A decision last month by FERC, which allowed Arizona Public Service Co. (APS) and Sequent Energy Management to proceed with plans to buy and sell gas at a storage facility in Texas, also prohibited buy/sell transactions by intrastate and Hinshaw pipelines and should therefore be rescinded, according to some recent FERC filings.

In response to a request by APS and Sequent, the Federal Energy Regulatory Commission (FERC) on July 23 issued an order granting a limited waiver of the Commission's buy/sell prohibition in order to allow the proposed transaction to proceed. In its order, FERC said it recognized "that capacity reassignments can promote more efficient use of firm pipeline capacity by enabling a holder of such capacity to permit its capacity to be used by another party for a higher valued use," and was therefore willing to consider requests for waiver of the buy/sell prohibition on a case-by-case basis "where it can be shown that a particular buy/sell transaction provides significant benefits to the market.

"Such waiver requests will ensure that any buy/sell transactions are transparent and can be monitored for undue discrimination."

That codicil "is an unsupported and unwarranted extension of NGA [Natural Gas Act]-based regulations to NGPA [Natural Gas Policy Act]-type services provided by intrastate and Hinshaw pipelines," according to a Texas Pipeline Association (TPA) request for rehearing filed with FERC this week. "The order relies entirely on speculation about potential discrimination that has not been shown to exist, and is otherwise not supported by even a scintilla of evidence...the Commission appears to be continuing its recent trend of imposing NGA-based policies onto NGPA-authorized transportation services, without any record basis for doing so, and in a manner that is inconsistent with the Commission's own prior policy announcements and with Congress' intent in enacting the NGPA, namely, to encourage intrastate pipelines to undertake voluntary service under NGPA."

TPA requested a rehearing and clarification by FERC that the prohibition on buy/sell transactions and the requirement that a shipper must have title do not apply to NGPA-type services provided by intrastate and Hinshaw pipelines.

Under terms of their agreement, APS would have the right to deliver gas to Sequent at delivery points at Chevron's Keystone storage Hinshaw facility in Winkler County, TX, and would also have the right to require Sequent to deliver gas to APS at delivery points at the Keystone facility. At the end of the 12-month term of the agreement, APS and Sequent expect that the amounts of gas delivered between them will be equal -- a zero balance. APS would pay Sequent a fixed monthly fee and volumetric charges correlated to Sequent's costs to inject and withdraw gas at Keystone.

"The Commission's expansion of the buy/sell prohibition was not necessary to grant APS and Sequent the relief they requested," according to a filing from a group of marketers. "Neither the limited record in this proceeding nor applicable precedent support the Commission's expansion of the buy/sell prohibition." Members of the marketer group, which requested a rehearing of the issue, included Barclays Capital Energy Inc., Chevron U.S.A. Inc., Citigroup Energy Inc., ConocoPhillips Co., Encana Marketing Inc., Iberdrola Renewables Inc., J.P. Morgan Ventures Energy Corp., Tenaska Marketing Ventures, Sempra Energy Trading and Shell Energy North America.

Similar comments were filed by the Independent Petroleum Association of America, Natural Gas Supply Association and Electric Power Supply Association; American Gas Association; Morgan Stanley Capital Group Inc.; and BG Energy Merchants.

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