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Description
Seven years after Order 636, the Federal Energy Regulatory Commission (FERC) on February 9, 2000, issued Order 637 to refine and update pipeline transportation regulations. The order suspended until September 30, 2002, the operation of the price caps on capacity release sales of less than one year and authorized certain other policy changes in the pipeline ratemaking area. One significant proposal was the implementation of daily auctions for pipeline capacity. Other policy changes included refinements to regulations for segmenting capacity in order to give shippers more flexibility, and greater pipeline transactional reporting requirements to increase market transparency.
Impact
Order 637 represented FERC's attempt to update and upgrade many aspects of gas pipeline operations and services to achieve a greater level of transparency and efficiency in the use of pipeline services. It addressed the need to improve operational aspects of pipeline tariffs to make the process of transporting gas more responsive to conditions in today's marketplace. Although FERC accomplished much-needed refinements in the transportation markets, Order 637 was also notable for not including certain policy proposals. FERC put aside indefinitely a proposal to allow pipelines to negotiate the terms and conditions of transportation service. This proposal would have allowed pipeline companies and their customers to enter into privately negotiated contracts as long as the agreements did not violate the terms of the pipeline company's tariffs. FERC also decided not to implement its controversial proposal to have daily auctions of pipeline capacity. Additionally, after a brief pilot program, FERC decided not to lift the price caps on capacity release transactions. During the 2-year pilot, FERC found that waivers of the price cap had little effect on the market, except during peak periods. In a white paper, FERC staff in June 2002 said that it reviewed the capacity-release activity on 34 pipelines during a 22-month period from March 2000 to December 2001 and found that a total of 713 releases were transacted at above-cap prices. This represented only 2 percent of all releases.
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