In a case that points up the marketplace failure of FERC’scapacity release rules, Consumers Energy and the Commission’senforcement section have come to a no-fault agreement over chargesConsumers collected payments in excess of maximum lawful rates forupstream pipeline capacity released to shippers.

In a stipulation and consent agreement with FERC, Consumersneither admitted nor denied violations were involved in paymentsmade by seven shippers as part of “joint commodity sharingarrangements.” Consumers, however, agreed to pay $100,000 to theU.S. Treasury to cover costs of the Federal Energy RegulatoryCommission staff investigation. The Michigan utility, whichcollected $541,000 in excess of maximum pipeline rates from theshippers, also pledged going forward not to engage in any similartransactions which would in the future be considered in violationof section 284.243(h) (1) of the Commission’s regulations. Theshippers waived their right to refunds.

Consumers had argued its actions were lawful under the NaturalGas Act, and, in fact, were commonplace in the “gray market”surrounding capacity release. The Commission itself hasacknowledged the existence of the gray market in which commodityand capacity are bundled to avoid FERC restrictions on purecapacity release transactions. Those who advocate changing thecapacity release rules have argued that limiting the price that canbe paid for the released capacity to the pipeline’s maximum lawfulrate does not allow the market to clear in cases where there isexcess demand for the space.

Consumers said the commodity revenue sharing had been proposedby the shippers. The utility “neither devised nor insisted uponthis type of joint commodity marketing arrangement as a conditionof its release of capacity. In agreeing to these contracts, CECbelieved it was lawfully and prudently responding to the needs ofcustomers for a competitively priced, delivered gas supply in themarkets being served by the replacement shippers.” Consumers saidit had gotten the impression from the shippers they had similardeals with others for released capacity.

The transactions first came to light in proceedings before theMichigan Public Service Commission where it was argued the excessrevenue derived should be credited to Consumers’ customers therebyreducing the retail rates.

Ellen Beswick

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