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
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.
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