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FERC Lists Accomplishments, Changes Affiliate Rule to Allow LDCs to Hedge

FERC Lists Accomplishments, Changes Affiliate Rule to Allow LDCs to Hedge

In its last meeting of the year Dec. 15, the Federal Energy Regulatory Commission issued a third (and hopefully final) rehearing order for its 2003 final affiliate rule and gave a run-down of its major accomplishments in 2004, which included certification of 20 major pipelines, three storage facilities and now three proposed LNG terminals. The certifications represent 5.7 Bcf/d of pipeline capacity, 7 Bcf/d of storage capacity and 2.1 Bcf/d of regasified LNG deliverability.

FERC said the affiliate rehearing order will allow LDC affiliates of regulated transmission providers to participate in hedges of their own system sales without losing their exempt status (RM01-10). The Commission had disposed of a laundry list of clarifications and waiver requests just before the rule went into effect in September (see NGI, Sept. 27).

The American Gas Association said the latest revision responds to an AGA petition and is positive for natural gas distribution companies. Previously, FERC's affiliate rule had said that natural gas distribution companies could not hedge natural gas supplies if they wished to be exempt from the affiliate rule. The rule sets out a number of standards governing the relationship between regulated electric and natural gas transmission providers and their affiliates.

AGA's Jane Lewis, senior managing counsel for regulatory affairs, said, "FERC's action is significant and positive because it enables local natural gas distributors to pursue hedging on behalf of their customers while retaining their status as exempt distributors under FERC's affiliate rule."

Commissioner Suedeen Kelly said she was "particularly pleased about the change" because it "will now allow exempt LDCs to participate in financial transactions necessary for price-risk management solely for the benefit of on-system retail customers." She noted that more and more states are permitting their LDCs to hedge, which "I personally think is a good practice."

Listing investigations completed in 2004, Chairman Pat Wood pointed out that $625 million in refunds have begun to flow back to California customers due to settlements of FERC cases centered on the California energy crisis of 2000-2001. Along that line the Commission completed 90 investigations, including one physical withholding investigation, and anomalous bidding investigations.

In 2004 FERC also approved settlements in a gas storage investigation that resulted in $8 million in civil penalties and refunds from three companies for violating the standards of conduct and giving undue preference in connection with sharing non-public natural gas storage information data with affiliates and favored customers.

FERC also completed 27 financial audits resulting in $7.3 million in rate refunds by seven utilities generated by improperly billed costs; disclosed over $10 million of pipeline assessment and testing costs that were improperly capitalized; and verified FERC formula rate refund calculations of about $2.2 million. The agency also completed 12 operational audits, resulting in over 100 recommendations to remedy deficiencies that were implemented by the companies.

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