Eye of the Storm – Events Impacting Pipeline Cash Flows

Financials Oil
September 21, 2017

Hurricane Harvey has wreaked havoc on our friends in Texas and the broader U.S. economy, including the North American energy infrastructure hub. And with Hurricane Irma storming into Florida, pipeline companies and the broader supply chain are assessing how customer commitments will impact their business. Regardless of your role working for or with a pipeline company, staying on top of changes to operational commitments, such as flows, rates, and changes in service, is a struggle. Not only are there uncontrollable events, such as hurricanes, but there are also the expected events for which advance notice could reduce business risks or present commercial opportunities. How can you obtain a business edge during a shifting landscape that may change contractual (aka tariffs) agreements — without digging them up and/or consuming them? 

Liquids Pipelines – Hurricane Related Developments

Changes in natural gas and oil pipeline tariffs can have significant impacts on pipeline revenues and, by extension, the affected parent companies. Natural gas and liquids pipeline tariffs are complex, and oftentimes lengthy documents, with many interconnected details regarding terms and conditions of service, as well as details about rate structures and non-conforming agreements. When companies modify rates and maximum daily capacity quantities, such changes are buried in ministerial legal filings. So, if you were to customize a notification service that shores up these gaps, how would it help your business?

For example, as Harvey battered Texas last week, Colonial Pipeline, the largest U.S. refined product pipeline, and other pipelines impacted by the heavy rains had to suspend certain operations. With events unfolding quickly, companies such as Colonial filed required tariff amendments to implement temporary embargoes for movements originating at a number of their facilities. A press release or other publically available information about such tariff amendments may occur later than and lack the details that your business needs require.

Gas Pipelines – Changes Impacting Cash Flows

Shippers who anchor a pipeline project are commonly given special rates and terms. While a developer will include with its initial application the rate it intends to charge “ordinary” shippers (referred to as its “recourse rate”), these special rates and terms are not disclosed until approximately 30 days before the pipeline anticipates going into service. The filing of these negotiated rate agreements not only gives advanced notice of when a pipeline anticipates going into service, but also confirms revenue projections. One term frequently extended to anchor shippers is a most favored nations clause, which allows the shipper holding such a right the ability to reduce its rate if another similarly situated shipper is given a lower rate. Holders of such rights, as well as those who care about the revenue stream of pipelines, can assess whether new contracts might trigger such a price reduction in existing contracts by monitoring a gas pipeline’s required filing of negotiated rate agreements. 

Another indicator of the expected in-service date is a filing that is required for all projects in which the pipeline requests the authority to put the facilities being constructed into service. For example, on August 31, Dominion filed a request with FERC to put into service, by September 29, all of the facilities related to its Leidy South Project. If you rely on alerts that are based on FERC issuances, you would never obtain notice of the first of these filings. As a result, you would only be notified by the second type of filing, which occurs when FERC actually authorizes the pipeline to commence service — which may be only one day before the pipeline commences service.

Many of our customers are familiar with several of LawIQ’s 18 different categories of alerts, primarily those related to projects, such as new applications and notices of environmental review schedule changes and the start of construction. But pipeline tariff changes, including rate modifications, and other changes that directly impact the business fundamentals are a large percentage of the alerts on which our customers rely. In all cases, no matter how many alerts you schedule, you will receive only one email per day, with links to original filings for, when necessary, a further deep dive.

LawIQ Gas and Liquids Pipeline Alerts