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Blanket Waiver for OCS Buy-Sell Deals Draws Fire

Blanket Waiver for OCS Buy-Sell Deals Draws Fire

Producers and marketers denounced a recent request to generically exclude Outer Continental Shelf (OCS) pipelines from FERC's ban on "buy-sell" transactions. They contend Williams Energy Marketing & Trading's bid for such a waiver is just a backhanded attempt to gain light-handed regulation on the OCS.

In its petition for a declaratory order, Williams last month said it was seeking "guidance" from the full Commission on buy-sell deals particularly as they related to the Minerals Management Service's (MMS) royalty in-kind (RIK) projects in the OCS.

The Natural Gas Supply Association (NGSA), which represents major gas producers, and Dynegy Marketing and Trade said they could support a "narrow" waiver of the prohibition against buy-sell transactions in offshore waters, but only for MMS' RIK pilots. They noted, however, that Williams' request was much broader.

Williams "seeks a termination of the prohibition against buy-sell transaction for 'all' OCS gas supply transactions - a broad remedy when there is no proof offered, beyond vague assertions in Williams' [petition], to support the [claim] that the development of gas supply on the OCS may somehow be handicapped by the inability to perform buy-sell exchanges using firm capacity," Dynegy told FERC [GP00-1].

"It is not the viability of the RIK program that Williams is concerned about; indeed, if it were, then a proposal to pull the rug out from under the entire secondary capacity marketplace on all jurisdictional OCS pipelines is remedial overkill. Rather, Williams is using the RIK program to leverage another argument for light-handed regulation on the OCS," the Houston-based marketer charged.

At most, the NGSA believes the Commission should allow a "narrow exemption..limited expressly to transportation arrangements performed directly in connection with an MMS RIK project.." To grant Williams' "sweeping" request "would eliminate market transparency in the OCS, and establish separate and inconsistent regulatory frameworks for OCS and non-OCS transactions," the producer group said. Further, it would "eliminate a key element" of the Commission's new offshore rule (Order 639), which requires the continued compliance of OCS jurisdictional pipelines with the requirements of the Natural Gas Act.

The Commission barred buy-sell arrangements because it said they provided pipeline customers an opportunity to circumvent the objectives of its capacity-release program established under Order 636, which requires open bidding by shippers. One example of a buy-sell transaction would be an LDC buying gas in the production area from an end-user or someone designated by the end-user, transporting the gas using its own firm capacity and then selling it back to the end-user at the retail delivery point.

Williams indicated that such buy-sell arrangements were being used routinely in MMS' RIK projects offshore. It involves an RIK contractor buying gas from the MMS at one or more receipt points in the OCS, transporting it on behalf of MMS to onshore delivery points, and selling it back to MMS once onshore. In exchange, the RIK contractor retains a portion of the gas, plus any processing revenues. Dynegy currently is an RIK contractor.

Susan Parker

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