NGI's Daily Gas Price Index 
published : October 12, 2001
FERC Staff to Monitor Pipes for OFO Abuses 
This represents a new kind of approach by the Commission to the market, "which is that we're acting not reacting," said Commissioner Nora Brownell. The creation of this mechanism does not necessarily mean FERC has seen a "pattern of abuse" by pipelines that would warrant "more vigorous pursuit" of OFO activity, she noted. "We are simply setting up the mechanisms by which we will know them [OFO abuses] when we see them and be able to deal with them." 
In a discussion paper issued at Thursday's regular FERC meeting, Gary Mahrenholz of the Office of Markets Rates and Tariffs said FERC staff would rely largely on electronic bulletin board (EBB) postings, pipeline reports and others sources to oversee OFO activity on the pipelines. 
The Commission is taking this action on top of the OFO remedies that were ordered in Order 637, which included requiring pipelines to file OFO activity reports, set proper OFO penalty levels and credit revenues to shippers, timely inform shippers of OFOs, and to improve pipeline-specific OFO definitions. 
Commissioner Linda Breathitt was concerned that FERC was acting before it knew the results of its Order 637 remedies with respect to OFOs. "...I do believe that it is prudent to allow some time for revisions to OFO procedures that we required in 637 to work. The 637 initiative required pipelines to find a way to minimize the issuance of OFOs and to provide data as to OFOs [that] are invoked." She further noted that over-reliance on OFOs was not an industry-wide problem, but rather was confined to specific pipelines. 
Pipelines mostly invoke OFOs during peak-demand periods, particularly during cold periods, to keep their systems operating reliably. During an OFO, shippers are restricted in the amount of gas they can purchase and transport. When shippers are out of balance on a pipeline during an OFO -- meaning that they have put more gas into a pipeline's system than their customers will take out at the other end, or haven't put in enough gas to cover their customers -- they are assessed penalties by pipelines. 
Shippers routinely have complained that pipeline-declared OFOs lasted too long and affected too large a portion of a pipeline's system; that pipelines favored their marketing affiliates when an OFO was in effect; and that OFO measures were poorly defined, giving pipelines significant latitude as to when to declare emergency orders. 
Although Order 637 dealt with many of the shippers' complaints about OFOs, FERC believes the monitoring activity is essential to determine if pipes are using OFOs to inhibit competition and reduce service quality, as well as to assess where capacity expansions are most needed. 
"The new [637] procedures together with more effective monitoring should limit the issuance of OFOs to times when they are absolutely necessary to maintain service reliability," according to FERC staff's discussion paper.