On October 28, 2020, FERC declined to abrogate or modify firm natural gas transportation service agreements (“Gulfport TSAs”) between Gulfport Energy Corporation (“Gulfport”) and Rockies Express Pipeline LLC (“Rockies Express”) in response to a Rockies Express petition anticipating a potential Gulfport bankruptcy filing. After an expedited paper hearing, FERC concluded that the public interest does not presently require any modification, and thus, that the Gulfport TSAs on file remain just and reasonable. In doing so, FERC found that Gulfport failed to provide the evidence needed under Mobile-Sierra for FERC to find that abrogation of the Gulfport TSAs would be in the public interest. FERC’s order also follows its recent determination that it shares concurrent jurisdiction with the Bankruptcy Court over abrogation or modification of gas transportation agreements (see July 1, 2020 edition of the WER).
On September 15, 2020, Rockies Express requested a declaratory order confirming that if Gulfport filed for bankruptcy, FERC would have concurrent jurisdiction under sections 4 and 5 of the Natural Gas Act (“NGA”). This proceeding follows a sting of cases with similar “shared jurisdiction” issues involving bankruptcy proceedings in both the Sixth and Ninth Circuits. After only ten days, FERC granted the petition explaining that the Gulfport TSAs constitute filed rates under the NGA and FERC regulations and were therefore subject to the filed rate doctrine and the Mobile-Sierra presumption. Thus, according to FERC, if Gulfport filed for bankruptcy, Gulfport would need both (1) approval from the Bankruptcy Court to reject the Gulfport TSAs and (2) approval from FERC to modify or abrogate the Gulfport TSAs. In addition to opining on its jurisdiction over the Gulfport TSAs should a bankruptcy filing be made, FERC also established a paper hearing in the September 25, 2020 order to brief any public-interest issues that might require the abrogation or modification of the Gulfport TSAs notwithstanding a bankruptcy filing.
Rockies Express argued in its briefing that under the Mobile-Sierra doctrine, the Gulfport TSAs are presumed to be in the public interest unless a party seeking abrogation or modification can demonstrate that the contracts seriously harm the public interest. Rockies Express also stated that any modification of the Gulfport TSAs would harm the public interest by: (1) undermining investor confidence; (2) unduly discriminating between similarly situated shippers that contracted for capacity in the same open season that Gulfport did; (3) harming consumer interests; and (4) causing significant financial hardship to Rockies Express. Because Rockies Express did not anticipate being able to resell Gulfport’s capacity at Gulfport’s existing rates, and 90% of its capacity is under contract, Rockies Express claimed that it could not seek a rate increase and would otherwise have no sufficient economic recourse if the contracts were abrogated.
In return, Gulfport argued that Rockies Express is solvent and unlikely to shut down if the contracts were modified, and that the public interest is served by promoting competition and protecting rights under the Bankruptcy Code. Gulfport also believed that if FERC required continued performance of the contracts, it would represent a reversal of FERC’s longstanding policy of declining to intervene to protect individual competitors from the results of competition.
FERC analyzed each of the Sierra factors finding that the the contracts do not: (1) impair the financial ability of the utility (or purchaser) to continue its service; (2) create an excessive burden for other consumers; and (3) are not unduly discriminatory, and therefore remain just and reasonable. FERC explained that Gulfport could have argued its own financial distress was sufficient to satisfy the first Sierra factor, given the “unprecedented demand destruction and depressed commodity prices” the natural gas industry is experiencing, but that Gulfport’s allegations of potential financial hardship from contracts that are simply less attractive than other available alternatives and arguments that Rockies Express will not be harmed by a potential abrogation are insufficient to make the requisite public interest finding under Sierra. Likewise, FERC rejected Gulfport’s generalized arguments that asserting jurisdiction would restrict the options of other shippers and diminish the value of becoming an anchor shipper as insufficient to show the Gulfport TSAs result in excessive public burdens on other customers. Further, even assuming there were some disparities in rates of similarly situated shippers, because Gulfport did not argue its contracts were the result of bad faith or unfair conduct, FERC was not persuaded that the public interest requires modification or abrogation at this time. Finally, FERC dismissed Gulfport’s argument that the proceeding was a jurisdictional overreach because the Bankruptcy Court would be the appropriate forum to consider whether rejection of the Gulfport TSAs is in a debtor’s best interest, and instead reiterated its role in examining whether abrogating the contracts would be in the public interest.
A copy of the order is available here.