NGI The Weekly Gas Market Report / NGI All News Access

FERC Dismisses Challenges to Revised Negotiated-Rate Policy

March 27, 2006
/ Print
| Share More
/ Text Size+

FERC last Thursday dismissed challenges to a January order that, in a reversal of policy, signaled the agency's willingness to allow interstate natural gas pipelines to use basis differential pricing in negotiated-rate transactions with shippers.

The Federal Energy Regulatory Commission said that the Natural Gas Act only allows parties to seek rehearing when they are "aggrieved" by an agency order. However, the revised policy statement on negotiated-rate transactions "is not a final action of the Commission, but an expression of policy intent," the order noted [PL02-6-003].

"As the U.S. Court of Appeals for the District of Columbia Circuit has held, a statement of policy 'is not finally determinative of the issues or rights to which it is addressed,' rather it only 'announces the agency's tentative intentions for the future.' Therefore, the parties are not aggrieved by the revised policy statement, and rehearing does not [follow]," the order said.

However, the Commission noted that parties "may raise concerns" about a pipeline's use of basis differential pricing when the pipeline files a negotiated-rate agreement with the agency. Those seeking rehearing or clarification included the American Gas Association, the Natural Gas Supply Association, Pacific Gas and Electric, BP America Production and BP Energy.

FERC further declined to clarify its policy statement to address the use of basis differential pricing for capacity-release transactions, noting that the requests were outside the scope of the proceeding. While the agency's negotiated-rate policy requires pipelines to sell any available capacity to shippers offering a maximum just and reasonable recourse rate, it noted that FERC's capacity-release program contains no requirement that releasing shippers must release their unused firm capacity to replacement shippers offering a maximum just and reasonable rate.

"Therefore, the considerations underlying capacity-release transactions differ from those underlying the negotiated-rate policies for pipelines and are beyond the scope of this proceeding," the order said.

In a separate concurring opinion, Commissioner Nora Brownell said arguments advocating the use of basis differential pricing for releasing shippers raised a "broader policy issue" that she has wanted to revisit for some time. "I believe it is time to again consider a wide range of proposals for pricing transportation services in the secondary market, as well as competing IT services, in a generic proceeding," she noted.

FERC's January decision reversed a July 9, 2003 action barring the use of basis differentials in negotiated-rate agreements between pipelines and their shippers (see NGI, Jan. 23). The Commission at the time ruled that the generic policy against the use of basis differential pricing in negotiated-rate deals was "overly restrictive, given the benefits such pricing mechanisms yield and the fact that there are other less-restrictive means to ensure that pipelines do not utilize market power to influence the gas commodity."

By precluding the use of basis differentials in July 2003, FERC believed it was removing an incentive for pipelines to withhold capacity in an attempt to widen the basis between index points and drive up transportation rates. Pipelines countered that the basis differential was a good measure of the value of the capacity between two points, and a consistently high basis differential served as an incentive for construction of more pipeline.

©Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus