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Shippers Back Proposed Ban on Capacity Bidding by Affiliates

Pipeline shippers Tuesday expressed support for FERC's proposal to bar multiple affiliates from bidding in an open season for capacity allocated on a pro rata basis -- unless an affiliate has an "independent business reason" for submitting a bid. Interstate pipelines took no position on the issue, but stressed that they shouldn't bear any of the responsibility for whether or not a bidder complies with the Federal Energy Regulatory Commission's (FERC) final rule.

The notice of proposed rulemaking (NOPR), which FERC issued in early April, further would prohibit affiliates from releasing capacity obtained in an open season on a pro rata allocation to another affiliate, or allow an affiliate to acquire such capacity from another affiliate [RM11-15].

"Prohibiting multiple affiliates of the same entity from participating in an open season for capacity, in which [a] pipeline may allocate capacity on a pro rata basis, is an appropriate response to capacity allocation gaming. [This]...should deter manipulation and permit all players to participate on a level playing field," said the American Public Gas Association (APGA), which represents municipal gas utilities.

"The Commission's proposed exception, allowing multiple affiliates to bid in the same open season if each has its own independent business reason for submitting a bid, strikes a reasonable balance," the APGA said. "In this manner, the proposed rule will not hinder legitimate transactions or limit access to pipeline capacity by companies with independent affiliates."

However, the Natural Gas Supply Association (NGSA) raised concerns that the proposed rule could cause some affiliates with legitimate, independent business reasons to miss out on bidding for capacity, and it called on FERC to provide an additional explanation of what constitutes an "independent business reason" for the purpose of bidding in an open season.

"Open seasons are generally short -- many run for only days -- so shippers must therefore decide quickly whether they want to purchase capacity and whether their bid(s) would be compliant with FERC regulations," the producer group said. "FERC must therefore find a balance between prohibiting anticompetitive conduct and allowing shippers the flexibility to make legitimate bids for capacity. Policies and regulations which unnecessarily restrict such justifiable bidding could unintentionally serve to inhibit new business models and frustrate commercial ingenuity and creativity."

The Interstate Natural Gas Association of America, which represents interstate gas pipelines, declined to take a side. It only said that FERC "should specify that interstate pipelines have no obligation to determine whether affiliate entities are participating in an open season or whether each affiliate has 'an independent business reason for submitting a bid,' and that interstate pipelines have no obligation to verify that the capacity originally obtained during an open season pursuant to a pro rata allocation is not released to, or on behalf of, an affiliate of the releasing shipper."

The APGA said it believes that prohibiting the release of capacity obtained in a pro rata allocation to an affiliate of the releasing shipper "will further deter manipulative behavior and ensure that so-called independent affiliates only bid for capacity in keeping with their legitimate business purposes."

The National Energy Marketers Association called on FERC to make only one clarification -- that the prohibition on the release of capacity not encompass local distribution companies' release of capacity to retail marketing affiliates under state retail access programs -- and recommended that the rule be applied prospectively.

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