FERC last Thursday proposed removing the price cap on short-term releases of transportation capacity and providing a partial exemption for capacity released under asset management arrangements.

The notice of proposed rulemaking (NOPR), which the Federal Energy Regulatory Commission (FERC) voted out at its regular monthly meeting, seeks to permanently lift the maximum rate ceiling on secondary capacity releases of one year or less. This would not apply to long-term releases of more than one year or to primary sales of capacity by interstate natural gas pipelines, FERC staff said.

"The primary rationale for removing price caps [on short-term releases] is really focused on short-term price spikes most typically occurring during the winter months," staff said. "We felt that the shorter term contracts, because they're directly linked into the quickly evolving short-term market circumstances, provide the kind of response that will let the market work more flexibly and efficiently."

FERC staff said it "didn't see a real linkage or connection with that purpose in terms of doing anything with longer terms contracts." However, it indicated that once the rule on removing the price cap on short-term releases becomes final, it may evaluate whether lifting the cap on long-term releases is the "logical next step."

Removing the cap on sales of primary capacity by pipelines was not proposed because FERC staff members said they felt it would act as a disincentive to pipelines to build new infrastructure.

The NOPR also seeks to encourage the use of asset management arrangements by exempting capacity releases in this area from the time prohibition on tying any capacity to extraneous conditions, and exempting capacity releases made as part of an asset management arrangement from the bidding requirements in Section 284.8 of the Commission regulations.

An asset management arrangement is a prearranged capacity release where a capacity holder releases some of its capacity to an asset manager who then agrees to supply the gas needs of the releasing shipper.

In the NOPR, the Commission is "proposing a fundamental reform of our capacity release rules, which go back 15 years," said FERC Chairman Joseph Kelliher. The proposed changes will provide "shippers [with] greater flexibility and increase shipper options on how they obtain natural gas supply."

Commissioner Suedeen Kelly focused primarily on the capacity-release reforms under asset management agreements, saying that the proposed changes would "foster" more of these transactions, with the benefits primarily flowing to local distribution companies and their customers. This "partial exemption would allow firm shippers to prearrange releases of capacity to an asset manager along with upstream assets and gas purchasing agreements, where the capacity being released will be used to meet the releasing shipper's gas supply requirements," she noted.

She applauded Pacific Gas & Electric and Southwest Gas, as well as a group of gas marketers, who brought the issue to FERC's attention more than a year ago.

Comments on the proposed rule will be due at FERC within 45 days of publication of the NOPR in the Federal Register.

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