In a rare display of unanimity, major and independent gasproducers last week joined forces to ask FERC to stay the removalof the price caps on short-term capacity release transactions untilOrder 637 undergoes full rehearing at the Commission and in thecourts. The price caps are due to be lifted on March 26.
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 muchof 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 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.
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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