Typically, pipeline companies use a net present value calculation to compare bids with different price, volume, and contract term combinations to select the winners.

If the market signals the need for incremental capacity on an existing pipeline, the FERC requires the pipeline company to hold a reverse open season to give existing shippers the opportunity to return their contracted capacity. If sufficient capacity is returned, the pipeline may not need to expand or build incremental capacity else the pipeline proceeds with a regular open season.

Regulatory approval – public interest and market need

Once anchor shippers and demand are identified, the investor seeks funding from banks for the project and proceeds to apply for the certificate with the FERC. The FERC is charged with authorising interstate pipeline projects and determines whether a proposed project is needed and in the public interest (INGAA, 2013).

The FERC conducts environmental and other public interest reviews, and then the entire record is considered by the FERC's commissioners. The commissioners decide, after conducting a review, whether to issue a certificate. This review includes an evaluation of the need for the project, the costs of transporting natural gas by the pipeline, financing, the environmental impact, and market competition.

Right to access land – eminent domain

The pipeline company will attempt to acquire as much of the right of way as possible through negotiation with landowners prior to applying for an FERC certificate to avoid delays in construction. Sometimes, a landowner and the pipeline company may be unable to reach an agreement. In such cases, the pipeline company can access the land through eminent domain proceedings as the government's right to expropriate private property for public use with the payment of the fair market value to the landowner. The right of eminent domain is granted when a certificate is issued by the FERC under the Natural Gas Act (INGAA, 2013).

Regulatory governance post-approval – transparency and safety

By applying for an FERC certificate, pipeline companies agree to FERC regulatory governance, which requires extensive transparency in terms of the reporting requirements and the cost of service rate making.

The FERC has no jurisdiction over the safety of the pipeline after construction. The US Department of Transportation regulates pipeline operations, integrity, and safety.

EU process

In Europe, most of the pipeline system was in place at the time of the Third Directive. New investments are generally limited to interconnections between member states, new supply pipelines (e.g. TAP and Nord Stream), new LNG terminal connections, and connections within member states to reduce the number of hubs (e.g. France and Germany). Recent declining volumes have reduced the need for capacity expansions. According to the Third Gas Directive, ENTSOG is required to develop an EU-wide Ten-Year Network Development Plan (TYNDP). The ENTSOG TYNDP is not a requirement for the TSOs to invest. The ultimate decision on whether an investment is made lies with the national regulator of the individual country.

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Prerequisites – network development plans

ENTSOG develops a forecast of required actions to ensure sufficient interconnectivity within the system and indicate and prioritise where investments are required. ENTSOG’s planning forecast also includes an estimate of the expected demand for capacity at each point to determine tariff calculations for each point.

TSOs also develop network development plans (NDP) biennially for their respective pipeline systems. NDPs document a TSO’s investment plan for the upcoming year and provide input to the ENTSOG plan. The TSO’s NDP includes operational data, such as constraint points and typical gas flow routes, etc. Market participants who want interconnections to their facilities, such as production/processing plants, power plants, and LNG facilities, may submit a request to the TSO for consideration.

Market demand test and public consultation

In odd-numbered years, TSOs offer planned incremental capacity during the annual auctions for yearly capacity contracts. TSOs use these auctions to test market demand for the planned incremental capacity offer. If the market signals interest in this incremental capacity, then the TSO uses this information along with its biennial NDP and ENTSOG’s TYNDP to develop a demand assessment, which the TSO publishes on its website and ENTSOG’s website 16 weeks after the start of the annual auction. The TSOs use the demand assessment to develop several technical design offerings (capacity size, number and locations for entry-exit points or interconnects, route, etc.) and estimate costs for each offer level. They also conduct economic analyses to test the viability of the different design offers. The TSO makes its incremental capacity proposal available for public consultation prior to submitting it to its NRA for approval. The TSO also publishes the offer levels and project timelines on its website (Figure 8).

The NRA has six months to review and receive public consultation prior to publishing its decision. If the proposal is approved, the NRA also approves and publishes the mechanism that will be used to allocate this incremental capacity, whether it is via auction or an alternative method.

Non-discriminatory allocation – auctions and open seasons

Auctions are typically used to offer incremental capacity at a single point. An alternative allocation mechanism, typically referred to as an open season, is used when the incremental capacity being offered involves more than one interconnect point and/or crosses multiple countries. Open seasons allow conditional bids. For example, the bid may be contingent on a certain condition being met, such as receiving capacity at another interconnect point or making a final investment decision for an upstream project and having the right to withdraw the bid if conditions are not met. Open seasons are for more complex capacity offerings and allow for bilateral communications.

In long-term auctions, only up to 80% of the new incremental capacity may be offered. Typically, 20% of the capacity must be made available for shorter-term (less than a year) contracts. Sometimes if the TSO is unable to get 80% of the capacity reserved, the project may still get approved for security of supply reasons.

Different design offer levels may be offered at the long-term auction. Depending on the interest for one offer level versus another, there is a possibility for bid revisions. Take, for example, an auction that offers two offer levels, 15 units of capacity and 25 units of capacity. The auction results show that there is a high demand for the 15-unit offering resulting in bid prices with

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