Producers and marketers denounced a recent request togenerically exclude Outer Continental Shelf (OCS) pipelines fromFERC’s ban on “buy-sell” transactions. They contend Williams EnergyMarketing & Trading’s bid for such a waiver is just anotherback-handed attempt to attain light-handed regulation in the OCS.

In its petition for a declaratory order, Williams last monthsaid it was seeking “guidance” from the full Commission on buy-selldeals particularly as they related to the Minerals ManagementService’s (MMS) royalty in-kind (RIK) projects.

The Natural Gas Supply Association (NGSA), which representsmajor gas producers, and Dynegy Marketing and Trade said they couldsupport a “narrow” waiver of the prohibition against buy-selltransactions, but only for MMS’ RIK pilots. They noted, however,that Williams’ request was much broader.

Williams “seeks a termination of the prohibition againstbuy-sell transaction for ‘all’ OCS gas supply transactions — abroad remedy when there is no proof offered, beyond vagueassertions in Williams’ [petition], to support the [claim] that thedevelopment of gas supply on the OCS may somehow be handicapped bythe inability to perform buy-sell exchanges using firm capacity,”Dynegy told FERC [GP00-1].

“It is not the viability of the [MMS’] RIK program that Williamsis concerned about; indeed, if it were, then a proposal to pull therug out from under the entire secondary capacity marketplace on alljurisdictional OCS pipelines is remedial overkill. Rather, Williamsis using the RIK program to leverage another argument forlight-handed regulation on the OCS,” the Houston-based marketercharged.

At most, the NGSA believes the Commission should allow for a”narrow exemption” to its buy-sell ban “either in the form of anexemption in this proceeding or through a limited, narrowly drawninterim rule.” The exemption “should be limited expressly totransportation arrangements performed directly in connection withan MMS RIK project and should encompass no other activities.”Moreover, the waiver “would be effective only until MMS has thefunding and staff required to purchase natural gas transportationservices on its own right.”

To grant Williams’ “sweeping” request “would eliminate markettransparency in the OCS, and [would] establish separate andinconsistent regulatory frameworks for OCS and non-OCStransactions,” the producer group said. Further, it would”eliminate a key element” of the Commission’s new offshore rule(Order 639), which requires the continued compliance of OCSjurisdictional pipelines with the requirements of the Natural GasAct.

The Commission barred buy-sell arrangements because it said theyprovided pipeline customers an opportunity to circumvent theobjectives of its capacity-release program established under Order636, which requires open bidding by shippers. One example of abuy-sell transaction would be an LDC buying gas in the productionarea from an end-user or someone designated by the end-usertransporting the gas using its own firm capacity and then sellingit back to the end-user at the retail delivery point.

Williams indicated that such buy-sell arrangements were beingused routinely in MMS’ RIK projects. The buy-sell issue arises whenan RIK contractor buys gas from the MMS at one or more receiptpoints in the OCS, transports (as well as processes or separates)the gas on behalf of MMS to onshore delivery points, and sells thegas back to MMS once onshore. In exchange, the RIK contractor orcontractors retain a portion of the gas, plus any processingrevenues. Dynegy currently is participating in the MMS program asan RIK contractor.

In its petition, Williams said it was interested inparticipating in MMS’ RIK projects as well, but it was concernedthat such transactions may violate the letter, although not thespirit, of the Commission’s buy-sell prohibition. It urged FERC torepeal the ban on buy-sell deals in the OCS, saying “there simplyis no need to impose such uniform capacity-release requirementsupon OCS transportation arrangements.”

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