For U.S. energy infrastructure developers—whether building a new natural gas pipeline, expanding a refined products line, or allocating renewable power capacity—the Open-Season Request for Proposals (RFP) is the critical mechanism for securing long-term customer commitments. It’s a structured, non-discriminatory process essential for demonstrating market need, unlocking financing, and gaining regulatory approval from bodies like the Federal Energy Regulatory Commission (FERC). A well-constructed RFP must clearly define the commercial, technical, and regulatory framework to maximize participation and ensure a successful project sanction.
Open-season RFPs standardize competition for scarce pipeline capacity by requiring bidders to submit binding, transparent proposals that meet detailed carrier specifications—typically price per unit, volume, term, and credit support. ADI Analytics has significant experience advising clients through all phases of asset development, including the structuring, evaluation, and market analysis that underpins successful open-season RFPs across commodity types.
1. Project scope and capacity offered
The foundation of the RFP is a clear and unambiguous description of the opportunity. Developers must specify the exact service being offered (e.g., firm natural-gas transportation or renewable tolling) and declare whether the process is binding (like Energy Transfer’s Permian–Phoenix gas pipeline, see Exhibit 1) or non-binding (like the Texas Gas “Borealis” expansion).
The physical and operational details must also be summarized:
- Technical specifications: Clearly state the route, mileage, diameter/voltage/storage volume, and the target in-service date.
- Capacity and term: Identify the total baseline capacity being offered, often with a scalable range tied to shipper interest (e.g., Kinder Morgan’s SFPP East Line).
- Contract tenor: Specify the preferred contract tenor (e.g., a 20-year commitment).
The ability to commit to expansion optionality, conditioned on the demand revealed during the open season, is a significant trend, as excess demand provides an immediate justification for future system expansions.
Exhibit 1. Illustrative comparison of recent open-season notices.
2. Commercial commitments and pricing
This section defines the financial obligations and the rate structure that bidders must agree to.
The core of the commercial relationship is the shipper’s volume obligation, typically requiring a ship-or-pay or take-or-pay commitment. This guarantees revenue for the developer, which is essential for securing the project’s financing. The RFP must also outline the preliminary rate design or tariff methodology, with final rates filed with the regulator.
After capacity awards, the tariff ultimately paid by each shipper is not static; it evolves through a blend of regulatory frameworks and contractual escalators (see Exhibit 2). Understanding the layered adjustment formulas is therefore essential for both parties.
Exhibit 2. Technical & operational metrics driving tariff adjustments.
Pricing is subject to future adjustments based on predefined metrics:
- Regulatory adjustments (FERC indexing): Annual changes in the FERC Price Indexing (e.g., using the Producer Price Index for Finished Goods) provide a ceiling for rates.
- Contract-specific escalators: Many contracts include inflation pass-throughs with defined floors and caps (e.g., HF Sinclair’s pipeline base tariff escalation formula).
- Operational metrics: Throughput commitments and deficiency penalties (like those imposed by Explorer Pipeline) ensure volume certainty and align economic incentives.
3. Bidding procedures and evaluation logic
To maintain a non-discriminatory process, the RFP must lay out the rules of engagement with surgical precision.
Bidding mechanics and requirements
Developers must publish a detailed schedule that defines the open-season launch and close dates (e.g., a 14-day window). All bids received within this specified window are evaluated simultaneously.
- Submission standards: Bidders must receive standardized offer sheets to ensure all proposals are conforming. Submissions typically require the requested contract quantity, receipt/delivery points, contract term, and agreement to the Bid rate or premium.
- Financial assurance: The RFP must detail credit review metrics and acceptable credit enhancements (letters of credit, parent guarantees), which are necessary to enable carriers to finance construction.
Evaluation and award
The RFP must detail the ranking logic—often prioritizing the highest Net Present Value (NPV) of revenue or the longest contract tenor. For multi-attribute solicitations, the weighting of price versus non-price factors must be indicated. The proponent reserves the right to reject any bid that fails to meet minimum commercial or credit standards.
4. Regulatory and post-award framework
The final elements tie the commercial commitments to the legal and regulatory realities of infrastructure development.
- Regulatory conditioning: The RFP must cite the intent to file for necessary approvals (like FERC certificates). All service agreements are explicitly conditioned upon receiving acceptable regulatory authorization. The execution of binding precedent agreements is viewed by the market as the critical step enabling a FERC certificate, often taking 12–18 months.
- Post-award documentation: Successful bidders will sign a Precedent Agreement (PA). This interim contract converts to a definitive service agreement once conditions (like regulatory approval) are satisfied. ADI Analytics often helps clients with the analysis and negotiation of these critical agreements.
- Communication: Providing a single point of contact for commercial and legal inquiries helps maintain transparency.
Conclusion: A consistent blueprint for success
Across commodity types and jurisdictions, open-season RFPs share a consistent blueprint: a transparent description of service and capacity, a defined bidding window with uniform evaluation, clear commercial and credit terms, and contingency on regulatory approval. Understanding both the bid mechanics and the layered adjustment formulas is essential for shippers to evaluate long-term transportation costs and for investors to gauge pipeline revenue resilience. Sponsors that incorporate these elements—backed by precise schedules, robust credit standards, and well-defined award criteria—maximize participation and improve the likelihood of timely project sanction.
– Uday Turaga
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