[Federal Register Volume 72, Number 6 (Wednesday, January 10, 2007)]
[Proposed Rules]
[Pages 1195-1197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-128]


=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \1\ These regulations are set forth at 18 CFR 284.8 (2006).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 
[email protected].

    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