Pipeline shippers Friday expressed support for FERC’s proposal to remove the price cap on short-term releases of transportation capacity and provide a partial exemption for capacity released under asset management arrangements, but they want the agency to go even further.

“Duke Energy supports the Commission’s proposal to lift the price ceiling for capacity-release transactions of one year or less (short term), as far as it goes, but believes that the Commission should take the further step of lifting the price ceiling for all capacity-release transactions,” the energy company told the Federal Energy Regulatory Commission (FERC).

“The proposed one-year limitation is arbitrary in that the benefits that the Commission cites for lifting the price ceiling for short-term transactions…do not cease at the end of a single year,” Duke Energy noted. If the FERC should decide in the end to limit the removal of the price ceiling to transactions of one year or less, the company said it “opposes placing any limitation on the ability of releasing shippers to make multiple, consecutive short-term releases not subject to the price ceiling.”

Reliant Energy Inc. also called on FERC to lift price caps on long-term capacity releases. “Reliant believes that current pipeline capacity rules with respect to long-term capacity releases encourage shippers to hold long-term firm capacity [that] they are not using, rather than releasing the capacity to those who value it the most…Removal of the cap would encourage shippers who hold long-term firm capacity to release it when they are not using it so as to allow shippers that value the capacity the most to obtain it and to provide more accurate price signals concerning the value of the capacity and greater cost recovery to holders of long-term capacity who may wish to release capacity,” the Houston-based company said.

The comments were in response to FERC’s notice of proposed rulemaking (NOPR), which was issued in November, that seeks to permanently lift the maximum rate ceiling on secondary capacity releases of one year or less (see NGI, Nov. 19, 2007). The NOPR in its current form would not apply to long-term releases of more than one year or to primary sales of capacity by interstate natural gas pipelines.

The NOPR also seeks to encourage the use of asset management arrangements (AMAs) by exempting capacity releases in this area from bidding requirements and the prohibition against tying [RM08-1].

An AMA is a prearranged capacity release where a capacity holder releases some of its capacity to an asset manager who then agrees to supply the gas needs of the releasing shipper.

BG Energy Co. said it “strongly supports” the agency’s proposal with respect to AMAs, but it urged the agency to make “two critical modifications.” For one, “the AMA definition should be revised to permit the parties to determine by mutual agreement pursuant to the terms of each AMA as to when the releasing shipper may call upon the replacement shipper to deliver to the releasing shipper a volume of gas equal to the daily contract demand of the released AMA transportation capacity,” it noted.

Second, “natural gas producers should be eligible to enter into AMAs. Most, if not all, of the benefits of AMAs identified in the NOPR apply with equal weight to producers seeking to optimize natural gas transportation arrangements and to minimize costs,” BG Energy said.

Likewise the Independent Oil & Gas Association of West Virginia (IOGA), which represents Appalachian producers, said FERC’s definition of AMA in its proposed rule was “too narrow,” and it called for it to be expanded to include production-related AMAs. “The Commission’s NOPR focuses on downstream AMAs in which a local distribution company (LDC) or end-user retains a marketing company to manage its capacity and gas supply requirements,” but it fails to mention producer AMAs, the group said.

“Just as many LDCs seek experts in capacity management and marketing to manage and optimize interstate capacity and supply assets, producers — and particularly small producers — turn to market/asset managers to manage the producer’s firm capacity while contractually committing to purchase all of the producer’s gas. The Commission must consider the release of capacity in such transactions to be part of a bona fide AMA,” the IOGA noted.

“If an LDC can qualify for an exemption from bidding and the prohibition against tying because an asset manager must agree to serve the LDC’s requirements, a producer with similar requirements at the upstream end of the pipeline also must quality,” it told FERC. “The Commission must not extend undue preferences to LDCs or end-use capacity holders that are not equally available to similarly situated producer capacity holders.”

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