Millennium Pipeline Company, L.L.C. Docket No. RP Calculation of Reservation Charge Credits and Voluntary Interruption Commitments

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1 One Blue Hill Plaza, 7th Floor Post Office Box 1565 Pearl River, NY Voice Fax December 1, 2014 Ms. Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Washington, D.C Re: Millennium Pipeline Company, L.L.C. Docket No. RP Calculation of Reservation Charge Credits and Voluntary Interruption Commitments Dear Ms. Bose: Pursuant to Section 4 of the Natural Gas Act ( NGA ), 1 and Part 154 of the regulations of the Federal Energy Regulatory Commission ( Commission ) 2 Millennium Pipeline Company, L.L.C. ( Millennium ) hereby submits the following tariff records proposed to become effective as discussed below as part of Millennium s etariff database, Millennium Tariffs. Millennium respectfully requests that the Commission permit that the enclosed tariff records become effective January 1, FIRST REVISED VOLUME NO. 1 Content Description Tariff Record Title Version Rate Schedules, Section 1 FT Rate Schedules, Section 2 FT Rate Schedules, Section 3 BH Rate Schedules, Section 4 HT Gen. Terms and Conditions, Section 7 Capacity Allocation Gen. Terms and Conditions, Section 14 Release and Assignment of Service Rights Gen. Terms and Conditions, Section 15 Force Majeure, Res. Charge Credits, VICs Service Agreement Forms FT-1, FT-2, BH-1, and HT Service Agreement Forms VIC Confirmation Miscellaneous Forms Form of Assignment Agreement Miscellaneous Forms Info. Posting Form for Prearranged Assignments U.S.C. 717c C.F.R. Part

2 I. Statement of Nature, Reasons, and Basis for Filing As described in greater detail below, Millennium proposes to modify its Tariff to adopt a definition of Force Majeure Event in GT&C Section 15.1 to be consistent with the Commission s current policy. Millennium also proposes to provide that for force majeure outages and certain non-force majeure outages where Millennium has provided advance notice of service unavailability, the quantities used in deriving reservation charge credits will be based on an average usage of a Shipper s firm service during the seven gas days immediately preceding the service interruption. This approach ensures that shippers who do not nominate will receive credits based on their recent usage of the system. Millennium further proposes to amend its Tariff to provide a new mechanism that may be invoked in response to an existing or reasonably anticipated service interruption on its system, pursuant to which Millennium will solicit proposals from current shippers to temporarily relinquish the right to nominate capacity under existing agreements in return for payment from Millennium. This proposal will make capacity available to other shippers in an economically efficient manner and reduce or avoid the necessity to allocate firm nominations and issue reservation charge credits. 3 A. Revisions to the Definition of Force Majeure Event Millennium is proposing to amend the second sentence of GT&C Section 15.1 by adding the following emphasized language: The term Force Majeure Event means an event beyond the control of the party claiming excuse that creates an inability to serve that could not be prevented or overcome by the due diligence of the party claiming the Force Majeure Event. In addition, Millennium is proposing a change to the penultimate sentence in GT&C Section 15.1, which provides a non-exclusive list of circumstances that will constitute a Force Majeure Event. Specifically, Millennium proposes to strike the following language:... the binding order of any court, legislative body, or governmental authority which has been resisted in good faith by all reasonable legal means. This language will be replaced by the following:... or emergency or otherwise unexpected non-routine repairs or maintenance activities not within Transporter s control, and the binding order of any court or governmental authority which is not within Transporter s control and is unexpected. These changes are consistent with tariff language approved in the tariffs of other interstate natural gas pipelines, 4 and the Commission s policy that outages resulting from governmental actions may be treated as resulting from a force majeure event only when the governmental requirement pertains to matters which are not reasonably in the pipeline s control and are unexpected. 5 Accordingly, because the proposed changes will update Millennium s 3 Pursuant to Section (f) of the Commission s regulations, there are no other filings pending before the Commission that may significantly affect the filing. 18 C.F.R (f). 4 See, e.g., Iroquois Gas Transmission, L.P.,, Second Revised Volume No,. 1, Sub. Second Rev. Sheet No. 85, GT&C, 21 Force Majeure and Remedies, Iroquois Gas Transmission System, L.P., 145 FERC 61,233, at P 82 (2013) (citing Algonquin Gas Transmission, LLC, 143 FERC 61,082, at PP (2013); Texas Eastern Transmission, LP, 140 FERC 61,216, at PP

3 Tariff to bring it in line with the Commission s current policy with respect to government actions that can qualify for treatment as events of force majeure, the proposed changes are just and reasonable and should be accepted by the Commission as requested. B. Reservation Charge Credits Consistent with the Commission s policy requiring interstate pipelines to provide reservation charge credits to firm service customers during periods when the pipeline is unable to provide the level of primary firm service properly nominated by its shippers, the current version of Section 15 of the General Terms and Conditions ( GT&C ) of Millennium s Tariff provides for different levels of reservation charge credits depending on whether or not the unavailability of firm service was caused by an event of force majeure, defined generally under GT&C Section 15.1 (revised as discussed in Section I.A, above) as an event beyond the control of the party claiming excuse that creates an inability to serve that could not be prevented or overcome by the due diligence of the party claiming force majeure (defined as a Force Majeure Event in the revised tariff record). 6 Specifically, under the current GT&C Section 15.3(b), during Force Majeure Events, the reservation charge credits due to a firm shipper are calculated based upon the shipper s primary confirmed nominations for the month minus the total for the month of the scheduled quantities. 7 This amount is then multiplied by the product of the shipper s contract reservation rate stated on a daily basis, and the percent of the currently effective reservation rates that represents Millennium s equity return and associated income taxes to yield the reservation charge credits due to the shipper during a Force Majeure Event. 8 During a situation that does not involve a Force Majeure Event (a Non-FM Event ), 9 the reservation charge credit is calculated based upon the shipper s total monthly confirmed primary nominations minus the total for the month of scheduled quantities, multiplied by the shipper s full contract reservation rate stated on a daily basis. The provision of full reservation charge credits for the unavailability of firm service during Non-FM Events under Millennium s Tariff is likewise consistent with Commission policy. 10 (2012); Gas Transmission Northwest LLC, 141 FERC 61,101 at PP (2012); TransColorado Gas Transmission Co., 144 FERC 61,175, at PP (2013); Gulf South Pipeline Co., LP, 144 FERC 61,215 at PP (2013). 6 As discussed in Section I.D, below, Millennium has used this language to define the term Force Majeure Event in the proposed revisions to GT&C Section The amounts upon which reservation charge credits are due are subject to further adjustments for certain circumstances pursuant to current GT&C Section 15.3(a). 8 This method is consistent with Commission policy and commonly referred to as the No-Profit Method. See, e.g., Natural Gas Supply Association, 135 FERC 61,055, at P 2 (2011) ( NGSA ). 9 Millennium has defined Non-FM Event in the proposed GT&C Section 15.4 as a planned maintenance event or an event that does not otherwise constitute a Force Majeure Event. Although other interstate pipelines have used the term Maintenance Event to serve a similar purpose, this term is potentially confusing as it could be erroneously interpreted to include unscheduled maintenance, which generally results from an operational problem and is therefore a no-fault, force majeure event. Texas Eastern Transmission, LP, 140 FERC 61,216, at P 45 n.52 (2012) (citing El Paso Natural Gas Co., 105 FERC 61,262, at 62,351 (2003); Natural Gas Pipeline Co. of America, 108 FERC 61,170, at P 7 (2004)). 10 See, e.g., NGSA, 135 FERC 61,055; Southern Natural Gas Co., 135 FERC 61,056, order on reh'g, 137 FERC 61,050 (2011); Northern Natural Gas Co., 135 FERC 61,250, order on reh'g, 137 FERC 61,202 (2011); 3

4 Millennium proposes to amend GT&C Section 15 to provide that a shipper s reservation charge credits due upon the occurrence of a Force Majeure Event will be calculated based upon the shipper s Force Majeure Average Usage Quantity, less any applicable VIC Quantity (as discussed in Section I.C.1, below) and any quantity that the shipper nominated and Millennium was able to schedule and deliver on the applicable Gas Day, multiplied by the shipper s Force Majeure Daily Rate. Proposed Section 15.3(b) calculates the Force Majeure Average Usage Quantity 11 The Force Majeure Average Usage Quantity will vary based upon whether or not Millennium has provided advance notice of the Force Majeure Event. For a Force Majeure Event for which advance notice is provided prior to the Timely Cycle nomination deadline, the Force Majeure Average Usage Quantity will be based on the shipper s average usage (measured as the quantity of gas actually delivered each Gas Day), up to its Transportation Demand, for services from the shipper s primary Receipt Point(s) to the shipper s primary Delivery Point(s), as reflected in shipper s Service Agreement, during the seven Gas Days during which Millennium did not experience a Force Majeure Event or Non-FM Event prior to the date of the posting of notice of the Force Majeure Event on Millennium s EBB. For any Gas Days during a Force Majeure Event for which notice of unavailability of service was not provided prior to the Timely Cycle nomination deadline on that Gas Day, the shipper s Force Majeure Average Usage Quantity will be the quantity of firm service nominated and confirmed from the shipper s primary Receipt Point(s) to its primary Delivery Point(s), provided that the Force Majeure Average Usage Quantity will not be increased if the shipper increases its nominations in a nomination cycle after Millennium has posted notice of the Force Majeure Event. If Millennium has notified shippers that the Force Majeure Event will continue on subsequent Gas Days following the first Gas Day of the Force Majeure Event, the Force Majeure Average Usage Quantity for each subsequent Gas Day of the Force Majeure Event will be based upon the shipper s average usage (measured as the quantity of gas actually delivered each Gas Day), up to its Transportation Demand, for services from the shipper s primary Receipt Point(s) to the shipper s primary Delivery Point(s), as reflected in the shipper s Service Agreement, during the seven Gas Days during which Millennium did not experience a Force Majeure Event or Non-FM Event prior to the first Gas Day of the Force Majeure Event. The shipper s Force Majeure Daily Rate is defined in proposed GT&C Section 15.3(c) as equal to the amount by which Shipper s contract reservation charge stated on a daily basis exceeds the current non-equity return and associated tax portion of the maximum reservation charge set forth in Millennium s Tariff. This definition is consistent with Commission policy and continues the No-Profit Method used to calculate reservation charge credits under Millennium s current GT&C Section 15. Further, under revised GT&C Section 15.3(c), reservation charge credits applicable to discounted or negotiated rate firm transportation service agreements will be applicable only to that portion of the discounted or negotiated rate that exceeds the current non-equity return and associated tax portion of the maximum reservation rate. Midwestern Gas Transmission Co., 137 FERC 61,257 (2011); Kern River Gas Transmission Co., 139 FERC 61,044 (2012); Paiute Pipeline Co., 139 FERC 61,089 (2012). 11 This provision is similar to tariff language approved by the Commission for other interstate pipelines in calculating reservation charge credits during events of force majeure. See Texas Gas Transmission FERC Gas Tariff, Fourth Revised Volume No. 1, GT&C 6.25[1][b][i], Version (approved in Docket No. RP et al.); Gulf South Pipeline Co., LP,, Seventh Revised Volume No. 1, GT&C 6.25[1][b][i], Version (approved in Docket No. RP et al.); Gulf Crossing Pipeline Co., LLC,, First Revised Volume No. 1, GT&C 6.23[1][b][i], Version (approved in Docket No. RP et al.). 4

5 This provision carries forward the policy under Millennium s current Tariff and is consistent with Commission policy for calculating reservation charge credits during force majeure events under the No-Profit Method. 12 In addition, for outages caused by Non-FM Events, GT&C Section 15.4(a) has been amended to provide that the reservation charge credits due will be calculated based upon the shipper s Non-FM Average Usage Quantity, less any applicable VIC Quantity (as discussed in Section I.C.1, below) and any quantity that the shipper nominated and Millennium was able to schedule and deliver on the applicable Gas Day, multiplied by the shipper s Non-FM Daily Rate. Consistent with Commission policy, the Non-FM Average Usage Quantity defined in GT&C Section 15.4(b) will vary based upon whether or not Millennium has provided advance notice of the Non-FM Event. For a Non-FM Event for which advance notice is provided prior to the Timely Cycle nomination deadline, the Non-FM Average Usage Quantity will be based on the shipper s average usage (measured as the quantity of gas actually delivered each Gas Day), up to its Transportation Demand, for services from the shipper s primary Receipt Point(s) to the shipper s primary Delivery Point(s), as reflected in shipper s Service Agreement, during the seven Gas Days during which Millennium did not experience a Force Majeure Event or Non-FM Event prior to the date of the posting of notice of the Non-FM Event on Millennium s EBB. 13 For any Gas Days during a Non-FM Event for which notice of unavailability of service was not provided prior to the Timely Cycle nomination deadline on that Gas Day, the shipper s Non-FM Average Usage Quantity will be the quantity of firm service nominated and confirmed from the shipper s primary Receipt Point(s) to its primary Delivery Point(s), provided that the Non-FM Average Usage Quantity will not be increased if the shipper increases its nominations in a nomination cycle after Millennium has posted notice of the Non-FM Event. If Millennium has notified shippers that the Non-FM Event will continue on subsequent Gas Days following the first Gas Day of the Non-FM Event, the Non-FM Average Usage Quantity for each subsequent Gas Day of the Non-FM Event will be based upon the shipper s average usage (measured as the quantity of gas actually delivered each Gas Day), up to its Transportation Demand, for services from the shipper s primary Receipt Point(s) to the shipper s primary Delivery Point(s), as reflected in the shipper s Service Agreement, during the seven Gas Days during which Millennium did not experience a Force Majeure Event or Non-FM Event prior to the first Gas Day of the Non-FM Event. The revised provisions Millennium is proposing in GT&C Sections 15.3 and 15.4 are fully consistent with the Commission s established policy regarding reservation charge crediting. The Commission has found that it is appropriate for a pipeline to calculate the reservation charge credits owed to shippers based on an appropriate historical average of usage (e.g., the prior seven days of utilization) as a substitute for use of actual scheduled amounts in certain situations. 14 As the Commission recognized in NGSA, [t]his approach minimizes the potential for gaming, where shippers would submit scheduling nominations for high amounts knowing that the 12 Millennium Pipeline Co., LLC,, First Revised Volume No. 1, GT&C 15.3(b)(iv), Version 0.0.0; El Paso Natural Gas Co., 101 FERC 61,379, at P 51 (2002). 13 See Iroquois Gas Transmission System, L.P., 145 FERC 61,233, at P 52 (2013). 14 See, e.g., NGSA, 135 FERC 61,055 at P 25; Kern River, 139 FERC 61,044 at P

6 scheduling nomination will be rejected, while ensuring that shippers who do not nominate will receive credits based on their recent usage of the system. 15 In addition to the changes proposed in GT&C Sections 15.3 and 15.4, Millennium is carrying forward the provisions in its current GT&C Section 15.3(a), listing several circumstances under which reservation charge credits will not apply (e.g., where a shipper has failed to promptly nominate and confirm under the nomination timeline). Millennium has relocated these limitations to new GT&C Section In addition to the conforming changes described in Section I.D, below, in new GT&C Section 15.5(a), Millennium is proposing to prohibit shippers that fail to comply with the terms of an Operational Flow Order issued by Millennium pursuant to GT&C Section 17 from receiving reservation charge credits. As the Commission has recognized, [s]uch a provision provides a further deterrent to conduct by a shipper which risks harm both [to] the pipeline and to other shippers on the system. 16 Finally, to implement the Voluntary Interruption Commitment procedures described in Section I.C below, Millennium is proposing to exempt VIC Quantities from receiving reservation charge credits. C. Reverse Open Season and Voluntary Interruption Commitments Like all interstate pipelines, Millennium is required under normal operating conditions to be able to schedule and transport all firm services up to the aggregate Transportation Demand set forth in the Service Agreements of its firm shippers. 17 Pursuant to GT&C Section 7 of Millennium s Tariff and consistent with Commission policy, 18 in the event that a circumstance on Millennium s system prevents it from scheduling all firm services nominated by shippers, Millennium schedules all firm shippers on a pro rata basis based upon the Transportation Demand under each shipper s Service Agreement. 19 Similarly, under GT&C Section 16.4(4) of Millennium s Tariff and consistent with Commission policy, 20 to the extent that capacity is not available to continue the receipt, transportation, or delivery of all shippers quantities that have been scheduled and is flowing on Millennium s system, all firm services are curtailed on a pro rata basis FERC 61,055 at P Paiute Pipeline Co., 139 FERC 61,189, at P 25 (2012). 17 Transportation Demand is defined in GT&C Section 1.44 of Millennium s Tariff as the maximum daily quantity of gas that [Millennium] is obligated to deliver to or for the account of Shipper pursuant to a Service Agreement under [Millennium s] firm transportation Rate Schedules FT-1, FT-2, BH-1 and HT See, e.g., Mid Louisiana Gas Co., 68 FERC 61,229, at 62,086 (1994) ( As a matter of policy, the Commission has stated that all firm service obligations should be treated equally. ) (citing Arkla Energy Resources, 62 FERC 61,076 (1993)). 19 See Millennium Pipeline Company, L.L.C.,, First Revised Volume No. 1, GT&C 7.2(a) (scheduling of firm service at Delivery Points); 7.3(a) (scheduling of firm service at internal constraint points); 7.4(a) (scheduling of firm service at Receipt Points) 20 See, e.g., Maritimes & Northeast Pipeline, L.L.C., 100 FERC 61, 030, at P 24 (2002), reh'g denied, 103 FERC 61,316 (2003); Williston Basin Interstate Pipeline Co., 62 FERC 61,144, at 62,025 (1993); Algonquin Gas Transmission Co., 62 FERC 61,132, at 61,896 (1993) (requiring curtailment of all firm services on a pro-rata basis). 6

7 On peak days when most of Millennium s firm shippers are nominating quantities close to their full Transportation Demand, if a portion of Millennium s total system capacity becomes unavailable, due to the pro rata allocation and curtailment provisions of its Tariff, only a portion of each shipper s nominated volumes will be scheduled and transported, regardless of shippers individual needs or the value they place on that service. This result is not necessarily an efficient allocation of capacity during times of constraint. In many cases where Millennium is only able to provide partial service, rather than cutting all shippers nominations by an equal proportionate amount, it would be more efficient for all parties involved for those shippers that place less economic value on transportation during a specific Gas Day to forego service in order to allow other shippers that place a higher value on such transportation to receive their full service entitlement. To address these economic inefficiencies, while maintaining consistency with the Commission s well-established policies regarding the provision of firm service, Millennium is proposing a new, transparent, market-based solution to encourage the efficient allocation of firm service to shippers that place the highest value on such service during temporary conditions of service unavailability, while causing the least amount of disruption to the transportation market. Specifically, Millennium is proposing a new provision in GT&C Section 15.6 of its Tariff that would authorize it to conduct reverse open seasons to solicit proposals from current firm shippers to temporarily relinquish their right to nominate specified quantities under existing firm Service Agreements on certain Gas Days when full firm service is not likely to be available. In return for the commitment not to schedule service, Millennium will provide a credit to the participating shippers invoices as described below. 1. Operation of the Voluntary Interruption Commitment Procedures Under its proposal, whenever Millennium is unable or reasonably believes that it will be unable to deliver all of its shippers primary firm nominations on a Gas Day due to a Force Majeure Event or Non-FM Event, Millennium may solicit proposals from current firm shippers to commit to temporarily relinquish the right to nominate capacity under existing Service Agreements (a Voluntary Interruption Commitment or VIC ) in return for payment by Millennium of a credit to the shipper s invoice against any outstanding reservation charges ( VIC Credit ). Pursuant to proposed GT&C Section 15.6(a), Millennium will solicit VICs in a reverse open season ( VIC Reverse Open Season ) by posting notice of the VIC Reverse Open Season ( VIC Reverse Open Season Notice ) on its EBB. 21 The VIC Reverse Open Season Notice will include specific information about the VICs being solicited by Millennium, including: the total quantity, the location on Millennium s system, and the Gas Day(s) for which VICs are being solicited; the maximum VIC Credit Millennium is willing to provide; and the duration of the bidding period for the VIC Reverse Open Season ( VIC Reverse Open Season Period ), which shall not be less than one hour. Proposed GT&C Section 15.6(b) reserves Millennium s right to withdraw or modify the terms of the open season prior to the end of the bidding period, to reject all bids due to operational changes or failure of the bids to meet Millennium s economic objectives, to reject 21 The procedures by which Millennium will conduct VIC Reverse Open Seasons are modeled on the procedures Millennium has adopted for the auctions of available firm capacity and for auctions of released capacity, as set forth in GT&C Sections 4 and 14 of Millennium s Tariff, respectively. 7

8 any specific bid that does not conform to the terms of the VIC Reverse Open Season Notice, and to conduct successive VIC Reverse Open Seasons to solicit additional VICs for additional periods. New GT&C Section 15.6(c) specifies the information that firm shippers participating in the VIC Reverse Open Season ( VIC Bidders ) must submit in response to a VIC Reverse Open Season Notice. Additional procedures applicable to the receipt, evaluation, and award of bids in VIC Reverse Open Seasons are contained in GT&C Section 15.6(d). Pursuant to proposed GT&C Section 15.6(d)(iii), bids will be awarded based upon the suite of bids that yields VICs applicable to the quantity of capacity posted in the VIC Reverse Open Season Notice at the lowest economic cost to Millennium, considering the level of the VIC Credit bid, the amount of capacity to which the VICs will apply, and the Gas Days during which VICs will apply. Where lowest bids of equal value are received for VICs from more than one VIC Bidder, the VICs will be awarded pro rata on the basis of the respective quantities bid by the winning VIC Bidders. Pursuant to GT&C Section 15.6(d)(iv), Millennium will notify any VIC Bidders as soon as reasonably practicable as to whether Millennium has accepted the shipper s offer to obtain VICs and will post the winning bids on its EBB. Millennium will provide notice to winning VIC Bidders of the specific quantity on Millennium s mainline and a specific receipt and delivery points under each Service Agreement for each Gas Day to which a VIC shall apply ( VIC Quantity ), along with the VIC Credit bid by Shipper that will apply to each VIC Quantity. The VIC Quantity and applicable VIC Credits will be specified in a VIC Confirmation issued to the shipper, which will amend and become part of the shipper s Service Agreement. Proposed Section 15.6(d)(iv) sets forth the timeline for issuing and executing a VIC Confirmation. Millennium is also adding to its Tariff a form of VIC Confirmation that it will execute with shippers to memorialize and make a part of shippers Service Agreements, those VICs that have been awarded pursuant to the procedures set forth in new GT&C Section As specified in proposed GT&C Section 15.6(d)(v), shippers under Millennium s Rate Schedule FT-2, a limited firm transportation service that is subject to Millennium s right not to schedule service for up to ten days each month, will not be permitted to participate in a VIC Reverse Open Season on any Gas Day in which Millennium has provided notice pursuant to Section 2(a) of Rate Schedule FT-2 that the pipeline will exercise its right not to schedule the Rate Schedule FT-2 shipper s quantities on that day. The rights and obligations of Millennium and shippers that have obtained VICs are specified in proposed GT&C Section 15.6(e). Under GT&C Section 15.6(e)(i), a shipper s right to nominate and Millennium s obligation to schedule and transport quantities under any Service Agreement subject to a VIC on any Gas Day will be limited by the shipper s VIC Quantity. For service on Millennium s mainline facilities, shippers will only be entitled to nominate quantities up to an amount equal to the difference between the shipper s Transportation Demand under such Service Agreement and the shipper s VIC Quantity applicable for that Gas Day. For service at specific receipt and delivery points, the shipper will be limited to nominations equal to the difference between the shipper s Maximum Daily Quantity and Maximum Daily Delivery Quantity, as specified in the shipper s Service Agreement, 22 and the VIC Quantity applicable to each receipt and delivery point, respectively on a specified Gas Day. Shippers that have been awarded a VIC will still be able to nominate any quantities under their Service Agreements that 22 See Millennium Pipeline Co., L.L.C.,, First Revised Volume No. 1, GT&C 12 (MDDO and MDQ), Version

9 are not subject to a VIC and will also have the opportunity to obtain interruptible service under Millennium s Rate Schedule IT-1. As specified in GT&C Sections 15.5(d) and 15.6(e)(iii), no reservation charge credits for either Force Majeure Events or Non-FM Events will be payable upon any VIC Quantities. GT&C Section 15.6(e)(iv) and 15.6(e)(v) establish procedures that will apply to releases of capacity during periods when the releasing shipper has obtained a VIC applicable to the capacity that is being released. Specifically, to ensure that potential replacement shippers are made fully aware of the VIC limitations to which the capacity they are obtaining is subject, where applicable, the capacity release notice posted by releasing shippers on Millennium s EBB must contain a statement that the released capacity is subject to a VIC and must include information regarding the VIC Quantity and applicable Gas Day(s) to which the VIC applies. Millennium has also added a new GT&C Section 14.2(b)(18) to the capacity release procedures in its Tariff to make clear that this information is required of a capacity release posting. Releasing shippers will not be permitted to release capacity that is subject to a VIC; however, this prohibition will only apply during those Gas Days when the VIC is effective. For example, suppose a shipper obtains a VIC applicable to 100% of the capacity under its Service Agreement effective only on the tenth Gas Day of the current month. If that shipper were to post a release of capacity extending from the first day of the current month to the last day of the current month, such a releasing shipper would have to indicate in its release notice that the released capacity was subject to a VIC during the tenth Gas Day of the month and no release of capacity to the replacement shipper will be deemed to have occurred on that tenth Gas Day. Instead, the replacement shipper will be deemed to have received the released capacity during the first through the ninth Gas Day of the month and the eleventh through the last Gas Day of the month. To the extent that only a volumetric portion of the capacity under a shipper s Service Agreement is subject to a VIC, GT&C Section 15.6(e)(iv)(B) specifies that, unless otherwise stated in the release notice, the releasing shipper will be deemed to have released the volumetric portion of the capacity under its Service Agreement that is not subject to a VIC (up to the difference between the releasing shipper s Transportation Demand and the VIC Quantity applicable on that Gas Day). For instance, assume a shipper has a firm service agreement with a Transportation Demand of 100 MDth, and the shipper obtains a VIC on a specific Gas Day ( Day x ) applicable to 60 MDth of the capacity under its service agreement, leaving 40 MDth not subject to a VIC on Day x. If such a shipper posted a release notice offering to release 25 MDth of capacity during a period that includes Day x, the replacement shipper will be deemed to have received 25 MDth of capacity on Day x, none of which would be subject to a VIC, and the releasing shipper will be deemed to have retained 75 MDth of capacity, 60 MDth of which is subject to a VIC on Day x, leaving the releasing shipper with only 15 MDth of capacity upon which it could nominate on Day x. On the other hand, if the release was for 50 MDth, rather than 25 MDth, assuming the same facts above, the replacement shipper will only be deemed to have received 40 MDth of capacity on Day x, rather than all 50 MDth, because the releasing shipper only had 40 MDth of capacity that was not subject to a VIC and shippers are not 9

10 permitted to release capacity on any Gas Day during which a VIC is applicable. 23 In this scenario, the releasing shipper would retain 60 MDth of capacity during Day x, all of which would be subject to a VIC, and the releasing shipper would therefore not be entitled to nominate any quantities under its service agreement for Day x. Under Millennium s proposal, replacement shippers that have obtained their capacity pursuant to a capacity release under GT&C Section 14 of Millennium s Tariff and Section of the Commission s regulations will generally be permitted to participate in VIC Reverse Open Seasons and to obtain VICs. However, proposed Section 15.6(e)(v) has been drafted to protect the recall rights of releasing shippers. Specifically, if a releasing shipper releases capacity that is subject to recall on any Gas Day during the term of the release pursuant to GT&C Section 14.8, by default, the replacement shipper may not participate in a VIC Reverse Open Season. A releasing shipper may in its posting specifically permit its replacement shipper to participate in a VIC Reverse Open Season and obtain a VIC with respect to the released capacity; however, any recall rights the releasing shipper might have will be limited by any VIC obtained by its replacement shipper. Finally, in response to comments on Millennium s proposal received from customers, Millennium is proposing a non-discriminatory mechanism in GT&C Section 15.6(f) whereby shippers that have obtained VICs can voluntarily redeem those VICs prior to the start of the Gas Day under circumstances when Millennium has determined that some or all of the VICs it has awarded will not be necessary to meet Millennium s firm service obligations. Millennium will send a VIC Redemption Notice to every shipper that has been awarded a VIC for the relevant Gas Day or via posting such notice on its website. After receipt of a timely response from eligible shippers seeking to redeem their VICs, Millennium will issue a new VIC Confirmation to reflect the reduction of a shipper s VIC Quantity due to its response to the VIC Redemption Notice. 2. Benefits of the Voluntary Interruption Commitment Procedures Millennium s proposal will provide several economic and reliability benefits to the pipeline and its shippers, regardless of whether or not they elect to participate in a VIC Reverse Open Season. The process is consistent with the Commission s overriding policy goal with respect to the allocation of pipeline capacity, which is to have capacity awarded to the highest valued use, that is, to those that value the capacity the most. The Commission s capacity allocation policy also is meant to promote the most efficient overall use of the pipeline system in a manner that maximizes benefits to the natural gas market. 24 The VIC process will provide a significant benefit to all shippers on Millennium s system by reducing or eliminating the need for partial allocation of firm capacity during periods when service is unavailable due to force majeure or other outages. Rather than reducing all firm shippers indiscriminately on an equal pro rata basis, the VIC procedures allow shippers to signal their need for service during periods 23 However, as discussed in the preceding paragraph, the release would not be affected during any Gas Days when a VIC is not effective. Accordingly, during all Gas Days during the release other than Day x, the amount of capacity obtained by the replacement shipper would be 50 MDth. 24 Texican N. La. Transport, LLC v. Southern Natural Gas Co., 132 FERC 61,167, at P 23, 26 (2010); see also Encana Marketing (USA) Inc. v. Rockies Express Pipeline LLC, 146 FERC 61,161 at P 26 (2014). 10

11 of limited availability by participating (or declining to participate) in a VIC Reverse Open Season. In exchange for their commitment to forego nominating firm quantities on a Gas Day when Millennium is experiencing constraints, participating shippers that have less need for service will benefit by receiving a fixed payment from the pipeline in the form of a VIC Credit for a higher quantity of capacity and, potentially, at a higher rate than they might otherwise be entitled under the standard pro rata allocation and reservation charge crediting procedures. During periods of capacity constraint, shippers, such as marketers with several transportation alternatives, are likely to be better off foregoing their right to nominate on Millennium s system in exchange for a VIC Credit and nominating on an alternative system, rather than nominating on Millennium s constrained system and receiving only a portion of their nominated service. Additionally, shippers whose Service Agreements are discounted below Millennium s maximum rate may be able to obtain a higher payment in the form of a VIC Credit for their capacity than the reservation charge credit they would receive if their service were nominated and only a portion were scheduled. This is particularly true in situations where service disruptions are caused by Force Majeure Events. Reservation charge credits during Force Majeure Events under the No-Profit Method set forth in GT&C Section 15.3 of Millennium s Tariff are only applicable to that portion of the discounted rate that exceeds the non-equity return and taxes portion of the maximum rate. 25 As the Commission has recognized, [a] discount granted by the pipeline comes out of the pipeline's return on equity, and therefore the discounted shipper is already receiving a partial credit in its discounted rate. 26 Discounted shippers have already demonstrated a higher level of price elasticity in the purchase of their service, and the VIC process allows Millennium and the discounted shippers to take further advantage of this elasticity to benefit other shippers that have fewer alternatives. Shippers with fewer market alternatives or that otherwise place a higher value on their firm service will benefit as well, even if they elect not to participate in the VIC process. By reducing the overall level of firm service Millennium is obliged to provide to its shippers on a Gas Day when Millennium would otherwise only be able to schedule a portion of the firm nominations of its shippers, the pipeline is more likely to be able to transport and deliver the full nominations of the shippers that require the capacity, rather than resorting to a pro rata allocation. As the Commission has recognized in an analogous context with respect to the allocation of secondary firm capacity, whenever firm capacity is constrained, no shipper is able to schedule all of the firm capacity that it desires, and a shipper s pro rata share of the available capacity may be insufficient to be of any value to the shipper. 27 Accordingly, by increasing the likelihood that it will be able to provide all of its shippers their full level of nominated service, Millennium will provide a greater degree of value to those shippers. Millennium will also benefit from the VIC process by monetizing and potentially reducing its costs from refunds due to service unavailability. Allowing shippers to economically sort their need for service on a given Gas Day through the VIC Reverse Open Season process 25 El Paso, 101 FERC 61,379, at P Id. at P Great Lakes Gas Transmission Limited Partnership, 142 FERC 61,160, at P 11 (2013) (citing Tennessee Gas Pipeline Co., L.L.C., 139 FERC 61,050, at P 45 (2012)). 11

12 will permit Millennium to reduce its overall costs. Unlike Millennium s exposure to costs from service unavailability expressed in VIC Credits, which can be known in advance of the Gas Day, the pipeline s cost exposure from reservation charge credits typically cannot be determined until the end of the Gas Day when the difference between firm quantities that were nominated and those that were delivered is known. All parties will benefit from the greater degree of certainty in the scheduling process that will be provided from the VIC procedures. Millennium anticipates that the benefits from its VIC proposal will be more significant in light of the changes to the usage patterns on Millennium s system and the continued need to conduct scheduled maintenance on its system. When it commenced service on its system in 2008, the usage patterns on Millennium s system were typical of many interstate natural gas pipelines inasmuch as peak usage occurred in the winter months, usage during the off-peak summer months permitted Millennium sufficient flexibility to conduct routine maintenance activities at times that would involve the least amount of interruption to the usage of its customers. However, changes to the usage patterns on Millennium s system have resulted in a more even monthly usage distribution. 28 The result of this operational change is that Millennium now has fewer opportunities to schedule maintenance during periods of low usage on its system. Under these circumstances, the VIC mechanism proposed by Millennium will help Millennium plan routine maintenance activities during times that will cause the lease economic and operational impacts on its customers, which will be able to indicate their need for capacity through participation (or non-participation) in a VIC Reverse Open Season. 3. Transparency of the Voluntary Interruption Commitment Procedures The VIC Reverse Open Season will be open to all interested firm shippers and will be conducted on a voluntary basis in a manner similar to other auctions involving the primary sale of capacity on a pipeline and releases in the secondary market. In Order No. 637, 29 the Commission recognized the benefits of electronic auctions to the operation of efficient markets and encouraged pipelines and third parties to develop capacity auctions so that the industry will gain greater experience and familiarity with the use of auction techniques. 30 The Commission noted that properly designed auctions can provide for efficient allocation of capacity and can reduce transaction costs associated with finding and arranging capacity transactions. 31 While the Commission did not prescribe any particular auction format for pipelines to follow, it did set forth six basic principles to which auctions should adhere. The Commission stated that 28 See Millennium Pipeline Co., L.L.C., Informational Supplement to Retainage Adjustment Mechanism Filing, Attachment A (Monthly Company Use Gas on Millennium s Pipeline System, ), Docket No. RP (Apr. 29, 2014) (reflecting changes to the monthly usage patterns on Millennium s system over time). 29 Regulation of Short-Term Natural Gas Transportation Services and Regulation of Interstate Natural Gas Transportation Services, Order No. 637, FERC Stats. & Regs. 31,091, at 31,295-96, clarified, Order No. 637-A, FERC Stats. & Regs. 31,099, reh g denied, Order No. 637-B, 92 FERC 61,062 (2000), aff d in part and remanded in part sub nom. Interstate Natural Gas Ass n of America v. FERC, 285 F.3d 18 (D.C. Cir. 2002), order on remand, 101 FERC 61,127 (2002), order on reh g, 106 FERC 61,088 (2004), aff d sub nom. American Gas Ass n v. FERC, 428 F.3d 255 (D.C. Cir. 2005). 30 Texas Gas Transmission Corp., 101 FERC 61,408, at P 11 (2002). 31 Id. 12

13 [a]dherence to these principles should help to ensure that auctions are transparent, verifiable, and non-discriminatory. 32 These six principles are as follows: 1. The timing of the auction should be predictable, and shippers potentially offering or bidding on capacity should have notice of when the auction will be held and what capacity will be included. 2. The auction should be open to all potential bidders on a nondiscriminatory basis. 3. The auction should be user-friendly with information on the rules and procedures easily accessible to all. 4. The bidding procedures as well as the methods for selecting the best bid should be fully disclosed prior to the auction. For instance, if net present value formulas are used, the discount rate and the method of calculation should be disclosed. 5. There should be no favoritism in the determination of the winning bidder and mechanisms should be included to permit monitoring of how the selection criteria were applied. This would include methods of verifying any reserve price applied in an auction. 6. Transaction information (such as prices, volumes, and receipt and delivery points) should be disclosed so that shippers can ascertain the value of transportation. The names of shippers may not need to be disclosed or could be disclosed at a later date if the auction results are verifiable and free from potential affiliate favoritism. 33 Although Millennium s proposal to obtain Voluntary Interruption Commitments from its firm shippers is not a direct sale of capacity of the type specifically contemplated by Order No. 637, it is nevertheless an auction for rights that will affect firm service on Millennium s system. Accordingly, Millennium s proposal has been designed to provide transparency and to mitigate any concerns about the withholding of capacity and the exercise of market power as expressed in Order No Regarding the first principle discussed above, although circumstances causing partial outages on Millennium s system necessitating the initiation of a VIC Reverse Open Season are inherently difficult to predict, Millennium is proposing in GT&C Section 15.6(a) to provide in each VIC Reverse Open Season Notice information about the capacity for which a VIC will be offered and information about the VIC Reverse Open Season Period when bids will be accepted. As specified in proposed GT&C Section 15.6(a)(v), Millennium will accept bids during VIC Reverse Open Seasons for a period of at least one hour. This is consistent with the procedures set forth in GT&C Section 4.2(a)(3) of Millennium s current Tariff applicable to auctions of short-term capacity that will be available for five months or less. 34 Given that 32 Order No. 637, at 31, Id. 34 See, e.g., Texas Eastern Transmission Corp., 94 FERC 61,003, at 61,005 (2001). 13

14 Millennium does not anticipate that it will routinely solicit VICs for periods longer than a few Gas Days at a time, it is appropriate to limit the VIC Reverse Open Season Period to the same period that applies to its auction of short-term capacity under GT&C Section 4.2(a)(3). Consistent with the Commission s second principle, VIC Reverse Open Seasons will be available to all firm shippers with the right to nominate capacity on a specific Gas Day on a primary basis from the locations on Millennium s system posted in the VIC Reverse Open Season Notice. The only shippers with primary firm capacity matching the capacity posted in the VIC Reverse Open Season Notice that will not be permitted to participate are those shippers under Millennium s Rate Schedule FT-2 to which Millennium has provided notice pursuant to Section 2(a) of Rate Schedule FT-2 that it will exercise its right to not schedule the volumes of such shippers on the relevant Gas Day. Allowing such Rate Schedule FT-2 shippers to participate in an auction for VICs associated with capacity for which Millennium has already exercised its right not to schedule would defeat the purpose of the limited nature of Rate Schedule FT-2 service and would disrupt the VIC Reverse Open Season process. Millennium s proposed VIC Reverse Open Season process is also consistent with the third and fourth principles articulated in Order No Millennium will conduct VIC Reverse Open Seasons on its EBB in the same manner that it posts auctions of available capacity under GT&C Section 4 and capacity release auctions under GT&C Section 14. The procedures for accepting and evaluating bids and awarding VICs to winning bidders are clearly set forth in proposed GT&C Section 15.6(c) and (d) and will be easily accessible to all interested bidders. Proposed GT&C Section 15.6(d)(iii) sets forth the objective criteria by which Millennium will evaluate bids to obtain VICs in a VIC Reverse Open Season consistent with the fifth principle articulated in Order No Specifically, pursuant to proposed GT&C Section 15.6(d)(iii), Millennium will award VICs based upon the suite of bids that yields VICs applicable to the quantity of capacity posted in the VIC Reverse Open Season Notice at the lowest economic cost to [Millennium], considering the level of the VIC Credit bid, the amount of capacity to which the VICs will apply, and the Gas Days during which VICs will apply. Consistent with Commission policy applicable to the award of capacity in open seasons, Millennium intends to grant partial awards of bids for VICs, where the aggregation of such partial bids would yield an overall suite of bids that is at the lowest economic cost to the pipeline. 35 However, under proposed GT&C Section 15.6(c)(vi), bidders will have the opportunity to specify whether they are willing to accept an award of only a portion of their bid and the minimum quantity they are willing to accept. Finally, consistent with the sixth principle set forth in Order No. 637, proposed GT&C Section 15.6(d)(iv) requires Millennium to publish the winning bids submitted in VIC Reverse Open Seasons on its EBB. This information, combined with the other information about the VICs and associated capacity that will be publicly available from the VIC Reverse Open Season Notices posted on Millennium s EBB, will allow interested parties to verify the results of the auction and better ascertain the value of capacity during periods when VICs are being solicited from shippers. 35 See, e.g., Texican N. La. Transport LLC v. Southern Natural Gas Co., 129 FERC 61,270 (2009), reh g denied, 132 FERC 61,167 (2010). 14

15 Section (d)(1) of the Commission s regulations requires, in relevant part, that [a]n interstate pipeline must provide on its Internet web site... equal and timely access to information relevant to the availability of all transportation services whenever capacity is scheduled, including, but not limited to, the availability of capacity at receipt points, on the mainline, at delivery points... whether the capacity is available directly from the pipeline or through capacity release. 36 In addition, all interstate pipelines must sell firm service to any potential shipper willing to pay the pipeline s maximum rate. 37 Under Millennium s proposal, capacity that is subject to a VIC will not be relinquished to the pipeline, but will remain subject to the existing Service Agreements of its shippers and limited only to the extent of the VIC awarded to the shipper. Accordingly, Millennium will not be able to resell any capacity subject to a VIC on a firm basis, nor will it post such capacity on its EBB as being available on a firm basis, since the capacity will already be subject to a Service Agreement. This is consistent with the Commission s regulations, which state that an interstate pipeline is not required to provide any requested transportation service for which capacity is not available, 38 and consistent with the purpose of the VIC procedures, which is to reduce the pipeline s firm commitments on a Gas Day to mitigate the likelihood that Millennium will need to allocate the nominations of its remaining primary firm shippers. However, Millennium will make capacity subject to a VIC on a specific Gas Day available on an interruptible basis to the extent that operations permit. Further, shippers that do not wish to participate in the VIC process will still be entitled to receive reservation charge credits if their service is reduced under GT&C Sections 15.3 and 15.4 of Millennium s Tariff and will still be able to obtain or relinquish capacity through the secondary market during periods of constraint through the capacity release process set forth in GT&C Section 14 of Millennium s Tariff. Millennium is proposing to retain discretion, exercised in a not unduly discriminatory manner, as to whether to conduct a VIC Reverse Open Season when it experiences or reasonably anticipates that firm service will be unavailable. This is appropriate because impacts from service outages due to Force Majeure Events or Non-FM Events cannot always be mitigated through the shedding of firm service obligations through the VIC process. For example, an outage that rendered Millennium unable to provide any firm service could not be mitigated through the use of the VIC process. Millennium anticipates that the solicitation of VICs to minimize firm service reductions on its system will be most beneficial to firm shippers on days when a Force Majeure Event or Non-FM Event results in only a partial reduction in Millennium s service. Under these circumstances, the assignment of VICs on a nondiscriminatory basis to those shippers that are most willing and able to receive reductions of service will provide benefits to all parties. Further, Millennium s proposed VIC procedures will provide a level of reliability of service to Millennium s shippers that is beyond what an interstate C.F.R (d)(1). 37 See, e.g., Natural Gas Pipeline Negotiated Rate Policies and Practices, 114 FERC 61,042, at P 10 (2006) ( Part 284 of the Commission's regulations and its policies provide that pipelines must sell capacity to maximum rate bidders. ); Tennessee Gas Pipeline Co., 91 FERC 61,053, at 61,190 (2000), order on reh'g, 94 FERC 61,097 (2001), aff'd, Process Gas Consumers Group v. FERC, 292 F.3d 831 (D.C. Cir. 2002); see also 18 C.F.R (b)(1) ( An interstate pipeline... that offers transportation service on a firm basis... must provide such service without undue discrimination, or preference, including undue discrimination or preference in the quality of service provided, the duration of service, the categories, prices, or volumes of natural gas to be transported, customer classification, or undue discrimination or preference of any kind. ) C.F.R (f). 15