder to explain why its bid can be accommodated. 

 
Docket No. RM05-1-001 - 25 -

B. Rehearing/Clarification Requests 

65. The North Slope Producers and Enbridge urge the Commission to eliminate the 

mandatory pre-review process set out in section 157.38, calculating that with the addition 

of this mandatory review, the open season process will take at least 210 days, instead of 

the 120-day open season period proposed in the NOPR and established in section 157.34. 

They state that this additional 90 days does not include further delays that could result 

from disputes arising during the pre-review process, including the need to consider 

requests for rehearing of any orders pre-approving an open season or the Commission’s 

inability to adhere to its 90-day window. The result, they claim, is that the open season 

process will be delayed, not expedited. Enbridge states that the 210-day period is longer 

than the 180-day open season period which the Commission rejected as inconsistent with 

Congress’ sense of urgency, as well as the Commission’s conclusion in Order No. 2005 

that “timing is of the essence.” 

66. The North Slope Producers maintain that the Commission’s justification for this 

requirement is that a successful open season is more likely to occur if issues are identified 

and resolved at the earliest time. The North Slope Producers disagree, claiming that, 

instead of reducing the chance of post-bid disputes, this layer of review will provide 

those who would gain commercial leverage by delaying the open season process “with an 

additional bite at the apple, first by objecting to the bid package, then by objecting to the 

results of the open season.” 

67. Both the North Slope Producers and Enbridge contend that the mandatory prereview process is unnecessary and duplicative of other protections provided in Order 

No. 2005, including the transparency and specificity of the open season information, the 

30-day prior notice requirement, the prohibition against undue discrimination or 

preference in rates, terms or conditions of service, and the imposition of Order No. 2004 

standards of conduct. They contend that the effects of any delay of the open season can 

be profound, due to narrow, seasonal windows for environmental studies and preliminary 

field work, which cannot take place until the open season has been held. These risks, 

they claim, far outweigh any utility of a mandatory pre-review. In conclusion, the North 

Slope Producers contend that any pre-review of the open season notice should be 

voluntary, shortened, and that the Commission decision on the sufficiency should be 

deemed a pre-decisional, non-reviewable determination, similar to the Commission’s 

action in rejecting a deficient certificate application under section 157.8 of the 

Commission’s regulations. 
Docket No. RM05-1-001 - 26 -

68. Anadarko defends the mandatory pre-review requirement as striking an 

“appropriate balance between granting project sponsors flexibility in designing open 

seasons and providing regulatory supervision to potential bidders by requiring project 

sponsors to file and obtain approval of the open season plan.” Anadarko and the Alaska 

Legislators state that pre-approval will reduce any risk of having to hold a second open 

season to correct one done improperly. Anadarko states that this will, as the Commission 

believes, promote rather than hinder a timely and successful open season. The Alaska 

Legislators agree with this assessment, contending that adding 90 days to the front end of 

the open season process, even with the prospect of a rehearing, is better than having an 

open season called back by an order on rehearing or on appeal from the results of an open 

season, and then having to hold another open season. Moreover, they state that once the 

open season is approved, parties may rely on those terms being controlling throughout the 

bidding and contracting process. 

 

C. Commission Response

69. The North Slope Producers and Enbridge correctly state that, by virtue of the 

mandatory pre-approval established in section 157.38, the minimum duration of the 

whole open season process would be 210 days. However, the concept of a mandatory 

pre-approval and the attendant additional time that such review will add is not 

inconsistent with our concern that “time is of the essence” that caused us to reject a 180-

day open season period, and instead provide for a 120-day open season.24 Our focus in 

establishing this 120-day period was to arrive at a time period such that all prospective 

bidders reasonably could review the open season information and evaluate whether to 

make multi-year capacity commitments, thereby leveling the playing field. 

70. When discussing the duration of the whole “open season process,” we must 

consider the potential for delays due to disputes arising during the open season. In this 

regard, we found in Order No. 2005 that pre-approval of open season procedures would 

“allow issues to be identified and resolved at the earliest possible time and, ideally, 

reduce the possibility of dissatisfaction with open seasons, as well as the risk that the 

 

24 The 120 days consists of the 30-day prior notice period (section 157.34(a)), 

followed by a 90-day open season (section 157.34(d)(1)). 
Docket No. RM05-1-001 - 27 -

Commission will have to require that deficient open seasons be conducted again.”25 The 

North Slope Producers’ and Enbridge’s disagreement with this assessment is based on 

arguments that the transparency and specificity of the information required in the open 

season and other protections provided in the open season rules render pre-approval 

unnecessary, and that the pre-approval process itself invites delay. 

71. We are not as optimistic as the North Slope Producers and Enbridge that there is 

little likelihood that disputes might arise over the conduct of an open season and its 

conformance with the open season rules. While the transparency and specificity of the 

open season rules might lead to a clearer identification of any issues in dispute, they do 

not change the fact that in any open season there will be a universe of potential bidders 

with starkly different, competing needs and interests, and the potential for dispute is real. 

We continue to believe that getting it right the first time is the best approach. 

72. Nonetheless, in revisiting the requirement for mandatory pre-approval as a result 

of these rehearing requests, we find that it is appropriate to make some changes. First, 

we are revising section 157.38 to make clear that the plan to be filed by a prospective 

applicant shall include the information required in a notice of open season under 

section 157.34. Second, we are eliminating the 30-day prior notice requirement in 

section 157.34(a). Since the public will have actual notice of a prospective applicant 

proposed open season notice at least 90 days prior to the open season, there is no reason 

to provide for an additional prior notice period. By this change, we are reducing the 210-

day period to 180 days. It also our conclusion that, given the fact that participants in an 

open season will have the opportunity to object to the conduct of the open season after a 

certificate application is filed, as is our current practice, as well as the ability to seek 

rehearing and obtain appellate review of any Commission certificate orders, orders 

approving open season procedures will be interlocutory and not subject to rehearing. 

V. In-State Study

 A. The Final Rule - §157.34(b)

 

25 Order No. 2005 at P 109. 
Docket No. RM05-1-001 - 28 -

73. In response to concerns expressed by Alaska entities and in recognition of 

Congress’ mandate that Alaska in-state needs be given due consideration, the Final Rule 

added in section 157.34(b) a requirement not contained in the proposed regulations that 

the open season information include an assessment of Alaska’s in-state needs and 

prospective points of delivery within the State of Alaska, based to the extent possible on 

any available study performed or otherwise approved by an appropriate Alaska 

governmental entity. 

 B. Rehearing/Clarification Requests

74. While the North Slope Producers find reasonable a requirement that a study of instate needs be completed prior to any open season, they object to section 157.34(b)’s 

requirement that the contents of the open season notice rely on an in-state study, if 

practicable. They assert that ANGPA does not require a pipeline sponsor’s study to 

“include or consist’ of a state-sanctioned study. The North Slope Producers contend that 

this requirement invites disputes as to whether it is “practicable” to include a state study, 

or whether “appropriate” state officials were involved. Consequently, the North Slope 

Producers request that the Commission revise section 157.34(b) to require that a project 

sponsor consult with the State regarding the study for in-state needs. 

75. The Alaska Legislators state that the Commission has avoided the problem of 

“dueling studies” by deferring the study to the State of Alaska. In this regard, the Alaska 

legislators advise the Commission that the State of Alaska has undertaken to designate an 

appropriate agency to conduct or sanction the required study, and the Alaska House of 

Representatives has passed a resolution urging the Administration to conduct, approve, or 

sanction the required study prior to the effective date of the opens season rules. 

C. Commission Response

76. Section 157.34(b) does not mandate the use of a particular study but rather is 

premised on the common-sense notion that information provided by the State of Alaska 

likely will be valuable to potential shippers. We trust that the State and prospective 

pipeline applicants can agree on the manner in which such information can be provided. 

If questions arise as to the extent to which it is possible to include a state study, we will 

resolve them. Our regulations offer several options that the prospective applicant and the 

State of Alaska could take to ensure the adequate involvement of the State. Accordingly, 

we will not revise section 157.34(b). 

VI. In-State Rates 

 
Docket No. RM05-1-001 - 29 -

A. The Final Rule - § 157.34 (c)(8)

77. In addition to the requirement that in-state gas needs be addressed in the open 

season, the Commission also required, in section 157.34(c)(8), that, based on in-state 

needs and the delivery points identified in the study, open season information include a 

proposed in-state transportation rate, based on the costs of providing that service. 

B. Rehearing/Clarification Requests 

78. The North Slope Producers ask the Commission to clarify that estimating rates for 

in-state service does not create a requirement to offer such a service at that rate (or at all) 

if the open season does not yield firm commitments for in-State deliveries. They assert 

that the ultimate indicator of any market for in-state service is the willingness of shippers 

to make firm commitments to purchase capacity for in-state use during the open season, 

not a study. They also request that the Commission clarify that the estimated in-state 

service rates are merely illustrative and subject to adjustment. 

79. Enbridge requests that the Commission make clear that the “estimated 

transportation rate” referred to in section 157.34 (c)(8) is one based on project sponsor’s 

estimated costs to make in-state deliveries, not upon any rates assumed by the study. 

Additionally, Enbridge states that the Commission clarify that bids for in-state service 

should be subjected to the same requirements for creditworthiness, collateral and 

execution of binding contractual commitments as apply to any other open season bidder. 

80. The State of Alaska asks the Commission to clearly state that the in-state rates are 

to be distance-sensitive in order to ensure that the cost of in-state service is calculated 

properly. 

C. Commission Response

81. During the open season process, qualified bidders must successfully bid upon and 

arrange to consummate service agreements for transportation service. Projected rates for 

in-state deliveries must be based on estimates of costs for providing service to the in-state 

delivery points. While prospective applicants will estimate rates during an open season, 

the Commission’s review of proposed rates will be guided by section 284.10(c)(3) of our 

regulations, which states in part that “[a]ny rate filed for service ... must reasonably 

reflect any material variation in the cost of providing the service due to ... the distance 

over which the transportation is provided.” 
Docket No. RM05-1-001 - 30 -

82. All shippers on any new interstate pipeline have a right to pay only the initial rate 

on file as approved in the NGA section 7 certificate of public convenience and necessity. 

Those initial rates, approved under section 7 as part of the certificate, would be paid 

unless changed under section 4 or 5 of the NGA after appropriate regulatory proceedings 

and upon the Commission’s order. However, under the Commission’s negotiated rate 

policy,26 pipelines and shippers are free to make an agreement to “dispense with cost-ofservice regulation” and agree to any mutually agreeable rate. A recourse rate found in the 

pipeline’s tariff would be available for those shippers preferring traditional cost-ofservice rates. Thus, if an in-state service is successfully bid upon, filed for and approved, 

an in-state cost-of-service recourse rate would be set in an Alaskan pipeline’s tariff, but 

in-state shippers would also be free to seek a negotiated in-state rate with an Alaskan 

pipeline. Negotiated rates can be used to lock in transportation costs and pipeline 

revenues to the mutual benefit of both the shippers and the pipeline, without the risks of 

later changes to rates and revenues under the NGA. 

83. If there are no successful bids for in-state service, the prospective applicant would 

nonetheless have to include the in-state service as part of its proposed initial tariff. An 

opportunity to have in-state service might arise if the pipeline voluntarily accepts a 

request for it at a later time, or if the Commission acts under section 103(h) of ANGPA 

and section 5 of the NGA to require the pipeline to make such in-state deliveries. The 

actual in-state rate for in-state service would be an issue for such future proceedings. 

Based on the foregoing, we see no need to further clarify the regulations. 

VII. Tying Arrangements 

A. The Final Rule - §§ 157.34(c)(6), 157.34(c)(10), and 157.35(a)

84. The Commission addressed the matter of tying access to pipeline capacity on an 

Alaska project to ancillary services in two sections of the Final Rule. First, section 

157.34(c)(6) requires that the open season notice must contain an unbundled 

 

26 Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas 

Pipelines, Docket No. RM95-6-000, Regulation of Negotiated Transportation Services of 

Natural Gas Pipelines, Docket No. RM96-7-000, 74 FERC ¶ 61,076, (Jan. 31, 1996). 
Docket No. RM05-1-001 - 31 -

transportation rate. Second, section 157.34 (c)(10) prohibits a prospective applicant from 

requiring prospective shippers to process or treat their gas at any designated facility. We 

explained elsewhere in Order No. 2005 “that [we] can address any other discriminatory 

conduct in connection with gas quality requirements or other ancillary services through 

the provisions of section 157.35 in conjunction with existing Commission policies and 

procedures.” Relevant to this explanation, section 157.35(a) provides that ‘[a]ll binding 

open seasons shall be conducted without undue discrimination or preference in the rates, 

terms, or conditions of service and all capacity awarded as a result of any open season 

shall be awarded without undue discrimination or preference of any kind.” 

B. Rehearing/Clarification Requests

85. The State of Alaska states that the Commission should more explicitly explain the 

prohibition against tying arrangements, and explain how the open season rules will apply 

to gas treatment plants. The State believes that the open season rules should do more 

than require an applicant to use an unbundled transportation rate, prohibit tying of 

capacity on the pipeline to the use of a designated plant or facility, and merely refer to the 

existing regulations and policies prohibiting undue discrimination or preference. Rather, 

Alaska states that the open season rules should make clear that any tying arrangements 

will be subject to an exacting inquiry by the Commission and will require a compelling 

justification, and even offers recommended language to this end. 

86. Alaska also states that since ANGPA includes gas treatment plants in its definition 

of an Alaska natural gas transportation project,27 treatment plants should be subject to the 

open season regulations. Alaska points out that the effect of the unbundling requirement 

of section 157.34(c)(6) is to exclude gas treatment plants from the requirements of the 

open season. As a possible solution, Alaska suggests that the open season rules be 

clarified to provide that the applicant must separately offer gas treatment plant capacity 

and pipeline capacity in the open season notice, and give bidders an opportunity to bid on 

 

27 ANGPA §102(2) defines the term ‘Alaska natural gas transportation project’ as 

“any natural gas pipeline system that caries Alaska natural gas to the border between 

Alaska and Canada (including related facilities subject to the jurisdiction of the 

Commission) ...” 
Docket No. RM05-1-001 - 32 -

either or both, as they choose. ChevronTexaco contends that because gas treatment 

plants are jurisdictional facilities,28 Order No. 2005’s approach of deferring consideration 

of any discriminatory conduct as to necessary such ancillary facilities and services to a 

later day does not satisfy the requirements of the ANGPA. Chevron Texaco maintains 

that it is particularly important that access to treatment facilities be subject to the same 

open season, non-discriminatory requirement as the pipeline because pipeline capacity 

without access to gas treatment facilities that maybe a part of the pipeline system is 

meaningless. 

 C. Commission Response

87. The Commission did not intend to preclude the inclusion of jurisdictional natural 

gas conditioning facilities from the open season. If, pursuant to ANGPA section 103, a 

project sponsor intends to file an application under section 7 of the NGA for 

authorization of a project that includes a jurisdictional natural gas conditioning service, 

we will review the open season plan and notice to ensure that such service is offered in its 

open season notice, subject to the same requirements as apply to transportation service. 

However, the prospective applicant must offer a separate rate for the gas treatment 

service and separate rate for the transportation service. Furthermore, the prospective 

applicant can neither require bidders to bid on both services, nor evaluate the bids based 

on whether bidders requested one or both services. Moreover, while the prospective 

applicant can require specific natural gas quality specifications such as would be met by 

using the conditioning services offered, it cannot reject an otherwise qualified bidder that 

states that it will deliver to the pipeline facilities gas that meets the stated quality 

specifications.

88. On the other hand, if a prospective applicant is proposing to apply to revise the 

Alaska Natural Gas Transportation System (ANGTS) application now held in abeyance, 

then a conditioning service will have to be included as a part of the open season but 

again, with all services offered priced separately. Specifically, in 1981, President Reagan 

submitted a Waiver of Law to Congress for the purpose of clearing away certain 

government-imposed obstacles to the private financing of the ANGTS. The Commission 

 

28 See Venice Gathering Co., 97 FERC ¶ 61,045 at 61,255 (2001) (Treatment of 

gas to enhance its safe and efficient transportation is subject to Commission jurisdiction). 
Docket No. RM05-1-001 - 33 -

implemented that portion of the Presidential waiver that required the Commission to 

include within the ANGTS the gas conditioning plant at Prudhoe Bay.29 

VIII. Pre-Subscribed Capacity

 A. The Final Rule - §§ 157.33(b) and 157.34(c)(15)

89. Under section 157.33(b), pre-subscription agreements for initial capacity on a 

proposed Alaska natural gas transportation project are permitted, provided that capacity is 

offered to all open season prospective bidders at the same rates and on the same terms 

and conditions as contained in the pre-subscription agreements. In addition, if there is 

more than one pre-subscription agreement, open season prospective bidders are given the 

option of selecting the rates, terms and conditions contained in any one of the several 

agreements. However, section 157.34(c)(15) states that “[i]f capacity is oversubscribed 

and the prospective applicant does not redesign the project to accommodate all capacity 

requests, only capacity that has been acquired through pre-subscription shall be subject to 

allocation on a pro rata basis; no capacity acquired through the open season shall be 

allocated.”

B. Rehearing/Clarification Requests

90. The North Slope Producers assert that the provision in section 157.34(c)(15) 

subjecting only presubscribed capacity to pro rata allocation, will dissuade any shippers 

from signing up for the presubscribed capacity, thereby “wholly negating” the recognized 

benefits of allowing pre-subscription agreements to facilitate the development of an 

Alaska natural gas transportation project. They predict that prospective shippers would 

rather wait for the open season than risk proration. The North Slope Producers maintain 

that this selective proration unduly discriminates against those shippers who are willing 

to make early commitments for firm capacity in order to support the project, in violation 

 

29 See Alaskan Northwest Natural Gas Transportation Co., 18 FERC ¶ 61,002 

(1982). 
Docket No. RM05-1-001 - 34 -

of the NGA and Commission policy. They add that since section 157.33(b) allows all 

open season participants to enjoy the same benefits as contained in the pre-subscription 

agreements, such discrimination is particularly unjustified. The North Slope Producers 

add that this is another example where the Commission is attempting to compel the 

project sponsor to make design changes in order to accommodate all bids. 

91. The North Slope Producers also state that the final clause of section 157.34(c)(15) 

is not consistent with the Commission’s presumed intent not to foreclose proration among 

open season bidders where there is no presubscribed capacity. They suggest that the final 

clause of that provision, which states “no capacity acquired through the open season shall 

be allocated,” should be clarified. 

92. In addition to agreeing that proration renders pre-subscription an unattractive 

option for prospective shippers, Enbridge adds that the additional requirement that the 

terms and conditions of any pre-subscription agreements be made public prior to the open 

season notice renders pre-subscription even less desirable because it put anchors shippers 

at a competitive disadvantage to open season bidders who would have prior knowledge of 

the pre-subscription bids. At the same time, Enbridge concedes that it would be highly 

unlikely that project would not be re-designed to accommodate capacity of all qualified 

bids at the incipient, open season stage. 

93. Enbridge raises again the claim that the “numerous and overlapping protections” 

of Order No. 2005, in particular the level of information provided in open season notice 

and measures provided to ensure against discrimination, are sufficient to ensure a fair, 

open and non-discriminatory open season process. Enbridge also states that the 

Commission should clarify that open season shippers who in the open season elect to 

select the terms and conditions of a pre-subscription agreement may not cherry-pick” 

terms and conditions from several agreements but must accept any one agreement in its 

entirety. 

94. The State of Alaska seeks clarification that, in the case of capacity allocation on an 

oversubscribed pipeline that cannot reasonably be redesigned, both presubscribed 

capacity and capacity later acquired on the same rates, terms and conditions will be 

subject to allocation, for the reason that the final words of section 157.34 (c)(15) stating 

that “no capacity acquired through the open season shall be allocated,” suggests 

otherwise. 

95. ChevronTexaco maintains that the Commission failed to consider and provide for 

the various circumstances that could trigger the pro-rationing of pre-subscribed capacity. 

ChevronTexaco states that bidders in the open season could outbid pre-subscribing 
Docket No. RM05-1-001 - 35 -

shippers on the basis of any of the qualifying conditions: for instance, an open season 

bidder might outbid pre-subscribing shippers whose agreements are at less than 

maximum rates, or whose agreements are of shorter terms. ChevronTexaco is concerned 

that pre-subscribing shippers might lose their capacity to open season bidders who outbid 

them because they know the salient terms of the pre-subscription agreements. Therefore, 

ChevronTexaco submits that the Commission should expand the requirement of prorationing by establishing that all bids eligible to be allocated capacity in an open season 

where pre-subscribing shippers will be prorated should be treated as having equal value 

to the pre-subscription precedent agreement for purposes of pro-rationing. In this way, 

later qualifying bidders would be prevented from outbidding pre-subscribing shippers. 

96. In response to the claims on rehearing that the capacity allocation provisions of 

section 157.34(c)(15) are counterproductive because they will deter potential anchor 

shippers from entering into pre-subscription agreements, Anadarko contends that the 

Commission’s finding that the North Slope Producers’ unique position of control over 

pipeline design amply justifies putting the consequences of any decision not to redesign 

pipeline to accommodate all bidders on them. Anadarko also questions the importance 

placed on pre-subscription agreements in connection with an Alaska pipeline project. 

According to Anadarko, the only justification for a pre-subscription agreement is to 

facilitate financing and to provide the project sponsor with assurances that it has the 

commitments to justify development and construction expenses. However, states 

Anadarko, there is little doubt that any Alaska natural gas transportation project will be 

fully committed, even without pre-subscription agreements. 

97. The Alaska Legislators support the pre-subscription rules of Order No. 2005, 

claiming that the rules make sense given the unique nature and circumstances of an 

Alaska natural gas transportation project and the need to balance concerns “that presubscription is essential to finance the pipeline with concerns of those who feared that 

such arrangements would favor affiliates of the pipeline or otherwise undermine the 

objectives of conducting public open seasons for capacity.” 

 C. Commission Response

98. Although we allowed pre-subscription agreements in the belief that they could 

have utility in facilitating the development of an Alaska natural gas transportation 

project, we cannot quantify how beneficial such arrangements are. Our paramount 

consideration in allowing pre-subscription was that it should not impact in any way the 

capacity obtained through the open season process. For this reason, we provided that any 

capacity acquired by reason of agreements entered into prior to the open season would 

have to yield to capacity bid for in the open season in the case of oversubscription We 
Docket No. RM05-1-001 - 36 -

believe our reasons for this selective proration, as stated in Order No. 2005 and 

reaffirmed here, are sound. 

 

99. The argument that anchor shippers will be dissuaded from entering into presubscription agreements if they risk losing capacity as a result of open season bidding, 

and that the “recognized benefits” of pre-subscription will be lost, is unpersuasive. The 

North Slope producers and other potential project sponsors have developed a plethora of 

information in recent years regarding the viability of an Alaska project. They are fully 

capable of deciding whether they wish to execute pre-subscription agreements. If they do 

not, capacity will be allocated in an open season. There has been no showing that an 

Alaska project cannot be financed, as are many major projects, based on commitments 

made in an open season. While we have concluded that the public interest permits presubscription, under the conditions established by the rule, we do not find that the public 

interest requires pre-subscription. It does require competition and open-access. We leave 

it to potential project sponsors and shippers whether pre-subscription makes sense to 

them. 

100. We will, however, clarify section 157.34(c)(15) in two respects, first to eliminate 

confusion over the last sentence of that section which concludes “no capacity acquired 

through the open season shall be allocated,” and second to make clear that in the event 

there is more than one pre-subscription agreement, bidders in the open season may not 

cherry-pick among the provisions of the several agreements. The North Slope Producers 

contend that the last clause of section 157.34(c)(15) might be read to provide that 

proration is foreclosed among open season bidders even where there is no presubscribed 

capacity. We will clarify the language of the rule to avoid such a misreading. Capacity 

bid for in the open season is exempt from allocation only in a case where there is also 

presubscribed capacity, as explained in the text of Order No. 2005. The State of Alaska 

reads that clause to suggest that capacity acquired by bidders in the open season who 

elect to acquire their capacity on the same rates, terms and conditions as contained in a 

pre-subscription agreement will not be subject to pro rata allocation along with the presubscription shippers. Such an interpretation also misreads the intent of 

section 157.34(c)(15),and we will clarify the language of the rule accordingly. Finally, 

we will clarify section 157.33 to make clear that open season bidders may not cherry pick 

among the provisions of several precedent agreements, as was our intent in the Final 

Rule. 

IX. Other Issues

101. The North Slope Producers request that the open season rules be clarified in 

certain respects. First, they request that the Commission clarify the open season 
Docket No. RM05-1-001 - 37 -

 

regulations by replacing references to “prospective points of delivery within the State of 

Alaska” or “delivery points” in several subsections of the regulation with the term “tie-in 

points.”30 The North Slope Producers assert that the term “delivery point” implies an 

obligation that the pipeline will be finally designed to deliver gas all the way to in-State 

markets and that ANGPA does not contemplate or impose such an obligation. 

102. The Commission understands the terms “prospective points of delivery within the 

State of Alaska” or “delivery points” to mean those points on the interstate Alaskan 

pipeline where custody of the gas would be transferred to the facilities of an intrastate 

pipeline, local distribution company, or end-user whose facilities are not otherwise under 

the Commission’s jurisdiction, assuming that shippers on an Alaska pipeline requested 

such deliveries. The term “tie-in points” as used only once in ANGPA is used in 

reference to the study of in-state needs in section 103(g) and as a familiar natural gas 

industry phrase is not as familiar to the Commission as the terms “points of delivery” or 

“delivery points.” 31

103. As part of the open season, the prospective applicant is in fact obligated to offer to 

deliver gas at least at certain prospective in-state delivery points identified in the study of 

in-state needs. However, the open season notice’s initial design of the pipeline need only 

match the prospective applicant’s open season business proposal to deliver at least the 

amount of gas identified in the study of in-state needs at those prospective in-state 

delivery points. Bidders may seek alternative delivery points (such as ones closer to their 

market) as part of their bids, and as part of the open season the prospective applicant may 

consider building additional facilities to such alternate points, but has no obligation to do 

so as long as it treats similar requests the same. As discussed above, if the open season 

ends without any successful bids for in-state deliveries, then there is a continuing 

obligation for the prospective applicant to leave provision for such in-state service 

available in its tariff, but it would not have to voluntarily propose such service as part of 

its initial application. Also, as used in section 157.34, the term “delivery point(s)” also 

refers to the location at the border between Alaska and Canada where presumably 

30 These sections include §§ 157.34(b) and 157.34(c)(1), (2), (3), (6), (8), and (16). 

31 Although tie-in point is used in some Commission documents, the most 

common use is to identify the point where a pipeline’s loop ties back into the mainline. 
Docket No. RM05-1-001 - 38 -

 

prospective bidders will seek to have their volumes delivered. If would be much more 

confusing if the regulations were revised to refer to “tie-in points” for points inside 

Alaska and “delivery points” for locations at the border between Alaska and Canada. 

Therefore, we will not clarify the rules as requested by the North Slope Producers in this 

regard. 

104. Second, the North Slope Producers state that the “catch-all” language in 

section 157.34(c)(18) was not scaled back enough from the language proposed in the 

NOPR. Specifically, they state that as written, the final regulation requires a pipeline 

applicant to provide all bidders, not only with information the applicant has provided to 

any bidder, but also with information “in the hands of” any bidder. The North Slope 

Producers claim that the applicant cannot know what information identified in 

section 157.34(c)(18) is “in the hands of a potential shipper.” Moreover, they contend 

that while the text of Order No. 2005 does not discuss the intent of this subsection, the 

Commission’s press release and the Commission staff’s PowerPoint presentation at the 

February 9, 2005 Commission Open Meeting presentation refer to information that the 

applicant has in some way made available to a potential shipper, and the regulations 

should be clarified to be consistent with this intent. The North Slope Producers add that, 

read literally, this language would call for protected information. Enbridge, on the other 

hand, claims that section 15734(c)(18) should be eliminated as unnecessary due to the 

transparency assured by the rest of the numbered subsections of section 157.34(c). 

105. Anadarko objects to this requested clarification, pointing out that the North Slope 

Producers are likely already to possess relevant project-related information as a result of 

discussions with other possible project sponsors, and if the North Slope Producers 

becomes the project sponsor, this information is already in their hands and was not made 

available to them by an applicant. 

106. The “catchall” provision addresses the difficult issue of separation of functions 

between a prospective applicant and its affiliates who produce, sell or market Alaska gas, 

and as such are potential bidders for capacity on an Alaska natural gas transportation 

project. It has been targeted as a problem since it appeared in the NOPR and it was 

discussed extensively in the Final Rule.32 The North Slope Producers have undertaken 

32 See Order No. 2005 at P 72 -83. 
Docket No. RM05-1-001 - 39 -

millions of dollars of due diligence “homework” on the design, cost, operation and 

feasibility of an Alaska pipeline. If they are not affiliated with the prospective applicant 

for an Alaska pipeline, then all that knowledge and information is theirs and, presumably, 

would give them an informational advantage in the open season bidding. However, if the 

North Slope Producers are affiliated with the prospective applicant, then the Commission 

and other potential bidders must be assured that any relevant information about the 

design, cost, operation and feasibility of an Alaska pipeline that the North Slope 

Producers transfers to an affiliated prospective applicant is available to everyone. The 

Commission desires to make this very important part of the Final Rule as clear as 

possible. Thus, we will revise section 157.34(c)(18) to read as follows: 

All information that the prospective applicant has in its possession

pertaining to the proposed service to be offered, projected pipeline capacity 

and design, proposed tariff provisions, and cost projections, or that the 

prospective applicant has made available to, or obtained from, any 

potential shipper, including any affiliates of the project sponsor and any 

shippers with pre-subscribed capacity, prior to the issuance of the public 

notice of open season; 

The Commission understands that the scope of this information is extensive. Therefore, 

we will not require that the contents of the open season notice to be published by the 

prospective applicant must contain copies of all the documents which would be covered 

under section 157.34(c)(18), but that the notice identify a “public reading room” where 

such information is available, for copying at the reader’s expense. Further, as the North 

Slope Producers point out, dealing with potential “protected information” will have to 

be addressed as it is in any commercial situation. The Commission expects that all 

parties will cooperate in dealing with “protected information,” but as in all matters 

pertaining to the open season process, the Commission and its staff stand ready to assist 

in resolving any disputes. 

 

107. Third, the North Slope Producers request that the Commission clarify the 

requirement in section 157.35(c) that the project applicant “create or designate a unit or 

division to conduct the open season that must function independent of the other divisions 

of the project applicant as well as the applicant’s Marketing and Energy affiliates.” They 

claim that they intend to create a separate entity to be the project sponsor and to conduct 

the open season, and that this section would require them to establish yet another separate 

entity to conduct the opens season, and that section 157.35(c) should be revised to reflect 

that this is sufficient. Specifically, the North Slope Producers propose to delete from the 

regulations the language requiring that a project applicant must designate a separate unit 
Docket No. RM05-1-001 - 40 -

 

or division to conduct the open season. Anadarko claims that this requested clarification 

would largely nullify the purpose of section 157.35(c). 

108. The Commission denies the North Slope Producers’ proposed change to 

section 157.35(c). However, the Commission will amend the section to take into account 

situations in which a project applicant is an entity that has been separately created for the 

purpose of conducting an open season. In such cases, the separate entity would comply 

with the provisions of section 157.35(c) if that project applicant functioned and operated 

independently from the project applicant’s Marketing and Energy Affiliates, as well as 

the other divisions of the project applicant. The purpose of section 157.35(c) is to ensure 

that the project applicant conducting the open season is independent of, and does not 

favor, its affiliates. If the project applicant was created to comply with section 157.35(c) 

and does, in fact, comply with the regulation, the project applicant is not required to 

create a further subdivision to achieve compliance. 

109. The North Slope Producers identify several other non-substantive clarifications 

to the regulatory language that should be made to avoid confusion.33 These corrections 

will be made. 

110. Enbridge argues that since the open season regulations require that the project 

design criteria include a requirement that the project be capable of “low-cost 

expansion,”34 the Commission should explain that the threshold for satisfying the lowcost expansion” standard is any expansion that does not increase rates to initial shippers. 

However, as Enbridge recognizes, any certificate application for an Alaska natural gas 

33 These include typographical errors in section 157.35(d) (references to sections 

258.4(a)(1) and (3) should be to sections 358.4(a)(1) and (3)), Order No. 2005, P 74 

(should cite to §§ 358.5(d) and 358.4(e)(3) rather than §§ 358.4(d) and 358.(b)(e)(3)); 

section 157.34(c)(9) (“proscribed” should be changed to “prescribed”); and 

section 157.33(b) (“terms, rates, terms and conditions” should be changed to “duration, 

rates, terms and conditions”). The North Slope Producers also suggest that the term “rate 

amounts” in section 157.34(c)(9) should be changed to “rates” as the latter term is more 

commonly used in the industry. 

34 See, e.g., Order No. 2005 at P 82; section 157.37. 
Docket No. RM05-1-001 - 41 -

transportation project might provide detail regarding several expansion scenarios 

depending on and in response to the results of the open season. The project design 

review that the Commission will undertake focuses on the proposed project’s ability to 

accommodate the capacity bid for in the open season, as well as the extent to which the 

project can accommodate “low-cost” expansion. All expansions will involve cost. 

Obviously, as recognized by virtually all stakeholders, capacity that can be gained by 

compression alone would typically be the lowest-cost expansion. At the other end of the 

spectrum would be a pipeline that has no compression-only expansion potential, 

necessitating the need for looping in the first instance. The operative word in connection 

with any “low-cost” standard in section 157.37, is the extent of the design’s 

expandability, and that standard is not tied to the cost impact of a given expansion. 

Consequently we will not clarify section 157.37 as requested by Enbridge. 

111. ChevronTexaco claims that the Final Rule contains a conflict about how the 

contract term might be used by the prospective applicant in establishing its 

methodologies for the evaluation of bids and the allocation of capacity due to 

oversubscription, should that be necessary. It states that this confusion is caused because 

contract term is not mentioned in section 157.34(c)(14) regarding evaluation of bids, but 

is mentioned in section 157.34(c)(15) regarding allocation of capacity due to 

oversubscription. ChevronTexaco also complains that the Commission’s stated intention 

to rely on after the fact enforcement of issues that might be caused by unusual contract 

terms, rather than set a cap on contract term for the purpose of bidding and allocation 

review methodologies, does not satisfy ANGPA’s mandate that the Commission’s open 

season rules are fully prescriptive. ChevronTexaco requests that the Commission clarify 

the open season regulations to require that open season notices to include a cap on the 

contract term for capacity bids. 

112. First, our intention to rely on after-the-fact enforcement of open season issues that 

might be caused by unusual contract terms, or by any other aspect of the open season 

process that is not specifically enumerated in the open season regulations, completely 

satisfies the intent of Congress as stated in ANGPA. Moreover, as explained in Order 

No. 2005, it is consistent with our existing policy. However, we do agree that the 

discrepancy in language between section 157.34(c)(14) and section 157.34(c)(15) should 

be clarified to provide consistency between the methodologies for the evaluation of bids 

and the allocation of capacity due to oversubscription. To be consistent and avoid 

confusion, we will delete the phrase “including price and contract term” from 

section 157.34(c)(15). Furthermore, we will look carefully at this issue in our review of 

any open season plan and notice under section 157.38. 
Docket No. RM05-1-001 - 42 -

113. ChevronTexaco claims that the only way to assure that an open season was 

conducted fairly and in accordance with the open season rules is by making the precedent 

agreements publicly available. Therefore, ChevronTexaco objects to the provision in 

section 157.34(d)(4) which provides that all precedent agreements and correspondence 

with bidders who were not allocated capacity must be filed with the Commission, but that 

they may be filed under a request for confidential treatment pursuant to section 388.112 

of the Commission’s regulations. ChevronTexaco claims that since precedent 

agreements will become agreements that will appear in a pro forma tariff or an effective 

tariff, there is little chance that the information in the precedent agreements should be 

confidential for any prolonged period of time, or that any of the information would fall 

under a Freedom of Information Act exemption. ChevronTexaco states that the 

precedent agreements could be filed in a public and non-public version in the event parts 

of the agreements do contain protected information. 

114. We deny ChevronTexaco’s request. Under section 388.112 of the Commission’s 

regulations, any person submitting a document to the Commission may request privileged 

treatment by claiming that some or all other information is exempt from the Freedom of 

Information Act’s disclosure requirements. We are nor conferring any special 

confidential status to the agreements. The party requesting privileged treatment must 

support that claim. It may be, as ChevronTexaco claims, that precedent agreements 

are not likely to be exempt from disclosure. Neither section 157.35(d)(4) nor 

section 388.112 predetermines whether privileged treatment will be granted. 

Document Availability

115. In addition to publishing the full text of this document in the Federal Register, the 

Commission provides all interested persons an opportunity to view and/or print the 

contents of this document via the Internet through FERC's Home Page 

(http://www.ferc.gov) and in FERC's Public Reference Room during normal business 

hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A, 

Washington D.C. 20426. 

116. From FERC's Home Page on the Internet, this information is available in the 

Federal Energy Regulatory Records Information System (FERRIS). The full text of this 

document is available on FERRIS in PDF and Microsoft Word format for viewing, 

printing, and/or downloading. To access this document in FERRIS, type the docket 

number excluding the last three digits of this document in the docket number field. 

117. User assistance is available for FERRIS and the FERC's website during normal 

business hours from our Help line at (202)502-8222 or the Public Reference Room at 
Docket No. RM05-1-001 - 43 -

(202) 502-8371 Press 0, TTY (202)502-8659. E-Mail the Public Reference Room at 

public.referenceroom@ferc.gov 

Effective Date

118. These regulations are effective as of the date of publication in the FEDERAL 

REGISTER. 

List of subjects in 18 CFR Part 157

Administrative practice and procedure; natural gas; reporting and recordkeeping 

requirements 

By the Commission. 

( S E A L ) 

Linda Mitry, 

Deputy Secretary. 
Docket No. RM05-1-001 - 44 -

 In consideration of the foregoing, the Commission amends Part 157, Chapter I, 

Title 18, Code of Federal Regulations, as follows. 

PART 157 - APPLICATIONS FOR CERTIFICTES OF PUBLIC CONVENIENCE 

 AND NECESSITY AND FOR ORDERS PERMITTING AND 

 APPROVING ABANDONMENT UNDER SECTION 7 OF THE 

 NATURAL GAS ACT 

1. The authority citation for Part 157 continues to read as follows: 

AUTHORITY: 15 U.S.C. §§ 717 -717w. 

SUBPART B – OPEN SEASONS FOR ALASKA NATURAL GAS 

 TRANSPORTION PROJECTS 

2. In section § 157.33, paragraph (b) is revised to read as follows: 

§ 157.33 Requirements for Open Seasons. 

(a) * * * 

(b) Initial capacity on a proposed Alaska natural gas transportation project may be 

acquired prior to an open season through pre-subscription agreements, provided that in 

any open season as required in (a) above, capacity is offered to all prospective bidders at 

the same rates and on the same terms and conditions as contained in the pre-subscription 

agreements. All pre-subscription agreements shall be made public by posting on Internet 

websites and press releases within ten days of their execution. In the event there is more 

than one such agreement, all prospective bidders shall be allowed the option of selecting 

among the several agreements all of the rates, terms and conditions contained in any one 

such agreement. 

3. In section 157.34, paragraphs (a), (c)(9), (c)(15) and (c)(18), and (d)(2) are revised to 

read as follows: 

§ 157.34 Notice of open season. 

(a) Notice. A prospective applicant must provide reasonable public notice of an 

open season through methods including postings on Internet websites, press releases, 

direct mail solicitations, and other advertising. In addition, a prospective applicant must 

provide actual notice of an open season to the State of Alaska and to the Federal 
Docket No. RM05-1-001 - 45 -

Coordinator for Alaska Natural Gas Transportation Projects. 

 * * * * * * * * 

(c) * * * 

 (9) Negotiated rate and other rate options under consideration, including any 

rates and terms of any precedent agreements with prospective anchor shippers that have 

been negotiated or agreed to outside of the open season process prescribed herein; 

 * * * * * * * * 

(15) The methodology by which capacity will be awarded, in the case of oversubscription, clearly stating all terms that will be considered, except that if any capacity is 

acquired through pre-subscription agreements as provided in §157.33(b) above and the 

prospective applicant does not redesign the project to accommodate all capacity requests, 

only that capacity that was acquired through pre-subscription or was bid in the open 

season on the same rates, terms, and conditions as any one of the pre-subscription 

agreements shall be allocated on a pro rata basis and no other capacity acquired through 

the open season shall be allocated. 

 * * * * * * * * 

 

 (18) All information that the prospective applicant has in its possession 

pertaining to the proposed service to be offered, projected pipeline capacity and design, 

proposed tariff provisions, and cost projections, or that the prospective applicant has 

made available to, or obtained from, any potential shipper, including any affiliates of the 

project sponsor and any shippers with pre-subscribed capacity, prior to the issuance of the 

public notice of open season; 

 * * * * * * * * 

(d) * * * 

 (2) A prospective applicant must consider any bids tendered after the expiration 

of the open season by qualifying bidders and may reject them only if they cannot be 

accommodated due to economic, engineering, design, capacity or operational constraints, 

or accommodating the request would otherwise adversely impact the timely development 

of the project, and a detailed explanation must accompany the rejection. Any bids 

tendered after the expiration of the open season must contain a good faith showing, 

including a statement of the circumstances which prevented the late bidder from 
Docket No. RM05-1-001 - 46 -

tendering a timely bid and how those circumstances have changed. If a prospective 

applicant determines at any time that, based on the criteria stated above, no further late 

bids for capacity can be accommodated, it may request Commission approval to 

summarily reject any further requests. 

 * * * * * * * * 

4. In section 157.35, paragraph (c) is revised to read as follows and paragraph (d), the 

word “258.4(a)(1)” is removed and the word “358.4(a)(1)” is inserted in its place. 

§ 157.35 Undue Discrimination or Preference. 

(a) * * * 

(b) * * * 

(c) Each prospective applicant conducting an open season under this subpart must 

function independent of the other divisions of the prospective applicant as well as the 

prospective applicant’s Marketing and Energy affiliates as those terms are defined in §§ 

358.3(d) and (k) of the Commission’s regulations. In instances in which the prospective 

applicant is not an entity created specifically to conduct an open season under this 

Subpart, the prospective applicant must create or designate a unit or division to conduct 

the open season that must function independent of the other divisions of the project 

applicant as well as the project applicant’s Marketing and Energy affiliates as those terms 

are defined in sections 358.3(d) and (k) of the Commission’s regulations. 

 * * * * * * * * 

5. Section 157.36 is revised to read as follows: 

§ 157.36 Open seasons for expansions. 

Any open season for capacity exceeding the initial capacity of an Alaska natural 

gas transportation project must provide the opportunity for the transportation of gas other 

than Prudhoe Bay or Point Thomson production. In considering a proposed voluntary 

expansion of an Alaska natural gas pipeline project, the Commission will consider the 

extent to which the expansion will be utilized by shippers other than those who are the 

initial shippers on the project and, in order to promote competition and open access to the 

project, may require design changes to ensure that some portion of the expansion capacity 

be allocated to new shippers willing to sign long-term firm transportation contracts, 

including shippers seeking to transport natural gas from areas other than Prudhoe Bay 

and Point Thomson. 
Docket No. RM05-1-001 - 47 -

6. Section 157.38 is revised to read as follows: 

§ 157.38 Pre-Approval Procedures. 

No later than 90 days prior to providing the notice of open season required by 

section 157.34(a), a prospective applicant must file, for Commission approval, a detailed 

plan for conducting an open season in conformance with these regulations. The 

prospective applicant’s plan shall include the proposed notice of open season. Upon 

receipt of a request for such a determination, the Secretary of the Commission shall issue 

a notice of the request, which will then be published in the Federal Register. The notice 

shall establish a date on which comments from interested persons are due and a date, 

which shall be within 60 days of receipt of the prospective applicant’s request unless 

otherwise directed by the Commission, by which the Commission will act on the 

proposed plan.