FERC Provides Important Guidance Regarding Confidentiality Agreements and “Duty to Support” Clauses

Yesterday, I wrote a blog post describing a FERC order that, for the first time ever, would have allowed an interstate oil pipeline to grant preferential rates and capacity rights to shippers making volume commitments through an open season process conducted outside the context of a pipeline project.

FERC’s order is also noteworthy for the general guidance it provides with respect to the confidentiality agreements and “duty to support clauses” that pipelines routinely employ in their open season processes and transportation agreements.

First, the FERC order recognizes the need for confidentiality agreements during an open season to protect the pipeline from the competitive harm that would result from the disclosure of rates, discounts, and contract terms being discussed, but states that confidentiality agreements are to be “narrowly tailored and should not prevent potential shippers from bringing to the FERC’s attention issues arising from the open season or proposed contract provisions that may conflict with applicable law, precedent or policy.”

Second, as to “duty to support clauses” (i.e., contract clauses that require the shipper to support the pipeline’s associated FERC filing), FERC states that it will look with disfavor on clauses that require too broad a waiver of a shipper’s statutory rights to seek redress before FERC.  While FERC does not question the reasonableness of “duty to support clauses” that require contract shippers to support the pipeline’s efforts to obtain authorization for construction and approval of the rates the shipper specifically agreed to, the FERC order indicates that requiring the shipper to waive its statutory rights as to other rates, terms, and conditions likely goes too far.