Williams Energy Marketing & Trading has petitioned FERC toissue a declaratory order stating that its ban against “buy-sell”arrangements doesn’t apply to the Outer Continental Shelf (OCS),particularly to the Minerals Management Service’s (MMS) royaltyin-kind projects.

Williams said it was seeking “guidance” from the full Commissionon the buy-sell deals at the recommendation of FERC’s EnforcementHotline staff, which was unable to render an “informal opinion” onthe issue.

FERC barred buy-sell arrangements because it said they providedpipeline customers an opportunity to circumvent the objectives ofits capacity-release program, which requires open bidding byshippers. In buy-sell deals, open bidding is eliminated. Forexample, an LDC could buy gas in the production area from anend-user or someone designated by the end-user, transport the gasusing its own firm capacity and then sell it back to the end-userat the retail delivery point.

Although prohibited by the Commission, Williams said thebuy-sell arrangements are being used routinely in MMS’ royaltyin-kind (RIK) projects. The buy-sell issue arises when an RIKcontractor buys gas from the MMS at one or more receipt points inthe OCS, transports (as well as processes or separates) the gas onbehalf of MMS to onshore delivery points, and sells the gas back toMMS once onshore. In exchange, the RIK contractor or contractorsretain a portion of the gas, plus any processing revenues.

Williams said it is “keenly interested” in participating in MMS’RIK projects, but it’s also “concerned that such arrangements mayviolate the letter (but not the spirit of) the Commission’sbuy-sell policy.” As such, it’s seeking a declaratory ruling fromthe Commission that would grant an exception for buy-sell deals inthe OCS, saying “there simply is no need to impose such uniformcapacity-release requirements upon OCS transportationarrangements.”

“Given the strategic, national importance of OCS development,excepting such OCS production-area transactions from theCommission’s buy-sell prohibitions is eminently reasonable,”especially in view of the “highly competitive character of the OCSproduction area.”

Susan Parker

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