FERC last week rejected Williams Energy Marketing &Trading’s request to generically exempt Outer Continental Shelf(OCS) pipelines from FERC’s ban on “buy-sell” transactions. But itdid allow a “limited waiver” of its policy for the MineralsManagement Service (MMS) to carry out its royalty-in-kind programin the offshore.

In a petition for a declaratory order filed in March, WilliamsEnergy asked the Commission to reconsider the Order 636 prohibitionagainst buy-sell arrangements, which was put in place to deterparties from brokering private transportation deals without firstposting and bidding on the capacity.

The Natural Gas Supply Association, Dynegy Marketing and Tradeand others opposed Williams Energy’s request for such a sweepingexemption, saying it was just a backhanded attempt to gainlight-handed regulation on the OCS.

The Commission denied Williams Energy’s bid “because it wouldincrease significantly the potential for evasions of thecompetitive bidding requirements for pipeline capacity needed totransport OCS gas in interstate commerce,” the order said [GP00-1].

A wholesale waiver of the buy-sell ban on the OCS “wouldseriously erode the Commission’s ability to monitor the offshoremarketplace, particularly transactions between pipelines and theirmarketing affiliates, thus it would thwart the industry’s momentumtowards an open, non-discriminatory capacity marketplace.”

But FERC said there was “good cause” to permit a limited waiverof the buy-sell ban for MMS’ RIK program in the offshore. WilliamsEnergy argued that a limited waiver for the MMS would constitute”preferential treatment,” but the Commission said the “benefitsthat will accrue from successful implementation of the RIK programcombined with the unique, open-character of the RIK transportationarrangements provide sufficient benefits that such a waiver is inthe public interest.”

The limited waiver for the Interior Department agency will lastfor one year, and will take effect Nov. 1. By Aug. 1, 2001, FERCordered MMS to report on the status of its plan to replace itsexisting auction system or obtain its own means for transportingRIK volumes.

Currently, the MMS routinely uses buy-sell arrangements totransport to onshore points the gas volumes that it receives fromoffshore producers in lieu of royalties. Such an arrangementinvolves an RIK contractor buying the gas from the MMS at one ormore receipt points in the OCS, transporting it on behalf of MMS toonshore delivery points, and selling it back to MMS once onshore.In exchange, the RIK contractor retains a portion of the gas ittransported for MMS.

Williams Energy contends this arrangement is no different thanthe banned buy-sell deals, where, for example, an LDC would buy gasin the production area from an end-user or someone designated bythe end-user, transport the gas using its own firm capacity andthen sell it back to the end-user at the retail delivery point.

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