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Producers, Marketers Seek FERC Guidance on Capacity-Release Rules

Eight natural gas producers and marketers have called on FERC to clarify its rules and policies governing capacity releases on interstate gas pipelines in light of the "more complex and multifaceted" transactions in the market now.

"Gas markets have developed and changed substantially since 1992 when the capacity-release program was first adopted as part of Order 636 restructuring...Commercial gas transactions now are frequently more complex and multifaceted than they were when the Commission's capacity-release rules were first enacted," the companies said [RM91-11, RM98-10].

"Capacity releases are now often one part of larger transactions, not just stand-alone transfers of capacity. In the context of this more mature marketplace...questions have arisen with respect to the interpretation and application of the Commission's rules and policies related to releases of capacity," they told FERC.

Industry guidance from the Federal Energy Regulatory Commission on the parameters of its capacity-release program is particularly critical because of the enactment of the Energy Policy Act of 2005, which has increased the agency's ability to penalize violators of the Natural Gas Act (NGA). "Because the Commission's authority to remedy violations of the NGA and its rules and regulations and orders issued under the act recently has been enhanced, petitioners have heightened concerns about the possible consequences of unintentional violations of the Commission's capacity-release rules and policies," the producers and marketers said.

If FERC denies the request for clarification, "then petitioners urge the Commission to expand its recently adopted no-action letter process to include capacity-release questions, and to broaden the types of capacity-release transactions that the Commission will address in orders seeking waivers of the Commission's capacity-release rules and policies and related provisions of pipeline tariffs. Given the speed at which transactions are currently undertaken in the marketplace and the potential penalties for violations, market participants urgently need regulatory certainty with respect to the Commission's capacity-release rules and policies."

The companies seeking clarification are Coral Energy Resources, ConocoPhillips, Chevron U.S.A., Constellation Energy Commodities Group, Tenaska Marketing Ventures, Merrill Lynch Commodities, Nexen Marketing U.S.A. and UBS Energy LLC.

Specifically, the petitioners asked FERC to clarify that:

The producers and marketers urged FERC to quickly address their petition, given that a number of the portfolio management arrangements in which they participate are coming up for renewal in the next few months.

"Against the backdrop of uncertainty created in part by the Louis Dreyus order in March of this year," in which FERC used "strong language" in denying the company's request for capacity-release waivers, "the future of many of these arrangements -- and the benefits associated with them -- are in jeopardy. To remove this doubt, petitioners request prompt notice of this petition, adoption of a reasonable, but relatively brief comment period (e.g. 20 days) and dispositive action during the upcoming winter season -- by Jan. 31, 2007, if possible -- so that petitioners and other interested market participants will have the benefit of the Commission's guidance in time to plan their 2007 gas supply and marketing arrangements."

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