[Federal Register Volume 61, Number 154 (Thursday, August 8, 1996)]
[Notices]
[Pages 41401-41404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20179]


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DEPARTMENT OF ENERGY
[Docket No. RM96-14-001]


Secondary Market Transactions on Interstate Natural Gas Pipelines

    Issued July 31, 1996.

AGENCY: Federal Energy Regulatory Commission.

ACTION: Proposed Experimental Pilot Program to Relax the Price Cap for 
Secondary Market Transactions, and Request for Office of Management and 
Budget Emergency Processing of Submission of Collection of Information

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SUMMARY: The Federal Energy Regulatory Commission is issuing an order 
establishing a proposed pilot program to release the price cap for 
releases of capacity and sales of interruptible and short-term firm 
transportation in certain geographic areas.
    Because the Commission anticipates implementing the pilot program 
for the 1996-97 winter heating season, the Commission, pursuant to 5 
CFR 1320.13, is providing notice of its request to the Office of 
Management and Budget (OMB) for emergency processing of the proposed 
collection of information relating to the pilot program.

DATES: The Commission requests applications for the pilot program by 
August 30, 1996. Comments on the applications will be due 15 days after 
filing of applications to participate. Applications and comments on the 
applications should be filed with the Office of the Secretary and 
should refer to Docket No. RM96-14-001.
    Because the Commission has requested OMB to process the proposed 
collection of information in Docket No. RM96-14-001 on an emergency 
basis, comments on this collection of information should be filed with 
OMB, attention Desk Officer FERC, as soon as possible.

ADDRESSES: Federal Energy Regulatory Commission, 888 First Street, NE, 
Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT: Michael Goldenberg, Office of the

[[Page 41402]]

General Counsel, Federal Energy Regulatory Commission, 888 First 
Street, NE, Washington, DC 20426, (202) 208-2294.
    For information relating to the data template, contact:

Marvin Rosenberg, Office of Economic Policy, Federal Energy Regulatory 
Commission, 888 First Street, NE, Washington, DC 20426, (202) 208-1283.
Elizabeth A. Taylor, Office of Pipeline Rates, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 208-0826.

SUPPLEMENTARY INFORMATION: In addition to publishing the full text of 
this document in the Federal Register, the Commission provides all 
interested persons an opportunity to inspect or copy the contents of 
this document during normal business hours in Room 2A, 888 First 
Street, N.E., Washington D.C. 20426.
    The Commission Issuance Posting System (CIPS), an electronic 
bulletin board service, provides access to the texts of formal 
documents issued by the Commission. CIPS is available at no charge to 
the user and may be accessed using a personal computer with a modem by 
dialing 202-208-1397 if dialing locally or 1-800-856-3920 if dialing 
long distance. To access CIPS, set your communications software to 
19200, 14400, 12000, 9600, 7200, 4800, 2400, 1200bps, full duplex, no 
parity, 8 data bits, and 1 stop bit. The full text of this document 
will be available on CIPS indefinitely in ASCII and WordPerfect 5.1 
format for one year. The complete text on diskette in WordPerfect 
format may also be purchased from the Commission's copy contractor, La 
Dorn Systems Corporation, also located in Room 2A, 888 First Street, 
NE., Washington, DC 20426.
    The Commission's bulletin board system also can be accessed through 
the FedWorld system directly by modem or through the Internet. To 
access the FedWorld system by modem:
     Dial (703) 321-3339 and logon to the FedWorld system.
     After logging on, type: /go FERC
    To access the FedWorld system, through the Internet:
     Telnet to: fedworld.gov
     Select the option: [1] FedWorld
     Logon to the FedWorld system
     Type: /go FERC
    Or:
     Point your Web Browser to: http://www.fedworld.gov
     Scroll down the page to select FedWorld Telnet Site
     Select the option: [1] FedWorld
     Logon to the FedWorld system
     Type: /go FERC

Secondary Market Transactions on Interstate Natural Gas Pipelines

Docket No. RM96-14-001

Proposed Experimental Pilot Program To Relax the Price Cap for 
Secondary Market Transactions
    Issued July 31, 1996.

    Before Commissioners: Elizabeth Anne Moler, Chair; Vicky A. 
Bailey, James J. Hoecker, William L. Massey, and Donald F. Santa, 
Jr.

    In a Notice of Proposed Rulemaking (NOPR) issued in this docket and 
published in the Federal Register of August 7, 1996, the Federal Energy 
Regulatory Commission (Commission) proposes to permit shippers 
releasing capacity, and pipelines selling interruptible transportation, 
to sell at rates above the pipeline's maximum tariff rate when they can 
demonstrate they do not possess market power in the secondary market. 
The Commission further intends to hold a technical conference to 
explore issues related to the proposal and the methods for measuring 
market power. To complement the NOPR and provide additional record 
evidence for evaluating the criteria for evaluating market power, the 
Commission is proposing an experimental pilot program to remove the 
price ceiling for releases of capacity and pipeline sales of 
interruptible and short-term firm transportation into qualifying 
markets.

Background

    Under Commission policy, price ceilings can be removed when 
pipelines and shippers do not possess market power, because, without 
the ability to control price or output, shippers are unable to exact 
charges above the competitive level and hence their rates are just and 
reasonable under the Natural Gas Act (NGA).1 The NOPR proposes to 
require pipelines and shippers seeking to sell capacity above the cap 
to make filings to demonstrate that they do not possess market power. 
These filings could be based on the criteria for assessing market power 
in the Commission's Policy Statement on Alternatives to Cost-of-Service 
Ratemaking or on modifications to that policy that the Commission 
adopts after consideration of the comments on the NOPR.
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    \1\ Policy Statement on Alternatives to Cost-of-Service 
Ratemaking, 74 FERC para. 61,076 (1996).
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    In the NOPR, the Commission also identifies certain additional 
prerequisites that must be present for pipelines and LDCs to establish 
that they lack market power. In order to ensure that capacity release 
is fully competitive with pipeline services, pipelines would have to 
implement tariff provisions ensuring that they treat capacity release 
transactions comparably to their own interruptible and short-term 
services. Without comparability, pipeline services may, in many 
respects, be superior to capacity release and have a competitive 
advantage in the marketplace.
    For LDCs, the necessary prerequisite would be a showing that they 
provide an acceptable open access transportation service on their own 
facilities. In the absence of a viable open access program, LDCs may 
well be able to exercise market power over customers behind their city-
gates. The LDC may be able to structure its intrastate service so that 
the end-user's ability to obtain released interstate capacity from 
shippers other than its own LDC is limited. An LDC's control over 
primary delivery points also may give rise to market power over the 
LDC's customers.
    To deal with issues of market power over customers behind the city-
gate, the NOPR proposes that an LDC must provide customers with 
identical open access transportation service on the LDC's system, 
regardless of whether the customer purchases interstate capacity from 
the LDC or another shipper. In addition, open access service would need 
to include a right for customers behind the city-gate to use the LDC's 
city-gate as a primary delivery point, regardless of whether they 
purchase interstate capacity from the LDC. As explained in the NOPR, if 
a customer cannot use the LDC's city-gate as a primary delivery point, 
it may not have available adequate alternative sources of capacity, 
because the purchase of interstate capacity from a shipper other than 
its own LDC (with the resulting use of the city-gate delivery point on 
a secondary basis) may not be the equivalent of purchasing primary 
point capacity from its own LDC.

Proposed Pilot Program

    In conjunction with the NOPR, the Commission is proposing this 
pilot program to help assess whether compliance with the criteria 
identified in the NOPR is indicative of a lack of market power. Under 
this program, the price cap will be lifted for released capacity and 
pipeline interruptible and short-term firm capacity in a designated 
geographic area. Specifically, the cap will be released for capacity 
released by an LDC to delivery points in its delivery area, for 
interruptible and short-term

[[Page 41403]]

firm transportation sold by the pipeline into the same area, and for 
capacity released by other shippers into the area. The cap would be 
released only for the duration of the experiment.2 Because prices 
for released capacity generally approach the maximum rate only during 
peak periods, the Commission anticipates the pilot program needs to 
last at least through the 1996-1997 winter heating season, if not 
longer.
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    \2\ Thus, if shippers entered into a long-term capacity release 
transaction, the ability to release above the cap would not extend 
beyond the end of the experiment.
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    Applications to participate in the program should include 
information showing why the pipelines and the LDCs cannot exercise 
market power in the relevant area, although this showing need not 
constitute the detailed market power analysis set out in the 
Commission's Policy Statement on Alternatives to Cost-Of-Service 
Ratemaking. One item of information that should be included in the 
application is the name of each shipper on the pipeline, together with 
the amount of its firm capacity that could be used to effect deliveries 
to the LDC's delivery area.3
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    \3\ For example, such data might include all firm capacity in 
the same zone as the LDC and any downstream zone.
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    In addition to this information, LDCs need to meet the NOPR's 
requirement for open access service. LDCs with state-approved pilot 
open access programs meet the requirement. For instance, it appears 
from the information available to the Commission that New York and 
California may have open access tariffs that would qualify, since these 
states provide for open access transportation to non-core industrial 
customers as well as to core or residential customers that aggregate 
their demand.
    However, special discounting programs limited to industrials will 
not be sufficient. An LDC that does not meet the open access 
requirement still may apply, but it will have to bear a greater burden 
of establishing that it lacks market power and, therefore, must present 
a more comprehensive analysis of market power.
    In order to qualify, pipelines would have to implement tariff 
revisions to assure comparability between interruptible service and 
capacity release. In the Business Practices Rule in Docket No. RM96-1-
000, the Commission adopted, by reference, a standard timeline for 
capacity release transactions established by the Gas Industry Standards 
Board. This timeline, in general, provides that, so long as a pipeline 
is notified of a non-biddable capacity release 2\1/2\ hours prior to 
its nomination deadline, the replacement shipper can nominate under the 
deal. 4 Pipelines are to implement these standards by the spring 
of 1997. Pipelines seeking to participate in the pilot program can 
comply with the comparability requirement by implementing the standard 
capacity release timeline early. 5
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    \4\ For biddable short-term deals, the timeline requires 
notification to the pipeline the day prior to nomination.
    \5\ While the NOPR in this docket proposes the elimination of 
the competitive bidding requirement, pipelines need not seek to 
implement this recommendation for the pilot program. However, if 
they do, they would need to file a separate tariff provision limited 
to the LDC or LDCs participating in the program.
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    Pipelines and LDCs may file joint or concurrent applications to 
participate. LDCs, however, may file individual applications so long as 
the application provides enough information to establish a lack of 
market power in the relevant area for both the LDC and the pipeline. If 
an LDC files individually, the Commission must obtain, prior to the 
Commission's approval of the application, a commitment from the 
pipeline to participate in the pilot program by implementing the 
comparability requirements and providing the reporting data (outlined 
below). After receipt of the applications, the Commission will provide 
an opportunity for comment on which applications to accept and on the 
design of the program.

Reporting Requirements

    To judge whether the market, under these conditions, provides 
adequate consumer protection against market power abuses, the 
Commission will require the pipelines and LDCs participating in the 
program to submit periodic data reports for the period of the 
experiment. Additionally, to provide a basis for comparing the use of 
capacity and prices, the same data also will be needed for the year 
prior to the experiment. Pipelines and LDCs will not be required to 
provide these data (including the prior year's data) until after the 
Commission has accepted applications to participate in the program 
according to a schedule to be established. This information will be 
made available to the public to assist in the assessment of the 
experiment.
    The Commission needs sufficient information to evaluate whether 
capacity is being allocated efficiently and whether consumers--options 
for buying and selling gas have been expanded. These data will help in 
analyzing changes in the number and concentration of market 
participants (buyers and sellers) relative to the pre-experimental base 
period, as well as the concentration of buyers and sellers 
participating in the market each day and the volumes traded by each. 
These data further will reveal changes in the use of capacity relative 
to the pre-experimental base period. For example, these data will show 
any changes in the mix of interruptible, firm, release capacity, and 
bundled sales and any changes in the use of storage. These data also 
will permit analysis of how daily prices vary depending on the 
availability of capacity, which may be suggestive of whether market 
power is being exercised.
    For pipelines, the information that is needed would include for the 
period of the experiment and for one year prior to the start of the 
experiment, the following information for all transactions that 
potentially could be used to make deliveries to the LDC's delivery 
area:

    1. For each capacity release and firm transaction into which 
parties have entered that affects the relevant area, the name of the 
shipper; the contract number; the rate schedule; the rate charged 
(including all terms and conditions of the rate); 6 the maximum 
rate; the contractual quantity; the beginning and end date of the 
transaction; the date on which the parties to a capacity release 
transaction posted the transaction to the pipeline; the receipt and 
delivery points of the transaction; an identification of any changes 
to different primary or secondary receipt or delivery points made by 
the replacement shipper; an identification of whether a capacity 
release transaction is a segmented release; 7 and an 
identification of an affiliate relationship with the pipeline;
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    \6\ Terms and conditions would include, for example, a rate that 
varied depending on the volume shipped.
    \7\ In a segmented release, the releasing shipper divides its 
capacity into one or more segments and either separately releases 
multiple segments or releases one or more segments while retaining 
some capacity for its own use.
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    2. For each capacity release, interruptible, and firm shipment 
made on its system that affects the relevant area, for each day, the 
name of the shipper, the contract number, the daily quantity of gas 
scheduled, and the daily total revenue derived.
    3. The available capacity on the mainline and for receipt and 
delivery points, for each day, and any operational flow orders that 
are in effect for each day that would affect the relevant area.

    For LDCs, the required information would include a map of the LDC's 
system, showing its capacity at city-gate delivery points and the 
following information for the period of the experiment and for one year 
prior to the start of the experiment the following:

    1. For its interstate capacity, by pipeline, by rate schedule, 
by day, the total quantity of its interstate capacity and the amount 
used

[[Page 41404]]

for traditional on-system retail sales at WACOG, for capacity 
release, for off-system bundled gas/transportation sales, and for 
on-system bundled gas/transportation sales at other than WACOG;
    2. For each off-system or on-system bundled gas/transportation 
sale at other than WACOG, the name of the shipper, the rate charged 
(including all terms and conditions of the rate), the maximum rate 
(if applicable), the daily quantity of gas sold, the daily revenue 
derived, the receipt and delivery points, and the beginning and end 
date of the transaction.

    In addition, where applicable, LDCs must provide a statement of the 
amount of interstate pipeline capacity held by an affiliated marketer, 
and for the period of the experiment and one year prior to the 
experiment, a list of any capacity release transactions with an 
affiliate.
    The Commission will require pipelines and LDCs to file these data 
in electronic form. The template for reporting the information will be 
made available to those making applications, upon request, so they can 
comment on the format. Those filing proposals and comments should 
discuss the design of the program, including, but not limited to, how 
long the experiment should run, the period for filing the year-before 
data and the periodic reports (monthly, quarterly).

Application and Comment Procedures

    The Commission hopes to be able to begin the pilot program in the 
1996-97 winter heating season. LDCs or pipelines, therefore, should 
file their applications by August 30, 1996, although later applications 
also will be considered. After receiving the requests to participate, 
the Commission will provide 15 days for comment on which applications 
should be granted as well as on the design of the experiment and 
possible improvements. In addition, at the end of the pilot program, 
the Commission intends to solicit comments from both buyers and sellers 
providing their assessment of the results.
    Applications and comments should be submitted to the Office of the 
Secretary, Federal Energy Regulatory Commission, 888 First Street, NE, 
Washington, DC 20426, and should refer to Docket No. RM96-14-001. 
Additionally, the Commission strongly encourages applicants and 
commenters to submit a computer diskette of their comments in 
WordPerfect version 6.1 format or lower or in ASCII format, with the 
name of the filer and Docket No. RM96-14-001 on the outside of the 
diskette. Those providing files in ASCII format should take care to 
examine the form of an ASCII conversion to ensure, for instance, that 
it includes footnotes, headers, and footers, as these have often been 
left out in past electronic filings. All written comments will be 
placed in the Commission's public files and will be available for 
inspection in the Commission's Public Reference Room at 888 First 
Street, NE, Washington, DC 20426, during regular business hours.

Information Collection

    The Paperwork Reduction Act of 1995, 44 U.S.C. 3507, and Office of 
Management and Budget (OMB) implementing regulations at 5 CFR 1320.10 
require OMB to approve certain reporting and recordkeeping requirements 
(collections of information) imposed by a federal agency. Upon approval 
of a collection of information, OMB will assign an OMB control number 
and an expiration date.
    The proposed pilot program will be done under two new temporary 
data collections, FERC-549AP, Gas Pipeline Certificates: Application 
for Capacity Release/Pilot Program), (OMB Control No. (to be assigned 
by OMB)) (FERC-549AP), and FERC-549P, Gas Pipeline Rates: Capacity 
Release/Pilot Program (OMB Control No. (to be assigned by OMB)) (FERC-
549-P). The respondents will be local distribution companies and 
interstate natural gas pipelines. Because participation in the program 
is voluntary, the Commission is unable to estimate the total number of 
applicants, nor can the Commission determine the number of applications 
it will approve until after it receives the applications.
    The Commission estimates that the average time per respondent for 
reviewing the requirements to participate in the program, searching 
existing data sources, and preparing the application will be 40 hours, 
with a total cost per respondent of about $2,000. For those applicants 
chosen to participate in the program, the estimate for extracting and 
reporting the year-before and periodic data in the required format will 
average 60 hours per respondent, with an estimated cost of about $6,000 
per respondent. Participation in this program is purely voluntary, and 
the costs are one-time costs that will not be incurred on an annual 
basis.
    The proposed collection of information is being submitted to OMB 
for review. Because the Commission hopes to approve certain 
applications to participate in the pilot program in time for the 1996-
97 winter heating season, the Commission has requested applications 
within 30 days of this order. Accordingly, the Commission has requested 
the Office of Management and Budget (OMB) to provide for emergency 
processing of this proposed collection of information by August 15, 
1996. Comments on the collection of information, therefore, should be 
filed with the Office of Management and Budget as soon as possible to 
provide OMB sufficient time for its review. For copies of the OMB 
submission, contact Michael Miller at (202)208-1415. Interested persons 
may send comments regarding these burden estimates or any other aspect 
of these collections of information, including suggestions for 
reductions of burden, to the Desk Officer FERC, Office of Management 
and Budget, Room 3019 NEOB, Washington, D.C. 20503, phone 202-395-3087 
or via the Internet at [email protected]. Comments should be filed 
with the Office of Management and Budget. A copy of any comments filed 
with the Office of Management and Budget also should be sent to the 
following address at the Commission: Federal Energy Regulatory 
Commission, Information Services Division, Room 41-17, Washington, DC 
20426, Attention: Michael Miller.

    By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 96-20179 Filed 8-7-96; 8:45 am]
BILLING CODE 6717-01-P