Legal Definitions - liquefied natural gas rates

Liquefied natural gas (LNG) rates are the charges for transporting LNG, regulated by the Federal Energy Regulatory Commission (FERC) under the Natural Gas Act. These rates are designed to ensure that new projects do not result in existing customers subsidizing expansion, experiencing degraded service, or facing undue discrimination, thereby ensuring shippers pay for the service they receive.

Liquefied natural gas (LNG) rates refer to the charges that companies pay to transport liquefied natural gas through pipelines or other regulated facilities. These rates are overseen and approved by the Federal Energy Regulatory Commission (FERC), an independent agency that regulates the interstate transmission of electricity, natural gas, and oil.

FERC's regulation of LNG rates is guided by principles established in the Natural Gas Act. The primary goal is to ensure fairness and prevent existing customers from being unfairly burdened by new projects or expansions. Specifically, FERC-approved rates and projects must:

• Not lead to existing customers paying for the expansion of capacity that primarily benefits new users (no subsidization).
• Not result in a decline in the quality of service for existing customers.
• Not unfairly discriminate against existing customers regarding the terms or conditions of their service.

In essence, the rates are designed to ensure that the costs of building, operating, and expanding LNG infrastructure are appropriately assigned, so that the companies using the service pay for what they receive, and new projects can proceed without financial support from those who don't directly benefit from them.

Examples of Liquefied Natural Gas Rates in Action:

• Building a New Export Pipeline: Imagine a company proposes to build a brand new pipeline dedicated to transporting LNG from a processing plant to a new export terminal on the coast. The rates charged for using this new pipeline capacity must be structured so that the companies planning to export LNG through the new terminal bear the costs of its construction and operation. Existing domestic natural gas customers, who use a separate, older pipeline network for their local gas supply, should not see their transportation rates increase to help fund this new export-focused infrastructure. This demonstrates the principle of no subsidization of expansion capacity by existing customers.

• Upgrading an Existing Import Terminal: Consider an established LNG import terminal that needs significant upgrades, such as adding larger storage tanks or more efficient regasification units, to handle increased volumes of imported LNG. FERC would review the proposed rates for using this enhanced capacity. The costs of these upgrades should primarily be recovered from the shippers who will utilize the new, expanded capabilities. Existing customers who continue to use the terminal at its original capacity and do not benefit from the upgrades should not face higher rates, nor should their service quality diminish due to the construction or increased operational demands of the expanded facility. This illustrates both the proper assignment of costs and the prevention of degradation of service to existing customers.

• Introducing a New Priority Service: A pipeline operator decides to offer a new "premium" LNG transportation service that guarantees faster delivery times for an additional fee, alongside its existing standard service. When setting the rates for this new premium service, FERC would ensure that its introduction does not negatively impact customers using the standard service. For instance, the pipeline cannot intentionally slow down standard service deliveries or make the terms of the standard service less favorable to push customers towards the more expensive premium option. This upholds the principle of preventing undue discrimination against existing customers and ensuring their terms and conditions of service remain fair.