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FERC Ruling Sought on Buy-Sell Deals in OCS

March 27, 2000
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FERC Ruling Sought on Buy-Sell Deals in OCS

Williams Energy Marketing & Trading has petitioned FERC to issue a declaratory order stating that its ban against "buy-sell" arrangements doesn't apply to the Outer Continental Shelf (OCS), particularly to the Minerals Management Service's (MMS) royalty in-kind projects.

Williams said it was seeking "guidance" from the full Commission on the buy-sell deals at the recommendation of FERC's Enforcement Hotline staff, which was unable to render an "informal opinion" on the issue.

FERC barred buy-sell arrangements because it said they provided pipeline customers an opportunity to circumvent the objectives of its capacity-release program, which requires open bidding by shippers. In buy-sell deals, open bidding is eliminated. For example, an LDC could buy gas in the production area from an end-user or someone designated by the end-user, transport the gas using its own firm capacity and then sell it back to the end-user at the retail delivery point.

Although prohibited by the Commission, Williams said the buy-sell arrangements are being used routinely in MMS' royalty in-kind (RIK) projects. The buy-sell issue arises when an RIK contractor buys gas from the MMS at one or more receipt points in the OCS, transports (as well as processes or separates) the gas on behalf of MMS to onshore delivery points, and sells the gas back to MMS once onshore. In exchange, the RIK contractor or contractors retain a portion of the gas, plus any processing revenues.

Williams said it is "keenly interested" in participating in MMS' RIK projects, but it's also "concerned that such arrangements may violate the letter (but not the spirit of) the Commission's buy-sell policy." As such, it's seeking a declaratory ruling from the Commission that would grant an exception for buy-sell deals in the OCS, saying "there simply is no need to impose such uniform capacity-release requirements upon OCS transportation arrangements."

"Given the strategic, national importance of OCS development, excepting such OCS production-area transactions from the Commission's buy-sell prohibitions is eminently reasonable," especially in view of the "highly competitive character of the OCS production area."

Susan Parker

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