[Federal Register: January 10, 2007 (Volume 72, Number 6)]
[Proposed Rules]
[Page 1195-1197]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10ja07-22]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket Nos. RM06-21-000 and RM07-4-000]
18 CFR Part 284
Release of Capacity on Interstate Natural Gas Pipelines; Request
for Comments
January 3, 2007.
AGENCY : Federal Energy Regulatory Commission, DOE.
ACTION : Request for comments.
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SUMMARY: The Federal Energy Regulatory Commission has received two
petitions requesting changes in, or clarifications of, the Commission's
regulations relating to the release of capacity on interstate natural
gas pipelines. The Commission is requesting comments on the current
operation of the Commission's capacity release program and whether
changes in any of its capacity release policies would improve the
efficiency of the natural gas market.
DATES: Comments are due March 12, 2007.
ADDRESSES: You may submit comments, identified by Docket Nos. RM06-21-
000 and RM07-4-000, by one of the following methods:
Agency Web Site: http://ferc.gov. Follow the instructions
for submitting comments via the eFiling link found in the Comment
Procedures Section of the preamble.
Mail: Commenters unable to file comments electronically
must mail or hand deliver an original and 14 copies of their comments
to: Federal Energy Regulatory Commission, Secretary of the Commission,
888 First Street, NE., Washington, DC 20426. Please refer to the
Comment Procedures Section of the preamble for additional information
on how to file paper comments.
FOR FURTHER INFORMATION CONTACT: Eugene Kim, Office of the General
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE.,
Washington, DC 20426.
SUPPLEMENTARY INFORMATION:
Pacific Gas and Electric Co., Southwest Gas Corp.
[Docket No. RM06-21-000]
Coral Energy Resources, L.P., Chevron U.S.A. Inc., ConocoPhillips Co.,
Constellation Energy Commodities Group, Inc., Merrill Lynch
Commodities, Inc., Nexen Marketing U.S.A., Inc., Tenaska Marketing
Ventures, UBS Energy LLC
[Docket No. RM07-4-000]
Request for Comments
1. Recently, the Commission has received two petitions, requesting
changes in, or clarifications of, the Commission's regulations relating
to the release of capacity on interstate natural gas pipelines.\1\ As
described below, this notice requests comment on the current operation
of the Commission's capacity release program and whether changes in any
of its capacity release policies would improve the efficiency of the
natural gas market.
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\1\ These regulations are set forth at 18 CFR 284.8 (2006).
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Background
2. In Order No. 636,\2\ the Commission adopted the capacity release
program in place of its previous ``capacity brokering'' program. Under
capacity brokering, firm shippers could assign their capacity directly
to a replacement shipper on a first-come, first-served basis, without
any requirement that the brokering shipper post the availability of its
capacity or allocate it to the highest bidder.\3\ In Order No. 636, the
Commission concluded that the Commission lacked the ability to ensure
that capacity brokering was operating in a not unduly discriminatory
fashion. ``When transactions occurred directly and privately between
shippers, there was no way to verify that certain purchasers were not
being favored unreasonably over others. `Simply put, there [were] too
many potential assignors of capacity and too many
[[Page 1196]]
different programs for the Commission to oversee capacity
brokering.''\4\
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\2\ Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation, and Regulation of
Natural Gas Pipelines After Partial Wellhead Decontrol, Order No.
636, 57 FR 13,267 (April 16, 1992), FERC Stats. and Regs.
Regulations Preambles (January 1991-June 1996) ] 30,939 (April 8,
1992); order on reh'g, Order No. 636-A, 57 FR 36,128 (August 12,
1002), FERC Stats. and Regs. Regulations Preambles (January 1991-
June 1996) ] 30,950 (August 3, 1992); order on reh'g, Order No. 636-
B, 57 FR 57,911 (Dec. 8, 1992), 61 FERC ] 61,272 (1992); notice of
denial of reh'g, 62 FERC ] 61,007 (1993); aff'd in part, vacated and
remanded in part, United Dist. Companies v. FERC, 88 F.3d 1105 (D.C.
Cir. 1996); order on remand, Order No. 636-C, 78 FERC ] 61,186
(1997).
\3\See Algonquin Gas Transmission Corp., 59 FERC ] 61,032
(1992).
\4\ UDC v. FERC, 88 F.3d 1105, 1149-50 (D.C. Cir. 1996), quoting
Order No. 636 at 30,416.
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3. Order No. 636 accordingly adopted regulations designed to assure
the transparency of capacity release transactions and a non-
discriminatory allocation of any released capacity. Those regulations
generally require that all shipper offers to release be posted on the
pipeline's internet Web site and that contracting be done directly with
the pipeline. Sections 284.8(c) through (e) require that capacity
offered for release at less than the maximum rate must be posted for
bidding, and the pipeline must allocate the capacity ``to the person
offering the highest rate (not over the maximum rate).'' \5\ Section
284.8(h) exempts releases of 31 days or less and all releases at the
maximum rate from these bidding requirements, but notice of such
releases must be posted. In addition, Order No. 636-A prohibited tying
the release of capacity to any extraneous conditions. Finally, as Order
No. 637 explained, all ``the capacity release rules were designed with
[the shipper-must-have-title] policy as their foundation,'' since
without this requirement ``capacity holders could simply transport gas
over the pipeline for another entity.'' \6\
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\5\ Section 284.8(h)(i) also provides that prearranged releases
of capacity may not exceed the maximum rate. A petition for
rulemaking to remove the rate cap for capacity release transactions
is currently pending in Docket No. RM06-21-000. However, the
Petitioners here state that they are seeking to remove the capacity
release rate cap, although if that were done it would eliminate some
of their problems.
\6\ Regulation of Short-Term Natural Gas Transportation Services
and Regulation of Interstate Natural Gas Transportation Services,
Order No. 637, 65 FR 10,156 (2000), III FERC Stats. & Regs.
Regulations Preambles (July 1996-December 2000) ] 31,091, at 31,300
(Fe3. 9, 2000); order on reh'g. Order No. 637-A, 65 FR 35,706
(2000), III FERC Stats. & Regs. Regulations Preambles (July 1996-
December 2000) ] 31,099 (May 19, 2000); order on reh'g, Order No.
637-B, 65 FR 47,284 (2000), affirmed in relevant part, INGAA vs.
FERC, 285 F.3d 18 (D.C. Cir. 2002).
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4. In Order No. 637, the Commission lifted the maximum rate cap on
capacity releases of less than one year for a 22-month experimental
period. However, the Commission did not act at the end of that period,
and thus all capacity releases are currently subject to the rate cap.
5. In August 2006, Pacific Gas and Electric Co. (PG&E) and
Southwest Gas Corp. (Southwest) filed a petition requesting the
Commission to amend Sec. Sec. 284.8(e) and (h)(1) to remove the
maximum rate cap on capacity release transactions. They contend that
removing the price cap would improve the efficiency of the capacity
market by giving releasing shippers a greater incentive to release
their capacity during periods of constraint. This would allow shippers
who value the capacity the most to obtain it, provide more accurate
price signals concerning the value of capacity, and provide greater
potential cost mitigation to holders of long-term firm capacity.
6. In October 2006, a group of large natural gas marketers
(marketer petitioners \7\) requested clarification of the operation of
the Commission's capacity release rules in the context of portfolio
management services.\8\ The marketer petitioners are concerned that the
current capacity release rules may interfere with marketers' providing
efficient portfolio management services to local distribution companies
(LDCs) and others. These services generally entail the LDC entering
into a prearranged, maximum rate release to the marketer of its
portfolio of firm transportation service agreements with interstate
pipelines, along with an assignment of its gas purchase contracts. The
marketer then manages these various contracts, as well as other gas
supply contracts it may enter into itself, both to supply gas to the
LDC and to make off-system sales to others during periods when the LDC
does not need the gas.
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\7\ Coral Energy Resources, LP; ConocoPhillips Co.; Chevron USA,
Inc.; Constellation Energy Commodities Group, Inc.; Tenaska
Marketing Ventures; Merrill Lynch Commodities, Inc.; Nexen Marketing
USA, Inc.; and UBS Energy LLC.
\8\ The marketer petitioners originally filed their petition in
Docket Nos. RM91-11-009 and RM98-10-013. However, the Commission has
redocketed the petition in Docket no. RM07-4-000.
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7. The marketer petitioners state that some portfolio management
agreements may require the marketer/replacement shipper to pay fees to
the LDC/releasing shipper. These fees could include a lump sum payment,
a sharing of the marketer's net proceeds from its gas sales to others,
or an agreement to provide gas to the LDC at below-market prices. The
petitioners request clarification that none of these payments would
cause the capacity release to exceed the maximum rate cap.
Alternatively, the marketer petitioners state, a portfolio management
agreement may require the LDC/releasing shipper to rebate some or all
of the pipeline's reservation charge to the marketer/replacement
shipper. The petitioners request clarification that such a rebate would
not cause the release to be considered as less than the maximum rate,
subject to the bidding requirement of Sec. Sec. 284.8(c) through (e).
8. The marketer petitioners also state that an LDC may require
marketers seeking to participate in a portfolio management arrangement
to take a release of all its transportation agreements and/or all its
gas supply contracts, as a package. Further, they argue that Order No.
636-A held that the tying of a capacity release to any extraneous
conditions is prohibited (tying prohibition). Accordingly, the marketer
petitioners request that the Commission clarify that packaging gas
supply and pipeline capacity, or multiple segments of capacity, as part
of a portfolio management arrangement would not violate the
Commission's policy against tying.
Request for Comments
9. In light of the above two petitions, comments are requested to
assist in evaluating (1) the current operation of the capacity release
rules and policies and (2) whether any changes in those rules and
policies should be considered. Commenters should address the following
questions:
1. Should the Commission consider lifting the maximum rate cap on a
permanent basis either for short-term, or all, capacity releases? Would
the factors relied upon in Order No. 637 for lifting the maximum rate
cap for short-term releases on an experimental basis support lifting
the maximum rate cap today? Do subsequent developments in the natural
gas market either lend further support to lifting the maximum rate cap
or militate against lifting the cap?
2. Are there methods of providing additional price flexibility for
capacity releases short of removing the maximum rate cap, for example
through the use of basis differentials to value the capacity or the
establishment of seasonally varying maximum capacity release rates?
3. Order No. 636 required that prearranged capacity releases of
more than 30 days, which are at less than the maximum rate, be posted
for bidding in order to assure that capacity is released to those who
value it the most. Should the Commission consider removing this
requirement? Does the bidding requirement hinder the negotiation of
beneficial release arrangements, and thereby do more harm than good?
Would a requirement that the terms of prearranged capacity releases be
posted, without requiring bidding, provide sufficient market
transparency to discourage undue discrimination in the release of
capacity?
4. Does the Order No. 636 prohibition on tying arrangements
interfere with beneficial capacity release arrangements, including
portfolio management services? Should the
[[Page 1197]]
Commission clarify or modify its capacity release rules to permit
releasing shippers to require replacement shippers to take assignment
of the releasing shippers' gas purchase contracts or to take a release
of a package of transportation agreements? Should such tying
arrangements be permitted only in particular circumstances, such as
when a local distribution company is seeking a marketer to manage its
gas acquisition activities? Would the risk of undue discrimination be
mitigated if the releasing shipper was required to use a formalized
request for proposal (RFP) structure with notice of the RFP
requirements posted on the pipeline's Web site?
5. Should the Commission consider removal of the shipper-must-have-
title requirement? While Order No. 637 stated that the capacity release
rules were designed with this policy as their foundation, Order No. 637
also recognized that the shipper-must-have-title requirement imposes
some transaction costs and that the capacity release program might be
revised so that it could operate without that requirement. How could
the shipper-must-have-title requirement be removed while still
achieving the objective of nondiscriminatory, efficient allocation of
released capacity with transparency?
6. The Commission's current capacity release regulations, including
the maximum rate cap and the posting and bidding requirements, were
adopted in order to minimize undue discrimination and control the
exercise of market power in the capacity release market. Would any
proposed changes to those rules provide sufficient efficiency gains in
the natural gas market to justify relaxing the existing capacity rules
concerning posting and bidding and the maximum rate cap?
Procedure for Comments
10. The Commission invites interested persons to submit comments on
the matters, issues, and specific questions identified in this notice.
Comments are due 60 days from the date of publication in the Federal
Register. Comments must refer to Docket Nos. RM06-21-000 and RM07-4-
000, and must include the commenter's name, the organization they
represent, if applicable, and their address.
11. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's Web site at http://www.ferc.gov.
The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
12. Commenters that are not able to file comments electronically
must send an original and 14 copies of their comments to: Federal
Energy Regulatory Commission, Office of the Secretary, 888 First
Street, NE., Washington, DC 20426.
13. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters are not required to
serve copies of their comments on other commenters.
Document Availability
14. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through the Commission's Home Page (http://www.ferc.gov) and
in the Commission's Public Reference Room during normal business hours
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A,
Washington, DC 20426.
15. From the Commission's Home Page on the Internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits in the docket number
field.
16. User assistance is available for eLibrary and the Commission's
Web site during normal business hours from our Help line at (202) 502-
6652 or the Public Reference Room at (202) 502-8371 Press 0, TTY (202)
502-8659. E-mail the Public Reference Room at
public.referenceroom@ferc.gov.
By direction of the Commission.
Nora E. Donovan,
Acting Secretary.
[FR Doc. E7-128 Filed 1-9-07; 8:45 am]
BILLING CODE 6717-01-P