Major and independent gas producers have joined forces to askFERC to stay the removal of the price caps on short-term capacityrelease transactions until Order 637 undergoes full rehearing atthe Commission and in the courts.

That particular decision — to lift the price ceiling onshort-term capacity release transportation deals (less than oneyear) for the next two and a half years — is the cornerstone ofFERC’s massive, ground-breaking Order 637, which was issued inFebruary. Purging Order 637 of the price-cap waiver would take alot of the wind out of the final gas order.

As an alternative, Indicated Shippers, which is an ad hoc groupof major gas producers, and the Independent Petroleum Associationof America (IPAA) proposed that the Commission proceed with theprice-cap removal, but require releasing shippers to refund allcapacity-release revenues collected above the lawful maximum ratesof interstate pipelines. Such refunds wouldn’t protectnon-shippers, such as producers, but it would “mitigate at leastsome of the harm caused” to replacement shippers, the producergroups said.

In Order 637, FERC for the first time “eliminates the applicablecost-based rate caps from a broad category of interstatetransportation transactions on a nationwide basis. [It] takes thissweeping action without any investigation to determine whetherspecific geographic markets are sufficiently competitive throughoutthe year to ensure that the market-based rates will be just andreasonable,” the producers said in their motion for a stay.

The lifting of the price caps “will result in the disruption ofthe natural gas market and [cause] irreparable harm to replacementshippers as well as producers, end-users and other consumers,” theyinsist.

Even the Commission has had misgivings that, once price caps arelifted, market-power abuses may abound in the short-term marketwithout offsetting mechanisms (such as mandatory auctions) inplace, producers noted. “Yet Order 637 fails to ensure that thismarket power is constrained. The courts have made it clear that theCommission may implement market-based rates for jurisdictionalservices only when the market for the service is sufficientlycompetitive…..”

The fact the price-cap removal is experimental in nature “doesnot insulate the Commission from its failure to comply with itsstatutory authority,” the gas producers said. Although the courtshave given it “greater deference” to implement limited-termexperiments, FERC “may not characterize a regulatory initiative asan experimental program simply to bootstrap an initiative thatotherwise violates [its] statutory authority.”

It is “unreasonable for FERC to allow the removal of rate capswithout mitigation, without protection against affiliate abuse, andwithout refund protection,” said Mike Linn, chairman of IPAA’sNatural Gas Committee, in a prepared statement. “They need to stopand take a hard look at what they have authorized beforeimplementation.”

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