Producers and marketers denounced a recent request togenerically exclude Outer Continental Shelf (OCS) pipelines fromFERC’s ban on “buy-sell” transactions. They contend Williams EnergyMarketing & Trading’s bid for such a waiver is just abackhanded attempt to gain light-handed regulation on the OCS.
In its petition for a declaratory order, Williams last monthsaid it was seeking “guidance” from the full Commission on buy-selldeals particularly as they related to the Minerals ManagementService’s (MMS) royalty in-kind (RIK) projects in the OCS.
The Natural Gas Supply Association (NGSA), which representsmajor gas producers, and Dynegy Marketing and Trade said they couldsupport a “narrow” waiver of the prohibition against buy-selltransactions in offshore waters, but only for MMS’ RIK pilots. Theynoted, however, that Williams’ request was much broader.
Williams “seeks a termination of the prohibition againstbuy-sell transaction for ‘all’ OCS gas supply transactions – abroad remedy when there is no proof offered, beyond vagueassertions in Williams’ [petition], to support the [claim] that thedevelopment of gas supply on the OCS may somehow be handicapped bythe inability to perform buy-sell exchanges using firm capacity,”Dynegy told FERC [GP00-1].
“It is not the viability of the RIK program that Williams isconcerned about; indeed, if it were, then a proposal to pull therug out from under the entire secondary capacity marketplace on alljurisdictional OCS pipelines is remedial overkill. Rather, Williamsis using the RIK program to leverage another argument forlight-handed regulation on the OCS,” the Houston-based marketercharged.
At most, the NGSA believes the Commission should allow a “narrowexemption..limited expressly to transportation arrangementsperformed directly in connection with an MMS RIK project..” Togrant Williams’ “sweeping” request “would eliminate markettransparency in the OCS, and establish separate and inconsistentregulatory frameworks for OCS and non-OCS transactions,” theproducer group said. Further, it would “eliminate a key element” ofthe Commission’s new offshore rule (Order 639), which requires thecontinued compliance of OCS jurisdictional pipelines with therequirements of the Natural Gas Act.
The Commission barred buy-sell arrangements because it said theyprovided pipeline customers an opportunity to circumvent theobjectives of its capacity-release program established under Order636, which requires open bidding by shippers. One example of abuy-sell transaction would be an LDC buying gas in the productionarea from an end-user or someone designated by the end-user,transporting the gas using its own firm capacity and then sellingit back to the end-user at the retail delivery point.
Williams indicated that such buy-sell arrangements were beingused routinely in MMS’ RIK projects offshore. It involves an RIKcontractor buying gas from the MMS at one or more receipt points inthe OCS, transporting it on behalf of MMS to onshore deliverypoints, and selling it back to MMS once onshore. In exchange, theRIK contractor retains a portion of the gas, plus any processingrevenues. Dynegy currently is an RIK contractor.
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