Texas Winter Storm - Operational Flow Order Penalties Imposed on Some Shippers

What’s the issue?

During Winter Storm Uri, a number of interstate natural gas pipelines instituted operational flow orders which were enforceable with penalties.

Why does it matter?

Because many of these penalties are tied to the daily price of gas, some of the proposed penalties are more than 300 times the transport price for the gas. Some interstate pipelines opted to waive the penalties, but others have billed their shippers for them and those billings are now being contested to FERC.

What’s our view?

While the penalties are steep, that is mainly because of the exorbitant gas prices that resulted when there was a sudden lack of supply. FERC seems inclined to allow pipelines to waive the collection of these penalties. But by allowing such waivers, FERC appears to be laying the groundwork for an even bigger problem during the next crisis, when shippers might simply choose to ignore the threat of penalties and rely on the waiver precedents from Winter Storm Uri.

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