121 FERC ¶ 61,170 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 284 

Docket No. RM08-1-000 

Promotion of a More Efficient Capacity Release Market 

(November 15, 2007) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: The Federal Energy Regulatory Commission is proposing revisions to its 

regulations governing interstate natural gas pipelines to reflect changes in the market for 

short-term transportation services on pipelines and to improve the efficiency of the 

Commission’s capacity release mechanism. The Commission is proposing to permit 

market based pricing for short-term capacity releases and to facilitate asset management 

arrangements by relaxing the Commission’s prohibition on tying and on its bidding 

requirements for certain capacity releases. 

DATES: Comments are due 45 days after publication in the FEDERAL REGISTER

ADDRESSES: You may submit comments, identified by docket number by any of the 

following methods: 

Agency Web Site: http://ferc.gov. Documents created electronically using word 

processing software should be filed in native applications or print-to-PDF format and not 

in a scanned format. 
Docket No. RM08-1-000 - 2 - 

MAIL/HAND DELIVERY: Commenters unable to file comments electronically must 

mail or hand deliver an original and 14 copies of their comments to: Federal Energy 

Regulatory Commission, Secretary of the Commission, 888 First Street, N.E., 

Washington, D.C. 20426. 

INSTRUCTIONS: For detailed instructions on submitting comments and additional 

information on the rulemaking process, see the Comment Procedures section of this 

document 

FOR FURTHER INFORMATION CONTACT: 

Robert McLean, Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, NE, Washington, DC 20426 

Robert.McLean@ferc.gov

(202) 502-8156 

David Maranville, Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, NE, Washington DC 20426 

David.Maranville@ferc.gov

(202) 502-6351 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Promotion of a More Efficient Capacity Release Market Docket No. RM08-1-000 

NOTICE OF PROPOSED RULEMAKING 

TABLE OF CONTENTS

 Paragraph Numbers

I. Background ................................................................................................................... 2.

A. The Capacity Release Program ................................................................................ 2.

B. Petitions and Industry Comments .......................................................................... 15.

II. Removal of Maximum Rate Ceiling for Short-Term Capacity Release..................... 23.

A. Policies Enhancing Competition............................................................................ 30.

B. Data on Capacity Release Transactions ................................................................. 33.

C. Available Pipeline Service Constrains Market Power Abuses............................... 40.

D. Monitoring.............................................................................................................. 42.

E. Requests to Expand Market-Based Rate Authority................................................ 43.

1. Removal of Price Ceiling for Long-Term Releases ........................................... 43.

2. Removal of Price Ceiling for Pipeline Short-Term Transactions ...................... 46.

III. Asset Management Arrangements............................................................................. 53.

A. Background ............................................................................................................ 53.

B. Discussion............................................................................................................... 63.

1. Tying .................................................................................................................. 75.

2. The Bidding Requirement .................................................................................. 83.

3. Definition of AMAs ........................................................................................... 91.

IV. State Mandated Retail Choice Programs .................................................................. 97.

V. Shipper Must-Have-Title Requirement .................................................................... 106.

VI. Regulatory Requirements........................................................................................ 111.

A. Information Collection Statement........................................................................ 111.

B. Environmental Analysis ....................................................................................... 114.

C. Regulatory Flexibility Act ................................................................................... 115.

D. Comment Procedures ........................................................................................... 117.

E. Document Availability ......................................................................................... 121.
Docket No. RM08-1-000 - 2 - 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Promotion of a More Efficient Capacity Release Market Docket No. RM08-1-000 

NOTICE OF PROPOSED RULEMAKING 

(November 15, 2007) 

1. In this Notice of Proposed Rulemaking, the Commission proposes to revise its Part 

284 regulations concerning the release of firm capacity by shippers on interstate natural 

gas pipelines. First, the Commission proposes to remove, on a permanent basis, the rate 

ceiling on capacity release transactions of one year or less. Second, the Commission 

proposes to modify its regulations to facilitate the use of asset management arrangements 

(AMAs), under which a capacity holder releases some or all of its pipeline capacity to an 

asset manager who agrees to supply the gas needs of the capacity holder. Specifically, 

the Commission proposes to exempt capacity releases made as part of AMAs from the 

prohibition on tying and from the bidding requirements of section 284.8. These 

proposals are designed to enhance competition in the secondary capacity release market 

and increase shipper options for how they obtain gas supplies. 

I. Background 

A. The Capacity Release Program

2. The Commission adopted its capacity release program as part of the restructuring 

of natural gas pipelines required by Order No. 636.1

 In Order No. 636, the Commission 

 1

 Pipeline Service Obligations and Revisions to Regulations Governing SelfImplementing Transportation and Regulation of Natural Gas Pipelines After Partial 

 (continued...) 
Docket No. RM08-1-000 - 3 - 

sought to foster two primary goals. The first goal was to ensure that all shippers have 

meaningful access to the pipeline transportation grid so that willing buyers and sellers 

can meet in a competitive, national market to transact the most efficient deals possible. 

The second goal was to ensure consumers have “access to an adequate supply of gas at a 

reasonable price.”2

 

3. To accomplish these goals, the Commission sought to maximize the availability of 

unbundled firm transportation service to all participants in the gas commodity market. 

The linchpin of Order No. 636 was the requirement that pipelines unbundle their 

transportation and storage services from their sales service, so that gas purchasers could 

obtain the same high quality firm transportation service whether they purchased from the 

pipeline or another gas seller. In order to create a transparent program for the 

reallocation of interstate pipeline capacity to complement the unbundled, open access 

environment created by Order No. 636, the Commission also adopted a comprehensive 

capacity release program to increase the availability of unbundled firm transportation 

 

Wellhead Decontrol, Order No. 636, 57 Fed. Reg. 13,267 (April 16, 1992), FERC Stats. 

and Regs., Regulations Preambles January 1991 - June 1996 ¶ 30,939 (April 8, 1992); 

order on reh’g, Order No. 636-A., 57 Fed. Reg. 36,128 (August 12, 1002), FERC Stats. 

and Regs., Regulations Preambles January 1991 - June 1996 ¶ 30,950 (August 3, 1992); 

order on reh’g, Order No. 636-B, 57 Fed. Reg. 57,911 (Dec. 8, 1992), 61 FERC ¶ 61,272 

(1992); notice of denial of reh’g, 62 FERC ¶ 61,007 (1993); aff’d in part, vacated and 

remanded in part, United Dist. Companies v. FERC, 88 F.3d 1105 (D.C. Cir. 1996); order 

on remand, Order No. 636-C, 78 FERC ¶ 61,186 (1997). 

2

 Order No. 636 at 30,393 (citations omitted). 
Docket No. RM08-1-000 - 4 - 

capacity by permitting firm shippers to release their capacity to others when they were 

not using it.3

4. The Commission reasoned that the capacity release program would promote 

efficient load management by the pipeline and its customers and would, therefore, result 

in the efficient use of firm pipeline capacity throughout the year. It further concluded 

that, “because more buyers will be able to reach more sellers through firm transportation 

capacity, capacity reallocation comports with the goal of improving nondiscriminatory, 

open access transportation to maximize the benefits of the decontrol of natural gas at the 

wellhead and in the field.”4

5. In Order No. 636, the Commission expressed concerns regarding its ability to 

ensure that firm shippers would reallocate their capacity in a non-discriminatory manner 

to those who placed the highest value on the capacity up to the maximum rate. The 

Commission noted that prior to Order No. 636, it authorized some pipelines to permit 

their shippers to “broker” their capacity to others. Under such capacity brokering, firm 

shippers were permitted to assign their capacity directly to a replacement shipper, without 

 3

 In brief, under the Commission’s capacity release program, a firm shipper 

(releasing shipper) sells its capacity by returning its capacity to the pipeline for 

reassignment to the buyer (replacement shipper). The pipeline contracts with, and 

receives payment from, the replacement shipper and then issues a credit to the releasing 

shipper. The replacement shipper may pay less than the pipeline’s maximum tariff rate, 

but not more. 18 CFR § 284.8(e) (2007). The results of all releases are posted by the 

pipeline on its Internet Web site and made available through standardized, downloadable 

files. 

4

 Order No. 636 at 30,418. 
Docket No. RM08-1-000 - 5 - 

any requirement that the brokering shipper post the availability of its capacity or allocate 

it to the highest bidder.5

 However, in Order No. 636, the Commission found “there 

[were] too many potential assignors of capacity and too many different programs for the 

Commission to oversee capacity brokering.”6

 

6. The Commission sought to ensure that the efficiencies of the secondary market 

were not frustrated by unduly discriminatory access to the market.7

 Therefore, the 

Commission replaced capacity brokering with the capacity release program designed to 

provide greater assurance that transfers of capacity from one shipper to another were 

transparent and not unduly discriminatory. This assurance took the form of several 

conditions that the Commission placed on the transfer of capacity under its new program. 

7. First, the Commission prohibited private transfers of capacity between shippers 

and, instead, required that all release transactions be conducted through the pipeline. 

Therefore, when a releasing shipper releases its capacity, the replacement shipper must 

enter into a contract directly with the pipeline, and the pipeline must post information 

regarding the contract, including any special conditions.8

 In order to enforce the 

 5

 See Algonquin Gas Transmission Corp., 59 FERC ¶ 61,032 (1992). 

6

 Order No. 636 at 30,416. 

7

 Order No. 636-A at 30,554. 

8

 Order No. 636 emphasized: 

The main difference between capacity brokering as it now 

exists and the new capacity release program is that under 

capacity brokering, the brokering customer could enter into 

 (continued...) 
Docket No. RM08-1-000 - 6 - 

prohibition on private transfers of capacity, the Commission required that a shipper must 

have title to any gas that it ships on the pipeline.9

 

8. Second, the Commission determined that the record of the proceeding that led to 

Order No. 636 did not reflect that the market for released capacity was competitive. The 

Commission reasoned that the extent of competition in the secondary market may not be 

sufficient to ensure that the rates for released capacity will be just and reasonable. 

Therefore, the Commission imposed a ceiling on the rate that the releasing shipper could 

charge for the released capacity.10 This ceiling was derived from the Commission’s 

estimate of the maximum rates necessary for the pipeline to recover its annual cost-of-

 

and execute its own deals without involving the pipeline. 

Under capacity releasing, all offers must be put on the 

pipeline’s electronic bulletin board and contracting is done 

directly with the pipeline. Order No. 636 at 30, 420 

(emphasis in original). 

9

 As the Commission subsequently explained in Order No. 637, “the capacity 

release rules were designed with [the shipper-must-have-title] policy as their foundation,” 

because, without this requirement, “capacity holders could simply transport gas over the 

pipeline for another entity.” Regulation of Short-Term Natural Gas Transportation 

Services and Regulation of Interstate Natural Gas Transportation Services, Order No. 

637, FERC Stats. & Regs. ¶ 31,091 at 31,300, clarified, Order No. 637-A, FERC Stats. & 

Regs. ¶ 31,099, reh’g denied, Order No. 637-B, 92 FERC ¶ 61,062 (2000), aff’d in part 

and remanded in part sub nom. Interstate Natural Gas Ass’n of America v. FERC, 285 

F.3d 18 (D.C. Cir. 2002), order on remand, 101 FERC ¶ 61,127 (2002), order on reh’g, 

106 FERC ¶ 61,088 (2004), aff’d sub nom. American Gas Ass’n v. FERC, 428 F.3d 255 

(D.C. Cir. 2005). See section V below for a further explanation of the shipper-musthave-title requirement. 

10 Order No. 636 at 30,418; Order No. 636-A at 30,560. 
Docket No. RM08-1-000 - 7 - 

service revenue requirement, which the Commission prorated over the period of each 

release. 11

9. Third, the Commission required that capacity offered for release at less than the 

maximum rate must be posted for bidding, and the pipeline must allocate the capacity “to 

the person offering the highest rate (not over the maximum rate).”12 The Commission 

permitted the releasing shipper to choose a pre-arranged replacement shipper who can 

retain the capacity by matching the highest bid rate. The bidding requirement, however, 

does not apply to releases of 31 days or less or to any release at the maximum rate. But 

all releases, whether or not subject to bidding, must be posted.13

10. Finally, the Commission prohibited tying the release of capacity to any extraneous 

conditions so that the releasing shippers could not attempt to add additional terms or 

conditions to the release of capacity. The Commission articulated the prohibition against 

the tying of capacity in Order No. 636-A, where it stated: 

 11 Order No. 637 at 31,270 -71. 

12 18 CFR § 284.8(e) (2007) provides in pertinent part that “[t]he pipeline must 

allocate released capacity to the person offering the highest rate (not over the maximum 

rate) and offering to meet any other terms or conditions of the release.” 

13 18 CFR §284.8(h)(1) provides that a release of capacity for less than 31 days, or 

for any term at the maximum rate, need not comply with certain notification and bidding 

requirements, but that such release may not exceed the maximum rate. Notice of the 

release “must be provided on the pipeline’s electronic bulletin board as soon as possible, 

but not later than forty-eight hours, after the release transaction commences.” 
Docket No. RM08-1-000 - 8 - 

The Commission reiterates that all terms and conditions for 

capacity release must be posted and non-discriminatory and 

must relate solely to the details of acquiring transportation on 

the interstate pipelines. Release of capacity cannot be tied to 

any other conditions. Moreover, the Commission will not 

tolerate deals undertaken to avoid the notice requirements of 

the regulations. Order No. 636-A at 30, 559 (emphasis in the 

original). 

11. Subsequent to the Commission’s adoption of its capacity release program in Order 

No. 636, the Commission conducted two experimental programs to provide more 

flexibility in the capacity release market. In 1996, the Commission sought to establish an 

experimental program inviting individual shipper and pipeline applications to remove 

price ceilings related to capacity release.14 The Commission recognized that significant 

benefits could be realized through removal of the price ceiling in a competitive secondary 

market. Removal of the ceiling permits more efficient capacity utilization by permitting 

prices to rise to market clearing levels and by permitting those who place the highest 

value on the capacity to obtain it.15

12. In 2000, in Order No. 637, the Commission conducted a broader experiment in 

which the Commission removed the rate ceiling for short-term (less than one year) 

capacity release transactions for a two-year period ending September 30, 2002. In 

contrast to the experiment that it conducted in 1996, in the Order No. 637 experiment the 

 14 Secondary Market Transactions on Interstate Natural Gas Pipelines, Proposed 

Experimental Pilot Program to Relax the Price Cap for Secondary Market Transactions,

61 Fed. Reg. 41401 (Aug. 8, 1996), 76 FERC ¶ 61,120, order on reh’g, 77 FERC 

¶ 61,183 (1996). 

15 77 FERC ¶61,183 (1996) at 61,699. 
Docket No. RM08-1-000 - 9 - 

Commission granted blanket authorization in order to permit all firm shippers on all open 

access pipelines to participate. The Commission stated that it undertook this experiment 

to improve shipper options and market efficiency during peak periods. The Commission 

reasoned that during peak periods, the maximum rate cap on capacity release transactions 

inhibits the creation of an effective transportation market by preventing capacity from 

going to those that value it the most and therefore the elimination of this rate ceiling 

would eliminate this inefficiency and enhance shipper options in the short-term 

marketplace.16

13. Upon an examination of pricing data on basis differentials between points,17 the 

Commission found that the price ceiling on capacity release transactions limited the 

 16 Order No. 637at 31,263. The Commission also explained why it was lifting the 

price cap on an experimental basis, instead of permanently, stating: 

While the removal of the price cap is justified based on the record in this 

rulemaking, the Commission recognizes that this is a significant regulatory 

change that should be subject to ongoing review by the Commission and 

the industry. No matter how good the data suggesting that a regulatory 

change should be made, there is no substitute for reviewing the actual 

results of a regulatory action. The two year waiver will provide an 

opportunity for such a review after sufficient information is obtained to 

validly assess the results. Due to the variation between years in winter 

temperatures, the waiver will provide the Commission and the industry 

with two winter’s worth of data with which to examine the effects of this 

policy change and determine whether changes or modifications may be 

needed prior to the expiration of the waiver. Order No. 637 at 31,279. 

17 Among other things, the data showed that the value of pipeline capacity, as 

shown by basis differentials, was generally less than the pipelines’ maximum 

interruptible transportation rates, except during the coldest days of the year, and capacity 

release prices also averaged somewhat less than pipelines’ maximum interruptible rates. 
Docket No. RM08-1-000 - 10 - 

capacity options of short-term shippers because firm capacity holders were able to avoid 

price ceilings on released capacity by substituting bundled sales transactions at market 

prices (where the market place value of transportation is an implicit component of the 

delivered price). As a consequence, the Commission determined that the price ceilings 

did not limit the prices paid by shippers in the short-term market as much as the ceilings 

limit transportation options for shippers. In short, the Commission found that the rate 

ceiling worked against the interests of short-term shippers, because with the rate ceilings 

in place, a shipper looking for short-term capacity on a peak day who was willing to offer 

a higher price in order to obtain it, could not legally do so; this reduced its options for 

procuring short-term transportation at the times that it needed it most.18 Throughout this 

experiment, the Commission retained the rate ceiling for firm and interruptible capacity 

available from the pipeline as well as long-term capacity release transactions. 

14. On April 5, 2002, the United States Court of Appeals for the District of Columbia 

Circuit, in Interstate Natural Gas Association of America v. FERC,

19 upheld the 

Commission's experimental price ceiling program for short-term capacity release 

transactions as set forth in Order No. 637.20 The court found that the Commission's “light 

 18 Order No. 637 at 31,282. 

19 285 F.3d 18 (D.C. Cir. 2002) (INGAA) 

20 Specifically, the court found that: “[g]iven the substantial showing that in this 

context competition has every reasonable prospect of preventing seriously monopolistic 

pricing, together with the non-cost advantages cited by the Commission and the 

experimental nature of this particular “lighthanded” regulation, we find the Commission's 

decision neither a violation of the NGA, nor arbitrary or capricious.” INGAA at 35. 
Docket No. RM08-1-000 - 11 - 

handed” approach to the regulation of capacity release prices was, given the safeguards 

that the Commission had imposed, consistent with the criteria set forth in Farmers Union

Cent. Exch. v. FERC.

21 The court found that the Commission made a substantial record 

for the proposition that market rates would not materially exceed the “zone of 

reasonableness” required by Farmers Union. The court also found that the Commission's 

inference of competition in the capacity release market was well founded, that the price 

spikes shown in the Commission’s data were consistent with competition and reflected 

scarcity of supply rather than monopoly power, and that outside of such price spikes, the 

rates were well below the estimated regulated price.22

B. Petitions and Industry Comments 

15. In August 2006, Pacific Gas and Electric Co. (PG&E) and Southwest Gas Corp. 

(Southwest) filed a petition requesting the Commission to amend sections 284.8(e) and 

(h) (1) of its regulations to remove the maximum rate cap on capacity release 

transactions.23 They stated that removing the price ceiling would improve the efficiency 

of the capacity market by giving releasing shippers a greater incentive to release their 

capacity during periods of constraint. They asserted that this would allow shippers who 

value the capacity the most to obtain it, provide more accurate price signals concerning 

 21 734 F.2d 1486 (D.C. Cir. 1984) (Farmers Union). 

22 Id. at 33. 

23 Docket No. RM06-21-000. PG&E subsequently clarified that it only seeks 

removal of the price cap for capacity releases of less than a year. 
Docket No. RM08-1-000 - 12 - 

the value of capacity, and provide greater potential cost mitigation to holders of longterm firm capacity. They also pointed out that the Commission now permits pipelines to 

negotiate rates with individual customers using basis differentials (i.e., the difference 

between natural gas commodity prices at two trading points, such as a supply basin and a 

city gate delivery point) and such negotiated rates may exceed the pipeline’s recourse 

maximum rate. PG&E and Southwest assert that releasing shippers must have greater 

pricing flexibility in order to compete with such negotiated rate deals offered by the 

pipelines. 

16. In October 2006, a group of large natural gas marketers24 (Marketer Petitioners) 

requested clarification of the operation of the Commission’s capacity release rules in the 

context of asset (or portfolio) management services.25 An AMA is an agreement under 

which a capacity holder releases, on a pre-arranged basis, all or some of its pipeline 

capacity, along with associated gas purchase contracts, to an asset or portfolio manager. 

The asset manager uses the capacity to satisfy the gas supply needs of the releasing 

shipper, and, when the capacity is not needed to serve the releasing shipper, the asset 

manager uses it to make gas sales or re-releases the capacity to third parties. 

 24 Coral Energy Resources, LP; ConocoPhillips Co.; Chevron USA, Inc.; 

Constellation Energy Commodities Group, Inc.; Tenaska Marketing Ventures; Merrill 

Lynch Commodities, Inc.; Nexen Marketing USA, Inc.; and UBS Energy LLC. 

25 The Marketer Petitioners originally filed their petition in Docket Nos. RM91-

11-009 and RM98-10-013. However, the Commission has re-docketed the petition in 

Docket No. RM07-4-000. 
Docket No. RM08-1-000 - 13 - 

17. The Marketer Petitioners state that Order No. 636 adopted the capacity release 

program as a means for shippers to transfer unneeded capacity to other entities who 

desired it. However, the Marketer Petitioners state, today many local distribution 

companies (LDCs) and others desire to release their capacity to a replacement shipper 

(asset manager) with greater market expertise, who will continue to use the capacity to 

provide gas supplies to the releasing shipper and will be better able to maximize the value 

of the released capacity when it is not needed to serve the releasing shipper. The 

Marketer Petitioners state that the Commission’s current capacity release rules may 

interfere with marketers providing efficient asset management services. They also assert 

that they are not seeking to remove the capacity release rate cap, but acknowledge that if 

the Commission took such action, it would eliminate some of their problems. 

18. On January 3, 2007, the Commission issued a request for comments on the current 

operation of the Commission's capacity release program and whether changes in any of 

its capacity release policies would improve the efficiency of the natural gas market.26 

The Commission’s request for comments was in part in response to the petitions 

discussed above. In addition to the issues raised by the petitions, the Commission also 

included in its request for comments a series of questions asking whether the 

Commission should lift the price ceiling, remove its capacity release bidding 

requirements, modify its prohibition on tying arrangements, and/or remove the shippermust-have-title requirement. 

 26 Pacific Gas & Electric Co., 118 FERC ¶ 61,005 (2007). 
Docket No. RM08-1-000 - 14 - 

19. In response to the price ceiling issues, commenting LDCs and pipelines both 

advocate lifting the ceiling, subject to different conditions. The LDCs favor lifting the 

ceiling only if it would still apply to the pipeline’s direct sales of capacity because, 

among other things, the pipelines have negotiated rate authority that is not available to 

releasing shippers.27 The pipelines advocate the removal of the cap only if the 

Commission removes the cap from the entire capacity marketplace; otherwise, they 

argue, it will create a bifurcated market and an uneven playing field. 

20. Producers and industrial customers generally oppose lifting the price ceiling on a 

permanent basis, arguing that the Commission must first develop new data to support 

such action and that it cannot rely on the results of the Order No. 637 experiment that 

terminated five years ago. Certain producers, however, would countenance a new 

experiment conducted by the Commission to gather new data related to the lifting of the 

price ceiling. Additionally, certain marketers and the American Public Gas Association 

(APGA) argue that the Commission cannot remove the ceiling unless there is a finding of 

lack of market power. 

 27 Under the negotiated rate program, a pipeline may charge rates different from 

those set forth in its open access tariff, as long as the shipper has recourse to taking 

service at the maximum tariff rate. See, Alternatives to Traditional Cost-of-Service 

Ratemaking for Natural Gas Pipelines, 74 FERC ¶ 61,076, reh’g denied, 75 FERC 

¶ 61,024 (1996), petitions for review denied sub nom., Burlington Resources Oil & Gas 

Co. v. FERC, 172 F.3d 918 (D.C. Cir. 1998). See also Natural Gas Pipelines Negotiated 

Rate Policies and Practices; Modification of Negotiated Rate Policy, 104 FERC ¶ 61,134 

(2003), order on reh’g and clarification, 114 FERC ¶ 61,042, dismissing reh’g and 

denying clarification, 114 FERC ¶ 61,304 (2006). 
Docket No. RM08-1-000 - 15 - 

21. In response to the request for comments on whether the Commission should 

consider adjusting the capacity release regulations to foster AMAs, numerous 

commenters responded that AMAs are beneficial to the market place and that the 

Commission should do something to facilitate their use. A vast majority of the 

commenters assert that AMAs provide substantial benefits, including more load 

responsive use of gas supply, greater liquidity, increased use of transportation capacity, 

cost effective procurement vehicles for LDCs and other end users, and the enhancement 

of competition. They state that AMAs also relieve LDCs from management of their daily 

gas supply and capacity needs. Others comment that AMAs benefit all parties involved: 

the releasing shipper reduces its costs through use of its capacity entitlements to facilitate 

third party sales; the third parties benefit from receiving a bundled product at an 

acceptable price; and the asset manager receives whatever profits are not passed on to the 

releasing shipper. 

22. In particular, the Marketer Petitioners and other commenters request that the 

Commission clarify that the different payments made between parties in an AMA do not 

constitute prohibited above maximum rate transactions or below maximum rate 

transactions that thus require posting and bidding. They also request that the 

Commission revisit its prohibition on tying to allow the packaging of gas supply 

contracts and pipeline or storage capacity, or multiple segments of capacity, as part of an 

AMA. Certain commenters also suggest changes to the Commission’s notice and bidding 

requirements for capacity releases. A number of LDCs and marketers request that the 
Docket No. RM08-1-000 - 16 - 

bidding requirement be eliminated altogether or that the regulations be revised to 

eliminate bidding for capacity releases made to implement an AMA. 

II. Removal of Maximum Rate Ceiling for Short-Term Capacity Release

23. Based upon its review of the petitions, comments and available data, the 

Commission proposes to lift the price ceiling for short-term capacity release transactions 

of one year or less. The Commission’s capacity release program has created a successful 

secondary market for capacity.28 Commenters from disparate segments of the natural gas 

industry agree that the capacity release program has been beneficial to the industry in 

creating a competitive secondary market for natural gas transportation. 29 

24. As the comments point out, shippers and potential shippers are looking for greater 

flexibility in the use of capacity. They seek to better integrate capacity with the 

underlying gas transactions, and are looking for more flexible methods of pricing 

 28 As the Commission observed in 2005, the “capacity release program together 

with the Commission’s policies on segmentation, and flexible point rights, has been 

successful in creating a robust secondary market where pipelines must compete on price.” 

Policy for Selective Discounting by Natural Gas Pipelines, 111 FERC ¶ 61,309 at P 39-

41)(2005), order on reh’g, 113 FERC ¶ 61,173 (2005). 

29 See e.g., PG&E and Southwest Gas Petition at 10 (“There is reason to believe 

that the secondary market is more competitive today than it was six years ago.”); Market 

Petitioners at 3 (“The Commission’s capacity release program has proven to be a critical 

initiative in opening U.S. natural gas markets to competition.”); AGA Comments at 3 

(“The Commission’s regulations have permitted the development of an open and active 

secondary market for pipeline capacity that has provided significant benefits to natural 

gas consumers.”); INGAA Comments at 12 (“The current market for short-term 

transportation capacity is large and highly competitive.”); and NGSA Comments at 2 

(“The basic structure of the Commission’s policies is still providing the benefits intended 

of transparent, nondiscriminatory, efficient allocation of capacity.”). 
Docket No. RM08-1-000 - 17 - 

capacity to better reflect the value of that capacity as revealed by the market price of gas 

at different trading points. Pipelines, for example, have been using their negotiated rate 

authority to sell their own capacity based on market-derived basis differentials reflective 

of the difference in gas prices between two points. The Commission recently clarified 

that pipelines may use such basis differential pricing as a part of negotiated rate 

transactions even when those prices exceed maximum tariff rates.30 Under the 

Commission’s regulations, releasing shippers also may enter into capacity release 

transactions based on basis differentials, but such releases cannot exceed the maximum 

rate.31 In their comments, releasing shippers request the ability to release at above the 

maximum rate so that they may offer potential buyers rates competitive with pipeline 

negotiated rate transactions. 32

25. As the Commission recognized in Order No. 637,33 the traditional cost-of-service 

price ceilings in pipeline tariffs, which are based on average yearly rates, are not well 

 30 Natural Gas Pipelines Negotiated Rate Policies and Practices; Modification of 

Negotiated Rate Policy, 104 FERC ¶ 61,134 (2003), order on reh’g and clarification, 

114 FERC ¶ 61,042, dismissing reh’g and denying clarification, 114 FERC ¶ 61,304 

(2006). 

31 See Standards for Business Practices for Interstate Natural Gas Pipelines and for 

Public Utilities, Order No. 698, 72 FR 38757 (July 16, 2007), FERC Stats. & Regs. 

¶ 31,251 (June 25, 2007). 

32 See, e.g., PG&E and Southwest Gas Petition at 10-11. 

33 Order No. 637 at 31,271-75. 
Docket No. RM08-1-000 - 18 - 

suited to the short-term capacity release market.34 Removal of the price ceiling will 

enable releasing shippers to offer competitively-priced alternatives to the pipelines’ 

negotiated rate offerings. Removal of the ceiling also permits more efficient utilization 

of capacity by permitting prices to rise to market clearing levels, thereby permitting those 

who place the highest value on the capacity to obtain it. Removal of the price ceiling also 

will provide potential customers with additional opportunities to acquire capacity. The 

price ceiling reduces the firm capacity holders’ incentive to release capacity during times 

of scarcity, because they cannot obtain the market value of the capacity. 

26. Further, the elimination of the price ceiling for short-term capacity releases will 

provide more accurate price signals concerning the market value of pipeline capacity. 

More accurate price signals will promote the efficient construction of new capacity by 

highlighting the location, frequency, and severity of transportation constraints. Correct 

capacity pricing information will also provide transparent market values that will better 

enable pipelines and their lenders to calculate the potential profitability and associated 

risk of additional construction designed to alleviate transportation constraints. 

27. Moreover, removing the price ceiling on short-term capacity releases should not 

harm, and may benefit, the “primary intended beneficiaries of the NGA – the ‘captive’ 

 34 While the Commission offered pipelines the opportunity to propose other types 

of rate designs, such as seasonal and term-differentiated rates, only a very few pipelines 

have sought to make such rate design changes, although virtually all pipelines have taken 

advantage of negotiated rate authority. 
Docket No. RM08-1-000 - 19 - 

shippers.”35 Those shippers typically have long-term firm contracts with the pipeline, 

and therefore will “continue to receive whatever benefits the rate ceilings generally 

provide,” while also “reaping the benefits of [the] new rule, in the form of higher 

payments for their releases of surplus capacity.”36 

28. As the court stated in INGAA, the Commission may depart from cost of service 

ratemaking upon: 

a showing that ... the goals and purposes of the statute will be 

accomplished ‘through the proposed changes.’ To satisfy that 

standard, we demanded that the resulting rates be expected to 

fall within a ‘zone of reasonableness, where [they] are neither 

less than compensatory nor excessive.’[citation omitted]. 

While the expected rates’ proximity to cost was a starting 

point for this inquiry into reasonableness, [citation omitted], 

we were quite explicit that ‘non-cost factors may legitimate a 

departure from a rigid cost-based approach,’ [citation 

omitted]. Finally, we said that FERC must retain some 

general oversight over the system, to see if competition in fact 

drives rates into the zone of reasonableness ‘or to check rates 

if it does not.’37

29. Many of the changes effected in Order Nos. 636 and 637 have enhanced 

competition between releasing shippers as well as between releasing shippers and the 

pipeline. As discussed below, the data obtained by the Commission both during the 

Order No. 637 experiment and more recently confirms the finding made in Order No. 637 

that short-term release prices are reflective of market prices as revealed by basis 

 35 INGAA at 33. 

36 Id.

37 Id. at 31. 
Docket No. RM08-1-000 - 20 - 

differentials, rather than reflecting the exercise of market power. Moreover, shippers 

purchasing capacity will be adequately protected because the pipeline’s firm and 

interruptible services will provide just and reasonable recourse rates limiting the ability of 

releasing shippers to exercise market power. Finally, the reporting requirements in Order 

No. 637 and the Commission’s implementation of the Energy Policy Act of 2005, 

specifically with respect to market manipulation, provide the Commission with enhanced 

ability to monitor the market and detect and deter abuses. 

A. Policies Enhancing Competition

30. In Order No. 636 and, as expanded in Order No. 637, the Commission instituted a 

number of policy revisions designed to enhance competition and improve efficiency 

across the pipeline grid. These revisions provide shippers with enhanced market 

mechanisms that will help ensure a more competitive market and mitigate the potential 

for the exercise of market power. 

31. The Commission required pipelines to permit releasing shippers to use flexible 

point rights and to fully segment their pipeline capacity. Flexible point rights enable 

shippers to use any points within their capacity path on a secondary basis, which enables 

shippers to compete effectively on release transactions with other shippers. Segmentation 

further enhances the ability to compete because it enables the releasing shipper to retain 

the portion of the pipeline capacity it needs while releasing the unneeded portion. 

Effective segmentation will make more capacity available and enhance competition. As 

the Commission explained in Order No. 637: 
Docket No. RM08-1-000 - 21 - 

The combination of flexible point rights and segmentation 

increases the alternatives available to shippers looking for 

capacity. In the example,38 a shipper in Atlanta looking for 

capacity has multiple choices. It can purchase available 

capacity from the pipeline. It can obtain capacity from a 

shipper with firm delivery rights at Atlanta or from any 

shipper with delivery point rights downstream of Atlanta. 

The ability to segment capacity enhances options further. 

The shipper in New York does not have to forgo deliveries of 

gas to New York in order to release capacity to the shipper 

seeking to deliver gas in Atlanta. The New York shipper can 

both sell capacity to the shipper in Atlanta and retain the right 

to inject gas downstream of Atlanta to serve its New York 

market.39

32. In addition to enhancing competition through expansion of flexible point rights 

and segmentation, the Commission in Order No. 637 also required pipelines to provide 

shippers with scheduling equal to that provided by the pipeline, so that replacement 

shippers can submit a nomination at the first available opportunity after consummation of 

the capacity release transaction. The change makes capacity release more competitive 

with pipeline services and increases competition between capacity releasers by enabling 

replacement shippers to schedule the use of capacity obtained through release 

transactions quickly rather than having to wait until the next day. 

 38 In the example used in Order No. 636, a shipper holding firm capacity from a 

primary receipt point in the Gulf of Mexico to primary delivery points in New York 

could release that capacity to a replacement shipper moving gas from the Gulf to Atlanta 

while the New York releasing shipper could inject gas downstream of Atlanta and use the 

remainder of the capacity to deliver the gas to New York. 

39 Order No. 637 at 31,300. 
Docket No. RM08-1-000 - 22 - 

B. Data on Capacity Release Transactions

33. The data accumulated by the Commission during the Order No. 637 experiment, 

as well as review of more recent data, show that capacity release prices reflect 

competitive conditions in the industry. On May 30, 2002, the Commission issued a 

notice of staff paper presenting data on capacity release transactions during the 

experimental period when the capacity release ceiling price was waived.40 The staff 

paper provided analysis of capacity release transactions on 34 pipelines during the 22-

month period from March 2000 to December 2001.41

34. In brief, the data gathered during the 33-month period show that without the price 

ceiling, prices exceeded the maximum rate only during short time periods and appear to 

be reflective of competitive conditions in the industry. The following table shows the 

distribution of above ceiling price releases among the pipelines studied. 

Table I 

Above Cap Releases by Pipeline 

Releases Awarded Between March 26, 2000 and December 31, 2001 

Pipeline 

Releases 

Above Max Rate 

(Number of 

Transactions) 

% of Total 

Releases 

Release 

Quantity Above 

Max Rate 

(MMBtu/day) 

% of Total 

Release 

Quantity 

Algonquin 1 0.1 18,453 0.2 

ANR Pipeline 1 0.1 30,000 0.2 

 40 On May 30, 2002, a Staff Paper was posted on the Commission's web site 

presenting, and analyzing data on capacity release transactions relating to the 

experimental period when the rate ceiling on short-term released capacity was waived. 

41 Many of these release transactions would have occurred prior to completion of 

the pipeline’s Order No. 637 compliance proceedings and the implementation of the 

changes to flexible point rights, segmentation and scheduling described above. 
Docket No. RM08-1-000 - 23 - 

CIG 19 6.5 109,984 4.4 

Dominion (CNGT) 21 1.0 65,789 0.7 

Columbia Gas 101 4.4 374,727 2.7 

Columbia Gulf · · · · 

East Tennessee · · · · 

El Paso 135 13.3 631,683 12.5 

Florida Gas 25 1.7 43,526 1.4 

Great Lakes 3 1.3 15,000 0.6 

Iroquois · · · · 

Kern River 2 3.9 55,000 2.5 

KMI (KNEnergy) 3 1.0 1,409 0.0 

Gulf South (Koch) · · · · 

Midwestern 1 0.6 50,000 2.3 

Mississippi River · · · · 

Mojave Pipeline 

Co. 

1 2.6 40,000 4.7 

Natural Gas 

Pipeline Co. 

16 3.2 270,489 2.3 

Reliant (Noram) · · · · 

Northern Border · · · · 

Northern Natural 12 1.6 23,273 0.5 

Northwest Pipeline 24 1.8 139,850 4.1 

Paiute Pipeline · · · · 

Panhandle Eastern 1 0.4 1,000 0.1 

Southern Natural 7 0.3 24,101 0.2 

Tennessee Gas 11 0.4 36,421 0.2 

TETCO 122 3.8 645,856 3.3 

Texas Gas 6 0.5 103,237 1.0 

Trailblazer 3 25.0 15,000 10.0 

Transco 183 3.3 1,540,885 4.1 

Transwestern 11 4.5 64,058 6.5 

Trunkline · · · · 

Williams 4 0.4 16,500 0.3 

Williston Basin · · · · 

 

Total 713 2.2 4,316,241 2.1 

35. These data show that during periods without capacity constraints, prices remained 

at or below the maximum rate. The staff paper does identify 713 releases above the 

ceiling price, representing an average total capacity release contract volume of 4.3 billion 
Docket No. RM08-1-000 - 24 - 

cubic feet (Bcf) per day. However, the staff paper reflects that these above-ceiling price 

releases represented only a small portion of the total releases on these pipelines, 

comprising approximately two percent of total transactions on the pipelines studied for 

the entire period, and two percent of gas volumes. Further, above ceiling releases 

accounted for no more than six or seven percent of transactions during any given month 

of the period. As one would expect, the percentages of releases occurring above the 

ceiling increased during peak periods. However, average release rates were higher by 

only one cent per MMBtu per day or five and one-half percent higher than they would 

have been with the price ceiling in place. Of the 34 pipelines in the study, 10 reported no 

releases above the ceiling price, and 20 pipelines reported fewer than 25 above-ceiling 

price releases. The data gathered during this 22-month period reflects the Commission’s 

expectations and affirms the Commission’s findings in the Order No. 637 proceeding. As 

the court stated in INGAA: 

the data represented in the graph [] do support the 

Commission's view that the capacity release market enjoys 

considerable competition. The brief spikes in moments of 

extreme exigency are completely consistent with competition, 

reflecting scarcity rather than monopoly. ... [citation omitted] 

A surge in the price of candles during a power outage is no 

evidence of monopoly in the candle market.42

36. Several commenters argue that the data gathered by the Commission is too stale to 

support the instant proposal to remove the price ceiling on short-term capacity releases. 

However, these commenters fail to produce any evidence to support specific concerns 

 42 INGAA at 32. 
Docket No. RM08-1-000 - 25 - 

existing today that did not exist during the experimental period. Moreover, the 

Commission has gathered additional current data and has replicated the evidence 

presented in Order No. 637. The current data shows that the conditions that existed at the 

time of Order No. 637 and during the past experimental period continue in today’s 

marketplace. 

37. Figure 1 illustrates the fluctuations in the market value of transportation service, as 

shown by the basis differentials between Louisiana and New York City. This graph 

compares the daily difference in gas prices between Louisiana and New York City to 

Transcontinental Gas Pipe Line Corporation’s maximum interruptible transportation rate, 

including fuel retainage, during the 12 months ending July 31, 2007. This graph shows 

that for most of the year, the value of transportation service, as indicated by the basis 

differentials, is less than the maximum transportation rate. However, during brief, peak 

demand periods, the value of transportation service is measurably greater than the 

maximum transportation rate. For example, on February 5, 2007, the basis differential 

between Louisiana and New York City was in excess of $27.00 per MMBtu, while the 

maximum tariff rate plus the cost of fuel was approximately $1.08 per MMBtu. 43

 43 In Order No. 637, the Commission presented similar data in figure 6 showing 

the implicit transportation value between South Louisiana and Chicago. Order No. 637 at 

31,274. 
Docket No. RM08-1-000 - 26 - 

Figure 1 -- Daily Gas Price Differentials Louisiana to New York (12 Months Ending July 

2007) 

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

8/1/06 8/31/06 9/30/06 10/30/06 11/29/06 12/29/06 1/28/07 2/27/07 3/29/07 4/28/07 5/28/07 6/27/07 7/27/07

Day

$/MMBtu

Basis Differential Total max rate

38. Figures 2 and 3 below reflect that a similar pattern of transportation value is 

evident in other areas of the country. Focusing on fluctuations in the market value of 

transportation service as shown by basis differentials between Louisiana and Chicago and 

between the Permian Basin and the California border, respectively, these figures show 

that for most of the year, the value of transportation service is less than the maximum 

transportation rate of Natural Gas Pipeline Company of America and El Paso Natural Gas 

Company, respectively. However, similar to figure 1, these figures also reflect that 

during brief, peak-demand periods, the value of transportation service is measurably 

greater than the maximum transportation rate. 
Docket No. RM08-1-000 - 27 - 

Figure 2 -- Gas Price Differentials NGPL La. To Chicago 

-$1.00

-$0.50

$0.00

$0.50

$1.00

$1.50

Dollars Per MMBtu

9/1/06 10/1/06 11/1/06 12/1/06 1/1/07 2/1/07 3/1/07 4/1/07 5/1/07 6/1/07 7/1/07 8/1/07

_ 

Basis Daily Transport

Peaks at 

$3.20/MMBtu
Docket No. RM08-1-000 - 28 - 

Figure 3 -- Gas Price Differentials for Permian Basin to California Border (SoCal Gas) 

-$0.40

-$0.20

$0.00

$0.20

$0.40

$0.60

$0.80

8/1/06 9/1/06 10/1/06 11/1/06 12/1/06 1/1/07 2/1/07 3/1/07 4/1/07 5/1/07 6/1/07 7/1/07

Dollars Per MMBtu

_

Basis Differential Daily Transport

39. The data in all three of the above figures reflect similar market conditions to the 

data that the Commission relied upon in lifting the price ceiling for short-term capacity 

releases in Order No. 637, with the market value of capacity generally below the 

pipeline's maximum rate except for relatively brief price spikes.44 In affirming the 

Commission's actions, the court in INGAA found that the data presented by the 

Commission constituted a substantial basis for the conclusion that a considerable amount 

of competition existed in the capacity release market. Further, the INGAA court 

 44 Order No. 637 at 31,273-75. 
Docket No. RM08-1-000 - 29 - 

concluded that the price spikes reflected in the data were consistent with competition and 

that such spikes reflected scarcity rather than monopoly.45

C. Available Pipeline Service Constrains Market Power Abuses

40. The Commission envisions that under the instant proposal the pipeline’s open 

access transportation maximum tariff rates (recourse rates) will serve as additional 

protection against possible abuses of market power by releasing shippers. The 

Commission requires pipelines to sell all their available capacity to shippers willing to 

pay the pipeline’s maximum recourse rate.46 Under their negotiated rate authority, 

pipelines are free to negotiate individualized rates with particular shippers that may be 

above the maximum tariff rate, subject to several conditions including the availability of 

the maximum tariff rate as a recourse rate for potential firm shippers.47 As the 

Commission explained in its negotiated rate policy statement, “[t]he availability of a 

recourse service would prevent pipelines from exercising market power by assuring that 

 45 INGAA at pp. 31- 32. 

46 Tennessee Gas Pipeline Co., 91 FERC ¶ 61,053 (2002), reh’g denied, 94 FERC 

¶ 61,097 (2001), petitions for review denied sub nom., Process Gas Consumers Group v. 

FERC, 292 F.3d 831, 837 (D.C. Cir. 2002). 

47 See, Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas 

Pipelines, 74 FERC ¶ 61,076, reh’g denied, 75 FERC ¶ 61,024 (1996), petitions for 

review denied sub nom., Burlington Resources Oil & Gas Co. v. FERC, 172 F.3d 918 

(D.C. Cir. 1998). See also Natural Gas Pipelines Negotiated Rate Policies and Practices; 

Modification of Negotiated Rate Policy, 104 FERC ¶ 61,134 (2003), order on reh’g and 

clarification, 114 FERC ¶ 61,042, dismissing reh’g and denying clarification, 114 FERC 

¶ 61,304 (2006). 
Docket No. RM08-1-000 - 30 - 

the customer can fall back to traditional cost-based service if the pipeline unilaterally 

demands excessive prices or withholds service.”48

41. The court in INGAA recognized the value of the pipeline’s recourse rate 

protecting against possible abuses of market power by releasing shippers stating that, 

[i]f holders of firm capacity do not use or sell all of their 

entitlement, the pipelines are required to sell the idle capacity 

as interruptible service to any taker at no more than the 

maximum rate – which is still applicable to the pipelines.49 

Removing the price ceiling for short-term capacity release transactions will enable 

releasing shippers to offer negotiated rate transactions similar to those offered by the 

pipelines. Moreover, the same pipeline open access service will protect against the 

possibility that a releasing shipper will attempt to exercise market power by withholding 

capacity. For example, should a releasing shipper attempt to charge a price above 

competitive levels, the potential purchaser could seek to negotiate a more acceptable rate 

with the pipeline. Even when the pipeline’s firm service is not available, a cost based 

interruptible rate is always available as an alternative when a releasing shipper attempts 

to withhold capacity. 

D. Monitoring

42. Order No. 637 improved the Commission’s and the industry’s ability to monitor 

capacity release transactions by requiring daily posting of these transactions on pipeline 

 48 Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas 

Pipelines, 74 FERC ¶ 61,076 at 61,240 (1996). 

49 INGAA at 32. 
Docket No. RM08-1-000 - 31 - 

web sites.50 This has increased the information available to buyers while at the same time 

making it easier for the Commission to identify situations in which shippers are abusing 

their market power.51 Further, the Commission will entertain complaints and respond to 

specific allegations of market power on a case-by-case basis if necessary. Furthermore, 

the Commission will direct staff to monitor the capacity release program and, using all 

available information , issue a report on the general performance of the capacity release 

program, within six months after two years of experience under the new rules. 

E. Requests to Expand Market-Based Rate Authority

1. Removal of Price Ceiling for Long-Term Releases

43. Several commenters request that the Commission remove the price ceiling on 

long-term capacity releases in addition to eliminating the price ceiling on short-term 

capacity releases. The Commission declines to make such an adjustment to its policies at 

this time for several reasons. As discussed above, by lifting the price ceiling for shortterm capacity releases, the Commission seeks to provide releasing shippers the flexibility 

to price their capacity in a manner consistent with the short-term price variations in 

transportation capacity market values. This action will ameliorate restrictions on the 

efficient allocation of capacity during the short-term periods when demand drives the 

value of transportation capacity above the current maximum rate. 

 50 18 CFR §284.8 (2007). 

51 Order No. 637 at 31,283; Order No. 637-A at 31,558. 
Docket No. RM08-1-000 - 32 - 

44. Limiting the removal of the release ceiling to short-term transactions will also 

serve as additional protection for potential replacement shippers. Such a limit will ensure 

that a replacement shipper cannot be locked into a transaction that is not protected by the 

maximum rate ceiling for more than one year. The expiration of such a short-term 

transaction would give the replacement shipper an opportunity to explore other options 

for satisfying its capacity needs. The replacement shipper could seek to negotiate a 

different price with its current releasing shipper or to obtain capacity from another 

releasing shipper or directly from the pipeline.52 Any transaction in which the parties 

want to continue the release past one year would have to be re-posted for bidding to 

ensure that the capacity is allocated to the highest valued use. This bidding process could 

provide an opportunity for re-determining the current market value of the capacity. 

45. Finally, because any such release of a year or less would have to be re-posted for 

bidding upon its expiration, the second release would be a new release separate from the 

first release, and thus such a second release of a year or less would also not be subject to 

the price ceiling. The Commission, however, requests comment on whether there should 

be any limit on the ability of releasing shippers to make multiple, consecutive short-term 

releases not subject to the price ceiling. 

 52 Releasing and replacement shippers cannot simply roll over a short-term release 

transaction in order to extend the release beyond one year. The Commission’s current 

regulations do not permit rollovers or extensions of capacity releases made at less than 

maximum rate or for less than 31 days without re-posting and bidding of that capacity. 

18 CFR Section 284.8(h)(2007). 
Docket No. RM08-1-000 - 33 - 

2. Removal of Price Ceiling for Pipeline Short-Term Transactions

46. Pipelines request that the Commission remove the price ceiling for primary 

pipeline capacity whether firm or interruptible. In sum, they argue that because the 

transportation of gas on pipelines has become sufficiently competitive, and because 

released capacity competes directly with primary short-term firm, interruptible 

transportation and storage services provided by interstate pipelines, the Commission 

should lift the rate ceiling on the entire short-term capacity market, not just on capacity 

releases. Further, they assert that because short-term firm and interruptible services 

compete directly with capacity release, the same market liquidity considerations that 

warrant lifting the ceiling on short-term releases support lifting the price ceiling in the 

primary market. The pipelines assert that the Commission should treat all holders of 

capacity equally, whether they are pipelines or releasing shippers. 

47. The pipelines also assert that removing the price ceiling only on short-term 

capacity releases would bifurcate the single marketplace for natural gas transportation 

services. They argue that if prices for some of the capacity in the marketplace remain 

subject to a price ceiling while the price ceiling is removed for other forms of capacity, 

then once the capped capacity has been fully utilized, prices for the uncapped capacity 

will be higher than they would have been without any price ceiling at all. They assert 

that in affirming the Commission’s experiment in removing the price ceiling for short-
Docket No. RM08-1-000 - 34 - 

term capacity releases, the court in INGAA recognized this economic cost and labeled it 

as a “cost of gradualism.”53

48. The Commission is not proposing to remove the price ceiling for primary pipeline 

capacity. Pipelines already have significant ability to use market based pricing. Unlike 

capacity release transactions, pipelines, as discussed above, currently can enter into 

negotiated rate transactions above the maximum rate. Pipelines also may seek market 

based rates by making a filing with the Commission establishing that they lack market 

power in the markets they serve.54 In addition, pipelines have the ability to propose 

seasonal rates for their systems, and therefore, recover more of their annual revenue 

requirement in peak seasons.55

49. Moreover, the Commission is concerned about removing rate ceilings for all 

pipeline transactions without the showings required above in order to protect against the 

possible exercise of market power. First, as discussed above, the price ceilings on 

pipeline capacity serve as an effective recourse rate for both pipeline negotiated rate 

transactions and capacity release transactions to prevent pipelines and releasing shippers 

 53 INGAA at 36. 

54 Alternatives to Traditional Cost-of-Service Ratemaking for Natural Gas 

Pipelines and Regulation of Negotiated Transportation Services of Natural Gas Pipelines, 

74 FERC ¶ 61,076 (1996). 

55 See Order No. 637 at 31,574 – 31, 581. 
Docket No. RM08-1-000 - 35 - 

from withholding capacity.56 Second, pipeline capacity is not identical to release 

capacity, because ownership of the pipeline capacity is likely to be more concentrated 

than capacity held by shippers for release. 57 Third, the Commission has found that it 

needs to regulate primary pipeline capacity to ensure that pipelines do not withhold 

capacity in the long-term by not constructing additional facilities. Because pipelines are 

in the best position to expand their own systems, cost-of-service rate ceilings help to 

ensure that pipelines have appropriate incentives to construct new facilities when needed. 

As the Commission found, “the only way a pipeline [can] create scarcity to force shippers 

to accept longer term contracts would be to refuse to build additional capacity when 

demand requires it.”58 As long as cost–of-service rate ceilings apply, however, “pipelines 

 56 In Order No. 890, the Commission retained price ceilings on transportation 

capacity for transmission owners to provide similar recourse rate protection. Preventing 

Undue Discrimination and Preference in Transmission Service, Order No. 890, 72 Fed. 

Reg. 12, 266 (March 15, 2007), 12366, FERC Stats. & Regs. ¶ 31,241 at P 808-09 

(2007).

57 As the INGAA court stated: 

In fact the Commission’s distinction is not unreasonable. 

Despite the absence of Herfindahl-Hirschman indices for non 

pipeline capacity holders, there seems every reason to 

suppose that their ownership of such capacity (in any given 

market) is not so concentrated as that of the pipelines 

themselves--the concentration that prompted Congress to 

impose rate regulation in the first place. 

INGAA at 23-24, citing, FPC v. Texaco, 417 U.S. 380, 398 n.8 (1974). 

58 Regulation of Short-Term Natural Gas Transportation Services, 101 FERC 

¶ 61,127, at P 12 (2002), aff’d, American Gas Ass'n v. FERC, 428 F.3d 255 (D.C. Cir. 

2005). See also Tennessee Gas Pipeline Co., 91 FERC ¶ 61,053 (2000), reh'g denied, 94 

FERC ¶ 61,097 (2001), aff’d, 292 F.3d 831 (D.C. Cir. 2002). 
Docket No. RM08-1-000 - 36 - 

[will] have a greater incentive to build new capacity to serve all the demand for their 

service, than to withhold capacity, since the only way the pipeline could increase current 

revenues and profits would be to invest in additional facilities to serve the increased 

demand.”59 Similarly, as long as pipeline short-term services are subject to a cost of 

service rate, the pipelines will not limit their construction of new capacity to meet 

demand in order to create scarcity that increases short-term prices. Indeed, releases at 

above the maximum rate will indicate that pipeline capacity is constrained and 

demonstrate that constructing additional capacity could be profitable. 

50. The pipelines also maintain that not removing the price ceiling for their capacity 

that competes with released capacity will bifurcate the market, resulting in possibly 

higher prices for the uncapped release market. They argue that where a portion of the 

supply of a good or service is subject to price controls, and demand exceeds (the pricecontrolled) supply at the fixed price, the market-clearing price in the uncontrolled 

segment will normally be higher than if no price controls were imposed on any of the 

supply. Purchasers placing a lower value on the good may nevertheless be able to 

purchase the price-controlled supply, thereby “using up” some of the aggregate supply 

that would otherwise be available to purchasers placing a higher value on the good. This 

alters the demand-supply ratio in the uncontrolled market, leading to a higher market 

clearing price in that market. 

 59 Id.
Docket No. RM08-1-000 - 37 - 

51. Because of the nature of the pipeline short-term capacity, we do not think that 

retaining the cost of service recourse rates for that capacity will create such pricing 

distortions. The premise of the pipelines’ argument is that continued price controls on 

the pipeline’s sales of short-term capacity will enable shippers placing a lower value on 

the capacity to “use up” some of the supply, thereby reducing the amount of capacity 

available for purchase by shippers placing a higher value on the capacity. This premise is 

incorrect. Short-term pipeline capacity is sold as interruptible transportation; therefore, 

firm capacity held by shippers will have scheduling priority over the pipeline’s 

interruptible capacity. In essence, pipeline interruptible service is derived from existing 

shippers’ decision not to use or release their firm capacity or from unsold pipeline 

capacity. Thus, even if a shipper placing a relatively low value on the capacity has a 

higher position on the pipeline’s queue for price-controlled interruptible transportation, it 

is not guaranteed that it can acquire (or “use up”) that capacity, leading to the supposed 

higher market clearing price. A firm shipper could always release its unused firm 

capacity to a replacement shipper who places a higher value on that capacity, thereby 

displacing the lower-value interruptible shipper.60 

 60 For example, assume the maximum rate is $1.00 and there are several shippers. 

One shipper is willing to pay up to $1.00 for capacity, while the other shippers are willing 

to pay much higher rates. Even if the shipper placing the lowest value on the capacity 

was the highest on the pipeline’ interruptible queue, it would not be able to acquire 

capacity at the $1.00 rate, because the other shippers could acquire released capacity by 

bidding above the maximum rate, thereby preventing the allocation of any interruptible 

service. 
Docket No. RM08-1-000 - 38 - 

52. Moreover, even in the context of firm short-term pipeline capacity, the scenario 

posited by the pipelines would not result in higher market clearing prices as long as 

arbitrage exists. Any shipper with a higher queue position that acquires the pipeline 

capacity at the lower capped rate would have an incentive to resell that capacity to 

another shipper who places a higher value on the capacity, thus ensuring that the market 

clearing price will reflect all relevant demand.61 

III. Asset Management Arrangements

A. Background

53. In general, AMAs are contractual relationships where a party agrees to manage 

gas supply and delivery arrangements, including transportation and storage capacity, for 

another party. Typically a shipper holding firm transportation and/or storage capacity on 

a pipeline or multiple pipelines temporarily releases all or a portion of that capacity along 

with associated gas production and gas purchase agreements to an asset manager 

(commonly a marketer). The asset manager uses that capacity to serve the gas supply 

requirements of the releasing shipper, and, when the capacity is not needed for that 

purpose, uses the capacity to make releases or bundled sales to third parties. 

 61 The pipelines rely on an example in Order No. 637-B that was cited by the court 

in INGAA for the proposition that capping one part of the market will result in overall 

higher prices. But that example was in a very different context, a situation in which a 

releasing shipper in a retail access state provided released capacity at a preferential rate to 

one set of marketers that were obligated to serve retail load, while selling at an uncapped 

rate to other marketers. In the first place, this situation did not involve interruptible 

capacity. Moreover, unlike the case with pipeline capacity, the favored marketer could 

not arbitrage its lower price because it was committed to serving retail load. 
Docket No. RM08-1-000 - 39 - 

54. While AMAs may be fashioned in a myriad of ways, there are several common 

components of these arrangements. First, the releasing shipper generally enters into a 

pre-arranged capacity release to an asset manager ostensibly at the maximum rate in 

order to avoid the bidding requirement. Second, the releasing shipper makes payments to 

the asset manager for the gas supply service performed by the asset manager for the 

releasing shipper. These payments may include the releasing shipper paying the asset 

manager: (1) the full cost of the released capacity (e.g., maximum rate) on the theory that 

the asset manager is using the released capacity to transport the releasing shipper’s gas 

supplies, (2) a management fee for transportation-related tasks (e.g. nominations, 

scheduling, storage injections, etc.) associated with the asset manager’s obligation to 

provide gas supplies to the releasing shipper, and (3) the asset manager’s cost of 

purchasing gas supplies for the releasing shipper. Third, the asset manager generally 

shares with the releasing shipper the value it is able to obtain from the releasing shipper’s 

capacity and supply contracts when those assets are not needed to supply the releasing 

shipper’s gas needs. The asset manager obtains such value either by re-releasing the 

capacity or by using it to make bundled sales to third parties. The asset manager may 

share that value by: (1) paying a fixed “optimization” fee to the releasing shipper, 

(2) sharing profits pursuant to an agreed-upon formula, or (3) making its gas sales to the 

releasing shipper at a lower price. 

55. In many instances the asset manager is chosen through a request for proposal 

(RFP) process. The RFP describes the details and terms and conditions of the proposed 

deal and seeks bids from service providers willing to provide the requested services. 
Docket No. RM08-1-000 - 40 - 

The methodology for choosing a winning bidder under an RFP often reflects many 

different factors, including price, creditworthiness, experience, reliability, and flexibility, 

and it is clear that price is not always the determining factor. Some RFP procedures are 

state mandated, and thus, in those situations, the LDC must get approval from the state 

for the final agreement. 

56. There are several ways in which the AMAs described above implicate the 

Commission’s current regulations. The first relates to the Commission’s prohibition 

against the “tying” of release capacity to any condition. As discussed above, the 

Commission instituted the prohibition against the tying of capacity in response to 

concerns that releasing shippers would attempt to add terms and conditions that would 

“tie the release of capacity to other compensation paid to the releasing shipper.”62 

A critical component of many AMAs is that the releasing shipper wants to be able to 

require the replacement shipper (asset manager) to satisfy the supply needs of the 

releasing shipper and take assignment of the releasing shipper’s gas supply agreements as 

a condition of obtaining the released capacity. 

57. AMAs also have implications for the rate cap and bidding regulations. As noted, 

in an AMA, the releasing shipper typically enters into a prearranged deal to release all of 

its pipeline capacity at the maximum rate to the marketer. It is reasonable to surmise that 

the main reason for the maximum release rate is so the release will qualify for the 

 62 Order No. 636-A at 30,559.
Docket No. RM08-1-000 - 41 - 

exemption from bidding of all maximum rate prearranged capacity releases.63 By 

avoiding the requirement to post the release for bidding, the releasing shipper can ensure 

that the capacity will go to the asset manager whom the releasing shipper has determined 

will provide the most effective asset management services. 

58. As described above, however, the releasing shipper may agree to rebate some or 

all of the demand charge to the marketer so that the marketer’s actual cost of obtaining 

the capacity is something less than the maximum rate.64 The Commission has held that 

 63 18 CFR §§284.8 (c) – (e). The Commission stated in Order No. 636-A that 

releasing shippers may include in their offers to release capacity reasonable and nondiscriminatory terms and conditions to accommodate individual release situations, 

including provisions for evaluating bids. All such terms and conditions applicable to the 

release must be posted on the pipeline's electronic bulletin board and must be objectively 

stated, applicable to all potential bidders, and non-discriminatory. For example, the terms 

and conditions could not favor one set of buyers, such as end users of an LDC, or grant 

price preferences or credits to certain buyers. The pipeline's tariff also must require that 

all terms and conditions included in offers to release capacity be objectively stated, 

applicable to all potential bidders, and non-discriminatory. Order No. 636-A at 30,557. 

64 Typically, the releasing shipper first releases its upstream assets, including 

pipeline capacity, storage, and gas supply, to the asset manager at cost. During the 

remaining term of the deal the releasing shipper purchases delivered gas at the agreed 

upon rate, which is usually the transportation and storage costs plus the market price of 

gas, plus fees and less whatever sharing of efficiency gains the asset manager is able to 

achieve. Sometimes fees and shared efficiency gains are reflected in some agreed upon 

reduction in the price of delivered gas. (The details are subject to negotiation and vary 

tremendously.) Because the mechanics of capacity releases often require the releasing 

shipper to release pipeline capacity at the maximum rate, rather than a discounted rate 

that the releasing shipper may actually pay to the pipeline, some other consideration must 

be worked into the transaction to balance the difference between the discounted rate and 

the maximum rate at which the release is set. 
Docket No. RM08-1-000 - 42 - 

such rebates render the release to be at less than the maximum rate, thereby requiring that 

the prearranged release be posted for bidding.65 

59. Moreover, as described above, some AMAs may require the asset manager 

(replacement shipper) to pay fees to the releasing shipper. The Commission has ruled 

that if the prearranged release is at the maximum rate, such additional payments violate 

the maximum rate ceiling on capacity releases.66 

60. Many commenters consider the applications of the Commission’s policies and 

regulations described above as obstacles to fashioning AMAs. They request clarification 

of, or revisions to, the current policies and regulations to allow releasing shippers to 

 65 In Louis Dreyfus Energy Services, L.P, 114 FERC ¶ 61,246 (2006), the 

Commission stated that: 

[t]he Commission has held that any consideration paid by the 

releasing shipper to a prearranged replacement shipper must 

be taken into account in determining whether the prearranged 

release is at the maximum rate. For instance, where the 

replacement shipper agrees to pay the pipeline the maximum 

rate for the released capacity, but the releasing shipper agrees 

to make a payment to the replacement shipper, the release 

must be treated as a release at less than the maximum rate to 

which the posting and bidding requirements of sections 

284.8(c) through (e) apply. Id. at P 15, citing, Pacific Gas 

Transmission Co. and Southern California Edison Co., 

82 FERC ¶ 61,227 (1998). 

66 See Consumers Energy Co., 82 FERC ¶ 61,284, order approving, 84 FERC 

¶ 61,240 (1998). See also Order No. 636-A at 30,561, where the Commission stated that 

capacity cannot be “resold at a rate including the pipeline marketing fee. The marketing 

fee is not part of the cost of transportation being released and the replacement shipper 

should not pay more than the maximum transportation rate for the capacity it is 

acquiring.” 
Docket No. RM08-1-000 - 43 - 

release a package of transportation or storage capacity and gas supply contracts to a 

willing party who will sell the gas to the releasing shipper and take assignment of the gas 

purchase contracts without running afoul of the prohibition against tying. Some 

commenters also request that the Commission clarify that packaging gas supply and 

pipeline capacity, or multiple segments of capacity, as part of an asset management 

arrangement, would not violate the Commission’s prohibition against tying. Others 

suggest that the tying prohibition should be eliminated altogether or that bundling of 

pipeline capacity and gas commodity should be allowed as long as there is a legitimate 

business purpose. 

61. A large number of commenters advocate elimination of the bidding requirement 

discussed above, particularly in the AMA context. These parties argue that there is no 

need for posting and bidding of capacity release transactions and state that it is unduly 

burdensome, makes it difficult to respond quickly to market opportunities to release, and 

no longer makes sense in terms of the arrangements being made in today’s AMAs. 

Others contend that the bidding requirement is redundant in instances where states 

require that asset managers be selected in an RFP process, which results in a chosen asset 

manager and one or more pre-arranged capacity release transactions. They argue that a 

further bidding requirement compromises the integrity and efficiency of the RFP process 

at the state level. Commenters also argue that there should be no bidding in the AMA 

context because those transactions are not suited to a single auction methodology. 

62. Below, we discuss the Commission’s proposal to revise the Commission’s 

capacity release policies to give releasing shippers greater flexibility to negotiate and 
Docket No. RM08-1-000 - 44 - 

implement efficient AMAs. The proposal has two main parts: (1) modifications to the 

current prohibition against tying releases to other conditions; and, (2) modifications to 

current bidding requirements. 

B. Discussion

63. The Commission proposes revisions to its prohibition on tying of release capacity 

and to section 284.8 of its regulations in order to facilitate the use of AMAs. 

Specifically, as discussed below, the Commission proposes two revisions to its capacity 

release policy and regulations to facilitate the use of AMAs. First, the Commission 

proposes to exempt AMAs from the prohibition against tying in order to permit a 

releasing shipper to require that the replacement shipper agree to supply the releasing 

shipper’s gas requirements and to require the replacement shipper to take assignment of 

the releasing shipper’s various gas supply arrangements, in addition to the released 

capacity. Second, the Commission proposes to eliminate the current bidding requirement 

for AMAs only, such that all releases to an asset manager, made in order to implement an 

AMA between the releasing shipper and the asset manager, are exempt from bidding. 

This would exempt from bidding all such releases, including those of less than one year 

for which we are proposing to remove the price ceiling and those of a year or more that 

are at rates below the continuing maximum rate for long-term capacity releases. Both of 

the exemptions above would also be limited to pre-arranged releases. 

64. Gas markets in general, and the secondary release market in particular, have 

undergone significant development and change since the inception of the Commission’s 

capacity release program. The Commission adopted the capacity release program in 
Docket No. RM08-1-000 - 45 - 

Order No. 636 “so that shippers can reallocate unneeded firm capacity” to those who do 

need it.67 The bidding requirement and the prohibition against tying the release to 

extraneous conditions were all part of the Commission’s fundamental goal of ensuring 

that such unneeded capacity would be reallocated to the person who values it the most. 

The Commission found that such “capacity reallocation will promote efficient load 

management by the pipeline and its customers and, therefore, efficient use of pipeline 

capacity on a firm basis throughout the year.”68

65. Thus, the Commission developed its capacity release policies and regulations 

based on the assumption that shippers would release their capacity only when they were 

not using the capacity to serve their own needs. For example, the Commission 

envisioned that LDCs with long-term contracts for firm transportation service up to the 

peak needs of their retail customers would, during off-peak periods, release that portion 

of capacity not needed to serve the lower off-peak demand of its retail customers. 

However, this basic assumption underlying the capacity release program does not hold 

true in the context of AMAs, a relatively recent development in the capacity release 

market that the Commission had not anticipated. 

66. In the AMA context, the releasing shipper is not releasing unneeded capacity, but 

capacity that is needed to serve its own supply function and will be so used during the 

term of the release. Releasing shippers in the AMA context are releasing capacity for the 

 67 Order No. 636 at 30,418. 

68 Id.
Docket No. RM08-1-000 - 46 - 

primary purpose of transferring the capacity to entities that they perceive have greater 

skill and expertise both in purchasing low cost gas supplies, and in maximizing the value 

of the capacity when it is not needed to meet the releasing shipper’s gas supply needs. In 

short, AMAs entail the releasing shipper transferring its capacity to another entity which 

will perform the functions the Commission expected releasing shippers would do for 

themselves – purchase their own gas supplies and release capacity or make bundled sales 

when the releasing shipper does not need the capacity to satisfy its own needs. The goal 

of the changes proposed by the Commission herein is to make the capacity release 

program more efficient by bringing it in line with the realities of today’s secondary gas 

markets. 

67. The Commission finds that AMAs provide significant benefits to many 

participants in the natural gas and electric marketplaces and to the secondary natural gas 

market itself. The American Gas Association (AGA), for example, notes that AMAs are 

an important mechanism used by LDCs to enhance their participation in the secondary 

market, and states that the growth and development of AMAs may represent the largest 

change since the Commission’s market review in the Order No. 637 proceeding.69 

AMAs allow LDCs to increase the utilization of facilities and lower gas costs. They also 

provide the needed flexibility to customize arrangements to meet unique customer 

needs.70 One important benefit of AMAs is that they allow for the maximization of the 

 69 See Comments of AGA at 21. 

70 See e.g., Comments of New Jersey Natural Gas Company at 9. 
Docket No. RM08-1-000 - 47 - 

value of capacity though the synergy of interstate capacity and natural gas as a 

commodity. As expressed by AGA: 

[AMAs] are widely utilized and provide considerable 

benefits, i.e. lower gas supply costs generated from offsets to 

pipeline capacity costs and gas supply arrangements more 

carefully tailored to the specific requirements of the market. 

These benefits are generated by assembling innovative 

arrangements in which the unbundled components – capacity, 

gas supply and other services – are combined in a manner 

such that the total value created by the arrangement exceeds 

the value of the individual parts.71 

68. AMAs are also beneficial because they provide a mechanism for capacity holders 

to use third party experts to manage their gas supply arrangements, an opportunity the 

LDCs did not have prior to Order No. 636. The time, expense and expertise involved 

with managing gas supply arrangements is considerable and thus many capacity holders, 

and LDCs in particular, have come to rely on more sophisticated marketers to take on 

their requirements.72 This results in benefits to the LDCs by allowing an entity with more 

expertise to manage their gas supply. The ability of LDCs to use AMAs as a means of 

relieving the burdens of administering their capacity or supply needs on a daily basis also 

works to the benefit of the entire market because that burden may at times result in LDCs 

not releasing unused capacity. 73 

 71 AGA Comments at 14. 

72 See, e.g., Comments of BG Energy Merchants, LLC at 3-4; APGA Comments 

at 2-3; Comments of BG Energy Merchants, LLC at 8; Comments of the Marketer 

Petitioners at 11; and Comments of FPL Energy LLC at 10.

73 See Comments of Marketer Petitioners at 11. 
Docket No. RM08-1-000 - 48 - 

69. AMAs also provide LDCs and their customers a mechanism for offsetting their 

upstream transportation costs. AMAs often allow an LDC to reduce reservation costs 

that it normally passes on to its customers. They also foster market efficiency by 

allowing the releasing shipper to reduce its costs to the extent that its capacity is used to 

facilitate a third party sale that also benefits that third party (who gets a bundled product 

at a price acceptable to it). 

70. LDCs are not the only entities that benefit from AMAs. Many other large gas 

purchasers, including electric generators and industrial users may desire to enter into such 

arrangements.74 For example, AMAs increase the ability of wholesale electric generators 

to provide customer benefits through superior management of fuel supply risk, allow 

generators to focus their attention on the electric market, and eliminate administrative 

burdens relating to multiple suppliers, overheads, capital requirements and the risks 

associated with marketing excess gas and pipeline imbalances.75 

71. More importantly, AMAs provide broad benefits to the marketplace in general. 

They bring diversity to the mix of capacity holders and customers that are served through 

the capacity release program, thus enhancing liquidity and diversity for natural gas 

 74 As noted by New Jersey Natural Gas Company (NJNG), “in addition to LDCs, 

there are many other types of large natural gas purchasers, such as electric generation 

facilities and large gas process industrial users, who face the same challenges with 

managing and optimizing their natural gas portfolios. These customers, whose core 

business lies outside the natural gas industry – are also likely consumers of third party 

portfolio management services.” NJNG Comments at 9, n. 9. 

75 EPSA Comments at 4-5. 
Docket No. RM08-1-000 - 49 - 

products and services. AMAs result in an overall increase in the use of interstate pipeline 

capacity, as well as facilitating the use of capacity by different types of customers in 

addition to LDCs.76 AMAs benefit the natural gas market by creating efficiencies as a 

result of more load responsive gas supply, and an increased utilization of transportation 

capacity. 

72. AMAs further bring benefits to consumers, mostly through reductions in consumer 

costs. AMAs provide in general for lower gas supply costs, resulting in ultimate savings 

for end use customers. The overall market benefits described above also inure to 

consumers. These benefits have been recognized by state commissions and the National 

Regulatory Research Institute. 77 

73. The Interstate Natural Gas Association of America (INGAA) agrees with the 

Marketer Petitioners and others that the Commission “should adapt its regulations to 

facilitate efficient and innovative marketing of capacity that have developed since Order 

No. 636,” provided the Commission remains guided by the “principle of full transparency 

of the terms of such capacity release arrangements.”78

 76 With regard to the advantages of diversity among shippers, the EPSA provides 

as an example the situation where an LDC looking to shed underutilized summer capacity 

may not have the capability to identify and contract with an electric generator that needs 

summer gas, whereas an asset manager would likely be much better equipped to handling 

the logistics and risks associated with such an off system sale by the LDC. 

77 See Comments of BG Energy Merchants, LLC at 8-9. 

78 INGAA Comments at 3. 
Docket No. RM08-1-000 - 50 - 

74. Based on this industry-wide support, the Commission believes that AMAs are in 

the public interest because they are beneficial to numerous market participants and the 

market in general. Accordingly, the Commission is proposing changes to its policies and 

regulations to facilitate the utilization and implementation of AMAs. 

1. Tying 

75. As noted above, in Order No. 636-A, the Commission established a prohibition 

against the tying of capacity release to conditions unrelated to acquiring transportation 

capacity, where it stated that: 

[t]he Commission reiterates that all terms and conditions for 

capacity release must be posted and non-discriminatory and 

must relate solely to the details of acquiring transportation on 

the interstate pipelines. Release of capacity cannot be tied to 

any other conditions. Moreover, the Commission will not 

tolerate deals undertaken to avoid the notice requirements of 

the regulations. Order No. 636-A at 30, 559. 

76. The Commission established the prohibition against tying in response to 

commenters’ concerns that releasing shippers would attempt to add terms and conditions 

that would “tie the release of capacity to other compensation paid to the releasing 

shipper.” The examples of illicit tying given by the commenters included an LDC 

requiring a potential replacement shipper to pay a certain price for local gas 

transportation service or a producer conditioning the release of capacity on the purchase 

of the producer’s gas.79 Since then, the Commission has granted several waivers of the 

 79 Order No. 636-A at 30,559. 
Docket No. RM08-1-000 - 51 - 

prohibition against tying, 80 but only where an entity sought the waiver to exit the natural 

gas transportation business.81 

77. Some commenting parties claim that the Commission’s recent orders waiving 

certain of its capacity release requirements in specific situations have increased 

uncertainty regarding the use of pre-arranged capacity release transactions to implement 

portfolio management services. They state that the language in these orders suggests that 

combining gas supply and pipeline capacity, or packaging multiple segments of capacity 

together, violates the prohibition against tying, absent a prior waiver of the Commission’s 

capacity release rules. 

78. The Commission recognizes that the broad language in Order No. 636-A setting 

forth the prohibition against tying, as well as the Commission’s subsequent rulings in 

individual cases, have raised a concern that the types of transactions proponents of AMAs 

want to implement may run afoul of the current policy. For example, capacity releases 

made for the purpose of implementing an AMA generally include a condition that the 

asset manager taking the release will supply the gas requirements of the releasing shipper. 

The release may also require the asset manager to take assignment of the releasing 

shipper’s gas supply contracts. However, such conditions could be considered to go 

 80 Tennessee Gas Pipeline Co., 113 FERC ¶ 61,106 (2005); Northwest Pipeline 

Corp. and Duke Energy Trading and Marketing, 109 FERC ¶ 61,044 (2004). 

81 See Louis Dreyfus Energy Services, L.P., 114 FERC ¶ 61,246 at 61,780 (2006), 

denying a waiver request. 
Docket No. RM08-1-000 - 52 - 

beyond “the details of acquiring transportation on the interstate pipelines,” because these 

conditions relate to the purchase and sale of the gas commodity. 

79. The Commission thus proposes a partial exemption of AMAs from the prohibition 

against tying in order to permit a releasing shipper in a pre-arranged release to require 

that the replacement shipper (1) agree to supply the releasing shipper’s gas requirements 

and (2) take assignment of the releasing shipper’s gas supply contracts, as well as 

released transportation capacity on one or more pipelines82 and storage capacity with the 

gas currently in storage. This exemption would allow firm shippers to pre-arrange 

releases of capacity to an asset manager (replacement shipper) along with upstream assets 

and gas purchase agreements in a bundled transaction where the capacity being released 

will be used to meet that party’s gas supply requirements. In addition, the proposed 

exemption would be limited to releases to an asset manager as part of establishing an 

AMA. Thus, the asset manager would be subject to the policy against tying when it 

makes subsequent re-releases to third parties during the term of the AMA. For purposes 

of this exemption and the proposed exemption from bidding discussed in the next section, 

a release transaction made in the context of implementing an AMA will be any prearranged capacity release that includes a condition that the releasing shipper may, on any 

day, call upon the replacement shipper to deliver a volume of gas equal to the daily 

 82 Commission policy already permits a releasing shipper to require a replacement 

shipper to take a release of aggregated capacity contracts on one or more pipelines, at 

least in some circumstances. See Order No. 636-A at 30,558 and n. 144. 
Docket No. RM08-1-000 - 53 - 

contract demand of the released capacity. This proposed definition is discussed further 

below. 

80. As discussed above, AMAs provide recognizable benefits to market participants 

and the marketplace overall in terms of more load-responsive use of gas supply, greater 

liquidity, increased utilization of transportation capacity and the overall efficiencies these 

arrangements bring to the marketplace. However, AMAs require that the releasing 

shipper be able to release both its capacity and its natural gas supply arrangements in a 

single package. The very purpose of the transaction is frustrated if the releasing shipper 

cannot combine the supply and capacity components of the deal. This tying is meant to 

ensure that the released capacity will continue to be used to support the releasing 

shipper’s acquisition of needed gas supplies. Based on the fact that AMAs provide 

benefits to the market, and that tying of capacity and supply is necessary to implement 

beneficial AMAs, it seems reasonable to allow the tying conditions discussed above in 

the AMA context in order to foster and facilitate the use and implementation of such 

arrangements. The partial exemption of AMAs proposed here will foster maximization 

of the interstate pipeline grid and enhance competition. 

81. While the Commission is proposing changes to its prohibition against tying in 

order to facilitate AMAs, the Commission is not adopting the proposals of some 

commenters that the restriction against tying be eliminated altogether.83 The 

 83 See e.g., Comments of Nstar at 7 (LDCs should be allowed to link capacity to 

whatever it wants to make an “effective” package); Comments of Direct Energy Services, 

 (continued...) 
Docket No. RM08-1-000 - 54 - 

Commission’s primary goal in establishing the capacity release program was to ensure 

that transfers of interstate pipeline capacity from one shipper to another are made in a not 

unduly discriminatory or preferential manner to the person placing the highest value on 

the pipeline capacity. If a shipper ties a release of unneeded capacity to matters that are 

unrelated to the details of acquiring that transportation capacity, the capacity may not go 

to the person who values it the most. The comments on this issue have not persuaded the 

Commission that, outside the AMA context, release conditions unrelated to the details of 

acquiring transportation service provide significant benefits to the natural gas market as a 

whole similar to those provided by AMAs. Therefore, when a shipper releases excess 

capacity that it does not need for the purpose for which it was originally acquired, the 

Commission’s original concerns underlying the prohibition against tying still apply. 

The Commission continues to believe that such excess capacity should be allocated to the 

shipper who values it the most, regardless of whether the releasing shipper has some 

private business reason why it might prefer the replacement shipper to use its unneeded 

capacity in some particular manner. Thus, based on the distinguishing and mitigating 

factors of AMAs as related to the reasons underlying the prohibition against tying, the 

Commission is only proposing to modify its prohibition against tying with respect to prearranged releases to implement AMAs, and not all capacity releases.

 

LLC at 6 (Commission should permit market participants to offer whatever bundled 

transactions they perceive to be in their best interests). 
Docket No. RM08-1-000 - 55 - 

82. However, the Commission requests comment on whether it should clarify its 

prohibition concerning tying in one additional circumstance, which is not related to the 

AMA context. Some commenters assert that the Commission should facilitate the release 

of storage capacity by permitting a releasing shipper to (1) require a replacement shipper 

to take assignment of any gas that remains in the released storage capacity at the time the 

release takes effect and/or (2) require a replacement shipper to return the storage capacity 

to the releasing shipper at the end of the release with a specified amount of gas in 

storage.84 For example, some LDC commenters point out that they rely on having a 

certain level of gas in storage by the end of the off-peak summer injection season in order 

to be able to serve their customers during the peak winter season.85 Therefore, while they 

may desire to release storage capacity at times during the off-peak summer period, gas 

must be injected into the storage capacity at a rate that will permit the LDC to have its 

required amount of gas in storage by the end of the injection period. If an LDC could 

require the replacement shipper to return the storage capacity with the required amount of 

gas in storage at the end of the release, it would be able to release more storage capacity 

than it can currently. The Commission requests comment on whether it should clarify its 

prohibition on tying to allow a releasing shipper to include conditions in a storage release 

concerning the sale and/or repurchase of gas in storage inventory. 

 84 See e.g. Comments of AGA at 24. 

85 Id. See also Comments of Keyspan at 36. 
Docket No. RM08-1-000 - 56 - 

2. The Bidding Requirement

83. The Commission’s current regulations require capacity release transactions to be 

posted for competitive bidding, unless the transactions are at the maximum rate or are for 

31 days or less.86 The Commission’s principal goal in requiring release transactions to be 

posted for bidding was to ensure that interstate transportation capacity would be allocated 

to those placing the highest value on obtaining that capacity and to prevent 

discriminatory allocation of interstate capacity at prices below the market price. The 

regulations also allow the releasing shipper to enter into a “pre-arranged” release with a 

designated replacement shipper before any posting for bidding.87 Prearranged releases 

are subject to the same bidding requirements as other releases; however, the prearranged 

replacement shipper will receive the capacity if it matches the highest bid submitted by 

any other bidder.88 In Order 636-A, the Commission rejected requests for a general 

exception to the bidding process for all pre-arranged deals.89

84. As noted, the Commission has received a number of comments suggesting that it 

eliminate the requirement for competitive bidding for capacity releases, especially in the 

AMA context. LDCs in particular comment that bidding is unduly burdensome and often 

results in time consuming procedures that have little practical benefit. They maintain that 

 86 18 CFR § 284.8(h). 

87 18 CFR § 284.8(b). 

88 18 CFR § 284.8(e). 

89 Order No. 636-A at 30, 555. 
Docket No. RM08-1-000 - 57 - 

bidding adds uncertainty to the process because it creates a risk for the replacement 

shipper that it will be unable to acquire capacity at the price it expected, and thus bidding 

can prevent parties from negotiating mutually beneficial transactions. Others comment 

that the delay caused by bidding makes it difficult to respond to market opportunities to 

release, and thus bidding no longer makes sense in today’s marketplace. Some claim that 

given the development of the natural gas market and the natural economic incentive to 

release at the highest price, the competitive bidding requirement is no longer necessary to 

achieve allocative efficiency. 

85. Commenters assert that the inefficiencies of the bidding process pose substantial 

obstacles to successful releases to implement AMAs. Bidding and matching often 

prevent timely closing of AMA transactions involving aggregation of capacity and supply 

or aggregation of capacity on multiple pipelines. This can result in preventing willing 

buyers and sellers attempting to reach agreements that are in their respective best 

interests from consummating deals. Commenters also note that AMAs usually involve 

complex contractual structures with a variety of valued pieces. These deals are often 

negotiated at arms’ length, and thus, requiring that they be made subject to bidding 

creates a risk that one aspect of the deal could be lost thus dooming the entire transaction. 

Because AMAs often involve extensive negotiations that lead to pre-arranged deals, the 

releasing party wants to be sure that the replacement shipper with whom it struck the deal 

is the one to get it, on the terms discussed during negotiations. Again, a bidding 

requirement puts that goal at risk. 
Docket No. RM08-1-000 - 58 - 

86. Proponents of eliminating bidding for AMAs also point out that when an entity 

wishes to use a asset manager in the interest of efficient use of gas supply and pipeline 

capacity assets, it is often required by state regulation to select the asset manager though 

a competitive RFP process. This process allows entities that are interested in managing 

the assets to submit a bid to do so, subject to the terms and conditions of the RFP. This 

process results in a chosen asset manager for one or more pre-arranged capacity releases. 

The commenters state that, if this same pre-arranged deal is subject to a further bidding 

process under the Commission’s regulations, then that second process is redundant, and 

compromises the integrity and efficiency of the state mandated competitive process that 

has already been completed. 

87. The Commission proposes to exempt pre-arranged releases to implement AMAs 

from the bidding requirements of section 284.8 of its regulations, such that pre-arranged 

releases made to asset managers in order to implement AMAs will not be subject to 

competitive bidding. 90 In light of its experience with capacity releases and the 

comments discussed above, the Commission has reconsidered the need for bidding in the 

AMA context. It appears that at least in the AMA context, the bidding requirement 

creates an unwarranted obstacle to the efficient management of pipeline capacity and 

supply assets. 

 90 For the purposes of this exemption the Commission will use the same definition 

as discussed in the tying section above, and explained more fully below, for identifying 

releases eligible for the exemption. 
Docket No. RM08-1-000 - 59 - 

88. All capacity releases made to implement AMAs are pre-arranged because it is 

important that a releasing shipper be able to use the asset manager of its choice to 

effectuate the components of the agreement. Unlike a normal capacity release where the 

releasing shipper is often shedding excess capacity and has no intention of an ongoing 

relationship with the replacement shipper, in the AMA context the identity of the 

replacement shipper is often critical because it will manage the releasing shipper’s 

portfolio for some time into the future. During the process of choosing an asset manager 

(often an RFP process), the releasing shipper considers a number of factors, including 

experience in managing capacity and gas sales, experience with a particular pipeline or 

area of the country, flexibility, creditworthiness and price. Because the asset manager 

will manage the releasing shipper’s gas supply operations on an ongoing basis, it is 

critical that the releasing shipper be able to release the capacity to its chosen asset 

manager. Requiring releases made in order to implement an AMA to be posted for 

bidding would thus interfere with the negotiation of beneficial AMAs, by potentially 

preventing the releasing shipper from releasing the capacity to its chosen asset manager. 

The Commission concludes that the benefits of facilitating AMAs outweigh any 

disadvantages in exempting such releases from bidding. 

89. While the Commission is proposing to exempt AMAs from the capacity release 

bidding requirements, AMAs will remain subject to all existing posting and reporting 

requirements. Pipelines will still be obligated to provide notice of the release pursuant to 

18 CFR § 284.8(d). The details of the release transaction must also be posted on the 

pipeline’s Internet web site under 18 CFR § 284.13(b), including any special terms and 
Docket No. RM08-1-000 - 60 - 

conditions applicable to the capacity release transaction. Moreover, the pipeline’s index 

of customers must include the name of any agent or asset manager managing a shipper’s 

transportation service and whether that agent or asset manager is an affiliate of the 

releasing shipper.91 Therefore, the Commission’s goals of disclosure and transparency 

will still be met. 

90. The Commission is not proposing at this time to modify its existing bidding 

requirements with respect to capacity releases made outside the AMA context (including 

releases the asset manager makes to third parties). As discussed, the Commission 

originally adopted the bidding requirements in order to ensure that releases are made in a 

non-discriminatory manner to the person placing the highest value on the capacity. 

The comments received by the Commission show broad support from all segments of the 

industry for modifying the bidding requirements in order to facilitate AMAs, which most 

commenters believe provide significant benefits to the natural gas market. However, the 

comments do not reflect a similar level of support for removing the bidding requirements 

altogether. In addition, there has been no showing that non-AMA prearranged releases 

provide benefits of the type we have found justify exempting AMA releases from 

bidding. Moreover, in the typical non-AMA pre-arranged release, price is the primary 

factor, and therefore the releasing shipper should generally be indifferent as to the 

identity of the replacement shipper so long as it receives the highest possible price for its 

release. Therefore, the Commission does not presently have information showing that, 

 91 18 CFR §§ 284.13(c)(2)(viii) and 284.13(c)(2)(ix). 
Docket No. RM08-1-000 - 61 - 

outside the AMA context, the existing bidding requirements hinder beneficial 

developments in the market or no longer serve their original purpose. 

3. Definition of AMAs 

91. In light of the proposed exemptions for AMAs discussed above, the Commission 

proposes to define a capacity release that is made as part of an AMA, and thus would 

qualify for the exemptions, to be: any pre-arranged release that contains a condition that 

the releasing shipper may, on any day, call upon the replacement shipper to deliver to the 

releasing shipper a volume of gas equal to the daily contract demand of the released 

transportation capacity.92 If the capacity release is a release of storage capacity, the asset 

manager’s delivery obligation need only equal the daily contract demand under the 

release for storage withdrawals. 

92. In developing a definition of AMA releases, the Commission seeks to balance two 

concerns. First, because the Commission is proposing that the exemptions from bidding 

and the prohibition against tying apply only in the context of AMAs, the Commission 

seeks a definition of the eligible releases that is limited to those releases that are made as 

part of a bona fide AMA. On the other hand, because the purpose of the proposed 

exemption is to facilitate AMAs, the Commission wants to avoid a definition that is so 

 92 It is the Commission’s intention that with regard to an AMA involving several 

separate releases to the asset manager, the delivery obligation would be applied 

separately to each release, not on cumulative basis to the whole AMA. For example if an 

LDC has capacity of 100,000 Dth on both upstream Pipeline A and downstream Pipeline 

B, the asset manager could comply with the proposed delivery condition by shipping the 

same 100,000 Dth over both Pipeline A and Pipeline B. 
Docket No. RM08-1-000 - 62 - 

narrow it would limit the types of AMAs which shippers and asset managers may 

negotiate and thus discourage efficient and innovative arrangements. 

93. The proposed definition focuses on what the Commission understands to be the 

fundamental purpose of AMAs: that the asset manager will use the released capacity to 

deliver gas supplies to the releasing shipper. The Commission believes that the 

requirement that the replacement shipper contractually commit itself to deliver to the 

releasing shipper, on any day, gas supplies equal to the daily contract demand of the 

released capacity should achieve the goal of exempting only AMA transactions from 

bidding and the prohibition against tying. Further, because all AMAs are done as 

pre-arranged deals, the proposed definition requires that the release be pre-arranged. 

The Commission requests comment on whether other conditions should be imposed on 

the eligible releases in order to ensure that the proposed exemptions are limited to AMAs. 

94. The Commission also believes that the proposed definition is sufficiently flexible 

that it should not interfere with the development of efficient and beneficial AMAs. The 

Commission recognizes that a shipper may desire to enter into an AMA for the purpose 

of obtaining only a portion of its required gas supplies. Or it may desire to enter into 

multiple AMAs with different asset managers. The proposed definition does not prevent 

such arrangements, since it contains no requirement that the releasing shipper obtain any 

particular percentage of its gas supplies pursuant to a particular AMA. The only 

requirement is that the asset manager commits itself to providing gas supplies up to the 

contract demand of the released contract. In addition, while the Commission expects that 

the released capacity will be used by the asset manager to ship gas supplies to the 
Docket No. RM08-1-000 - 63 - 

releasing shipper, the proposed definition does not require that the asset manager make 

all its deliveries to the releasing shipper over the released capacity. 

95. The Commission also is not proposing to limit the types of entities that can use 

AMAs and take advantage of the exemptions from bidding and the prohibition against 

tying, provided the criteria stated above are met. The Commission recognizes that 

electric generators and industrial end-users may make use of AMAs, and thus the 

exemption is not limited to LDCs utilizing AMAs. 

96. Finally, the Marketer Petitioners, in their original request for clarification, 

suggested that gas sellers may desire to use AMAs. However, as proposed, the definition 

of AMA does not include such arrangements, unless the replacement shipper has an 

obligation to re-sell to the releasing shipper equivalent quantities of natural gas. The 

Commission requests comments on whether it should expand the definition of AMAs 

eligible for the partial exemptions from the prohibition on tying and bidding to include 

gas marketing AMAs. Commenters should also address the question of how the 

Commission would distinguish a gas marketing AMA eligible for such an exemption 

from other release transactions. 

IV. State Mandated Retail Choice Programs 

97. Section 284.8(h)(1) of the Commission’s current capacity release regulations 

exempt prearranged releases of more than 31 days from bidding only if they are at the 

“maximum tariff rate applicable to the release.” States with retail open access gas 

programs (in which customers can buy gas from marketers rather than LDCs) have relied 

on this “safe harbor” exemption from bidding in structuring their programs. Specifically, 
Docket No. RM08-1-000 - 64 - 

a key component of most such programs is a provision for the LDC to make periodic 

releases, at the maximum rate, of its interstate pipeline capacity to the marketers 

participating in the program. The marketers then use the released capacity to transport 

the gas supplies that they sell to their retail customers. The exemption from bidding 

ensures that the LDC’s capacity is transferred only to the marketers participating in the 

state retail unbundling program and is not obtained by non-participating third parties. 

98. However, the Commission’s proposal to lift the price ceiling for releases of one 

year or less would have the effect of eliminating the bidding exemption for releases with 

terms of between 31 days and one year. That is because there would no longer be a 

maximum tariff rate applicable to such releases. Moreover, in this NOPR, the 

Commission is proposing an additional exemption from bidding only for releases made in 

the context of an AMA, and releases made as part of a retail unbundling program would 

not qualify for that exemption as it is currently proposed. As a result, absent some 

additional modification of the regulations concerning bidding, LDCs would have to post 

for bidding all releases of between 31 days and one year that are made as part of a state 

retail unbundling program. This would mean that the marketers participating in the 

program could only obtain the capacity if they matched any third party bid for the 

capacity. 

99. In Order Nos. 637-A and 637-B,93 the Commission denied the request by LDCs 

for a blanket exemption from bidding of all capacity releases made as part of state retail 

 93 Order No. 637-A at 31,569; Order No. 637-B, 92 FERC at 61,163. 
Docket No. RM08-1-000 - 65 - 

unbundling program. The Commission explained that, with the price ceiling removed, 

posting and bidding was necessary to protect against undue discrimination and ensure 

that the capacity is properly allocated to the shipper placing the greatest value on the 

capacity. The Commission nevertheless sought to accommodate the state retail access 

programs by providing that, if an LDC considered an exemption from bidding essential to 

further a state retail unbundling program, the LDC, together with its state regulatory 

agency, could request a waiver of the bidding regulation to allow the LDC to 

consummate pre-arranged capacity release deals at the maximum rate. However, the 

Commission stated that, if the LDC made such a request, it had to be prepared to have all 

its capacity release transactions, including those not made as part of the state retail 

unbundling program, subject to the maximum rate. 

100. On appeal of Order No. 637, the court in INGAA affirmed the Commission’s 

refusal to grant a blanket waiver of the bidding requirement for releases made as part of a 

state retail unbundling program. The court stated that, absent a showing that the retail 

unbundling programs are structured as largely to moot the Commission’s concern about 

discrimination, the Commission’s caution in granting a blanket waiver was reasonable. 

However, the court remanded the issue of the reasonableness of the condition that an 

LDC seeking a waiver must agree to subject all its releases to the maximum rate. The 

court stated that the requirement of state regulatory endorsement of the requested waiver 

seemed to give the Commission an avenue to verify the discrimination risk. The 

Commission did not address this issue in its order on remand, because the price ceiling 

had been re-imposed by the time of the remand order, thus rendering the issue moot. 
Docket No. RM08-1-000 - 66 - 

101. Several commenters in the instant proceeding again assert that, if the Commission 

removes the price ceiling on capacity release, the Commission should exempt all capacity 

releases to retail choice providers, that is, releases that are part of a state approved 

unbundling program, from the Commission’s bidding requirements. AGA and several 

individual member LDCs, for example, contend that the Commission recognized the 

value of retail choice programs to the development of a competitive natural gas market by 

providing a waiver procedure for such releases in Order No. 637-A. AGA argues that the 

Commission should now take the next step to allow an LDC to release capacity to a retail 

choice provider at the rate paid by the LDC without bidding and without the need to seek 

a waiver from the Commission, particularly if the Commission removes the price ceiling 

on capacity release.94 It reasons that releases to retail choice providers are not releases of 

excess capacity but of capacity needed to better serve their core markets or to comply 

with state requirements. The capacity is still being used for the purpose it was purchased 

and the intention is to allow the LDC’s retail customers to obtain the benefit of the LDCs 

firm pipeline entitlements and rates. AGA and other LDC commenters assert that 

requiring the LDCs to seek a waiver, as the Commission did in Order No. 637, adds a 

cumbersome layer of regulation. 

102. Because the state programs generally allow choice providers to step into the shoes 

of the LDC, commenters suggest that there is little chance for undue discrimination or 

exercise of market power. Moreover, in order for retail customers to benefit from the 

 94 See AGA Comments at 47. 
Docket No. RM08-1-000 - 67 - 

discounted or negotiated rates that the LDC may have been able to obtain from the 

pipeline, the LDC needs to be able to release it to the retail choice provider at that rate. 

According to the AGA, if a shipper obtained capacity in the primary market under 

conditions that do not support the pipeline’s maximum rate, the Commission’s goal of 

maximizing allocative efficiency is hampered by requiring LDC’s to sell at maximum 

rate to retail choice providers. 

103. The Commission proposes to address the issue of bidding on releases of a year or 

less by LDCs participating in a state retail unbundling program in a manner consistent 

with its actions in Order No. 637, that is, the Commission will permit such LDCs to 

request a waiver of the bidding regulation to allow the LDC to consummate short-term 

pre-arranged capacity release deals necessary to implement retail access at the maximum 

rate without bidding. Allowing this limited waiver of the bidding requirement for 

capacity releases made as part of a state unbundling program would enable retail access 

programs to continue to operate with the same exemption from bidding which they now 

have. Adopting the more cautious approach of case-by-case waivers, rather than granting 

a blanket waiver, is reasonable in light of the court’s finding that even with state 

unbundling programs the potential for discrimination still exists. 

104. As part of this proposal, however, the Commission will not require that an LDC 

seeking such a waiver agree to subject all of its short-term capacity releases to the 

applicable maximum rate. Any of an LDC’s capacity releases that are outside of its stateapproved retail choice program (and not made as part of an AMA as discussed in the 

previous section) will remain subject to bidding, which should provide adequate 
Docket No. RM08-1-000 - 68 - 

protection against discrimination. Further, it is reasonable to allow different treatment of 

releases made to an approved retail choice provider, because the capacity released for that 

purpose will continue to be used to serve the LDC’s customers for whom the capacity 

was originally contracted to serve. The Commission’s proposal here would also remedy 

the court’s concern in INGAA with the requirement that LDCs seeking waivers agree to 

subject all of their releases to the maximum rate. 

105. While the Commission is not proposing a blanket exemption from bidding for 

releases made by LDCs under state retail choice programs, the Commission requests 

comment on whether such releases should be treated as similar to releases made as part of 

an AMA and thus accorded the same full exemption from bidding. As with releases in 

the AMA context, LDC releases in the retail unbundling context are not releases of 

excess capacity to the open market but of capacity needed to serve the original customers 

for whom the LDC purchased the capacity. In the state unbundling context, the LDC 

must release and allocate capacity to a marketer that an end use customer may choose as 

its supplier. Thus, the capacity may be treated as still being used for the purpose it was 

purchased and as it was originally intended. However, the Commission seeks comment 

on whether such releases should be exempt from the bidding requirement. Should the 

Commission find that such releases provide similar benefits to the market as releases 

which are made as part of establishing an AMA? Do such releases entail a greater 

potential for undue discrimination than releases made as part of establishing an AMA? 
Docket No. RM08-1-000 - 69 - 

V. Shipper Must-Have-Title Requirement

106. The Commission will retain its shipper-must-have-title requirement. While the 

shipper-must-have-title requirement had its original roots in individual pipeline 

proceedings to implement Order No. 436 non-discriminatory open-access transportation, 

it has become the foundation for the Commission’s capacity release program.95 The 

purpose of the shipper-must-have-title requirement is to require that all transfers of 

capacity from one shipper to another take place through the capacity release program. 

Without the shipper-must-have-title requirement, “capacity holders could simply 

transport gas over the pipeline for another entity,”96 without complying with any of the 

requirements of the capacity release program. Thus, the capacity holder could charge the 

other entity any rate it desired for this service, and the capacity holder would not need to 

post the arrangement with the other entity for bidding to permit others to obtain the 

service at a higher rate. 

107. By contrast, under the shipper-must-have-title requirement, an assignment of 

capacity from one shipper to another may only be accomplished through the capacity 

release program. As discussed above, under the capacity release program, any release 

must comply with any applicable price ceiling and bidding requirements. In addition, the 

 95 As the Commission explained in Order No. 637-A, “the capacity release rules 

were designed with [the shipper-must-have-title] policy as their foundation,” because 

without this requirement “capacity holders could simply transport gas over the pipeline 

for another entity.” Order No. 637 at 31,300. 

96 Order No. 637, at 31,300. 
Docket No. RM08-1-000 - 70 - 

replacement shipper must contract with the pipeline, and section 284.8(d) of the 

Commission’s regulations requires the pipeline to post information regarding the 

replacement shipper’s contract, including any special terms and conditions. This 

provides transparency in the secondary market by enabling the Commission and all 

interested parties to monitor the capacity release market. 

108. The shipper-must-have-title requirement remains an important transparency tool 

given the proposals discussed above and the Commission’s decision to maintain the price 

ceiling for long-term capacity releases and to require bidding for capacity releases outside 

the context of AMAs. If the Commission were to eliminate the shipper-must-have-titlerequirement, shippers could easily evade the continuing requirements of the capacity 

release program in the manner discussed above. In essence, participation in the capacity 

release program would become voluntary and shippers desiring to make long-term 

releases at more than the maximum rate or to make prearranged non-maximum rate deals 

without bidding could simply make private arrangements outside of the capacity release 

program. 

109. The shipper-must-have-title requirement ensures transparency in the capacity 

market. Because replacement shippers must in all instances enter into contracts with the 

pipeline, the Commission can ensure transparency by requiring the pipelines to report the 

essential terms of the replacement shippers’ contracts. Without the rule, the Commission 

would have to develop separate reporting requirements for shippers who make private 

arrangements to ship gas for other entities. It is more efficient for the Commission and 
Docket No. RM08-1-000 - 71 - 

the market place to monitor and enforce the reporting requirements on the one hundred or 

so interstate pipelines rather than to enforce them on thousands of shippers. 

110. Finally, in the Commission’s opinion, the shipper-must-have-title requirement 

does not cause undue administrative burdens. Through the Commission’s adoption of the 

North American Energy Standards Board’s (NAESB) standards, all pipelines must 

provide a title transfer tracking service at no charge as part of their nomination process, 

so that any title transfers required by the shipper-must-have-title requirement are easily 

accomplished.97

VI. Regulatory Requirements

A. Information Collection Statement

111. Office of Management and Budget (OMB) regulations require OMB to approve 

certain information collection requirements imposed by agency rule.98 Comments are 

solicited on the Commission’s need for this information, whether the information will 

have practical utility, the accuracy of provided burden estimates, ways to enhance the 

quality, utility and clarity of the information to be collection, and any suggested methods 

for minimizing respondents’ burden, including the use of automated information 

techniques. 

Title: FERC-549B, Gas Pipeline Rates: Capacity Information 

 97 In this context the shipper-must-have-title requirement accomplishes on the gas 

side much the same purpose as “e-tagging” title transfers on the electric side. 

98 5 CFR §1320.11. 
Docket No. RM08-1-000 - 72 - 

Action: Proposed Information Collection 

OMB Control No.: 1902-0169B

112. The applicant shall not be penalized for failure to respond to this collection of 

information unless the collection of information displays a valid OMB control number. 

Respondents: Business or other for profit. 

Frequency of Responses: On Occasion. 

Necessity of Information: The proposed rule would permit market based pricing for 

short-term capacity releases and facilitate AMAs by relaxing the Commission’s 

prohibition on tying and its bidding requirements for certain capacity releases. As noted 

earlier in the NOPR, elimination of the price ceiling for short-term capacity releases will 

provide more accurate price signals concerning the market value of pipeline capacity. 

Further, implementation of AMAs will make the capacity release program more efficient 

as releasing shippers can transfer their capacity to entities with greater expertise both in 

purchasing low cost gas supplies, and in maximizing the value of the capacity when it is 

not needed to meet the releasing shipper’s gas supply needs. Such arrangements free up 

the time, expense and expertise involved with managing gas supply arrangements and 

serve as a means of relieving the burdens of administering their capacity or supply needs. 

113. Although the Commission is taking the steps to enhance competition in the 

secondary capacity release market and increase shipper options, it is not modifying its 

existing reporting requirements in section 284.13 of its regulations. The current burden 

estimates for FERC-549B will be unaffected by this rule and for that reason, the 
Docket No. RM08-1-000 - 73 - 

Commission will send a copy of this proposed rule to OMB for informational purposes 

only. 

B. Environmental Analysis

114. The Commission is required to prepare an Environmental Assessment or an 

Environmental Impact Statement for any action that may have a significant adverse effect 

on the human environment.99 The Commission has categorically excluded certain actions 

from these requirements as not having a significant effect on the human environment. 100 

The actions proposed to be taken here fall within categorical exclusions in the 

Commission’s regulations for rules that are corrective, clarifying or procedural, for 

information gathering, analysis, and dissemination, and for sales, exchange, and 

transportation of natural gas that requires no construction of facilities. 101 Therefore an 

environmental review is unnecessary and has not been prepared in this rulemaking. 

C. Regulatory Flexibility Act 

115. The Regulatory Flexibility Act of 1980 (RFA)102 generally requires a description 

and analysis of final rules that will have significant economic impact on a substantial 

number of small entities. The Commission is not required to make such an analysis if 

 99 Order No. 486, Regulations Implementing the National Environmental Policy 

Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulation Preambles 1986-

1990 ¶ 30,783 (1987). 

100 18 CFR § 380.4 (2007). 

101 See 18 CFR §§ 380.4(a)(2)(ii), 380.4(a)(5) and 380.4(a)(27)(2007).

102 5 U.S.C. §§ 601-612 
Docket No. RM08-1-000 - 74 - 

proposed regulations would not have such an effect.103 Under the industry standards used 

for purposes of the RFA, a natural gas pipeline company qualifies as “a small entity” if it 

has annual revenues of $6.5 million or less. Most companies regulated by the 

Commission do not fall within the RFA’s definition of a small entity.104 

116. The procedural modifications proposed herein should have no significant negative 

impact on those entities, be they large or small, subject to the Commission’s regulatory 

jurisdiction under the NGA. As previously noted in the NOPR, removal of the price 

ceiling will enable releasing shippers to offer competitively-priced alternatives to the 

pipelines’ negotiated rate offerings. A small entity that participates in the market will no 

longer be constrained by a ceiling price for its unused capacity. Further, removal of the 

ceiling also permits more efficient utilization of capacity by permitting prices to rise to 

market clearing levels, allowing those entities that place the highest value on the capacity 

to obtain it. Accordingly, the Commission certifies that this notice’s proposed 

regulations, if promulgated, will not have a significant economic impact on a substantial 

number of small entities. 

 103 5 U.S.C. § 605(b)(2000). 

104 5 U.S.C. § 601(3), citing to Section 3 of the Small Business Act, 15 U.S.C. 

§ 623 (2000). Section 3 defines a “small-business concern” as a business which is 

independently owned and operated and which is not dominant in its field of operation. 
Docket No. RM08-1-000 - 75 - 

D. Comment Procedures

117. The Commission invites interested persons to submit comments on the matters and 

issues proposed in this notice to be adopted, including any related matters or alternative 

proposals that commenters may wish to discuss. Comments are due 45 days from 

publication in the Federal Register. Comments must refer to Docket No. RM08-1-000, 

and must include the commenter's name, the organization they represent, if applicable, 

and their address in their comments. 

118. The Commission encourages comments to be filed electronically via the eFiling 

link on the Commission's web site at http://www.ferc.gov. The Commission accepts 

most standard word processing formats. Documents created electronically using word 

processing software should be filed in native applications or print-to-PDF format and not 

in a scanned format. Commenters filing electronically do not need to make a paper 

filing. 

119. Commenters that are not able to file comments electronically must send an 

original and 14 copies of their comments to: Federal Energy Regulatory Commission, 

Secretary of the Commission, 888 First Street, N.E., Washington, DC, 20426. 

120. All comments will be placed in the Commission's public files and may be viewed, 

printed, or downloaded remotely as described in the Document Availability section 

below. Commenters on this proposal are not required to serve copies of their comments 

on other commenters. 
Docket No. RM08-1-000 - 76 - 

E. Document Availability

121. In addition to publishing the full text of this document in the Federal Register, the 

Commission provides all interested persons an opportunity to view and/or print the 

contents of this document via the Internet through FERC's Home Page 

(http://www.ferc.gov) and in FERC's Public Reference Room during normal business 

hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A, 

Washington D.C. 20426. 

122. From FERC's Home Page on the Internet, this information is available on 

eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft 

Word format for viewing, printing, and/or downloading. To access this document in 

eLibrary, type the docket number excluding the last three digits of this document in the 

docket number field. 

123. User assistance is available for eLibrary and the FERC’s web site during normal 

business hours from FERC Online Support at 202-502-6652 (toll free at 1-866-208-3676) 

or email at ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-

8371, TTY (202)502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov. 
Docket No. RM08-1-000 - 77 - 

List of subjects in 18 CFR Part 284 

Incorporation by reference, Natural gas, Reporting and recordkeeping requirements. 

By direction of the Commission. 

( S E A L ) 

 Nathaniel J. Davis, Sr., 

 Deputy Secretary. 
Docket No. RM08-1-000 - 78 - 

 In consideration of the foregoing, the Commission proposes to amend part 284, 

Chapter I, Title 18, Code of Federal Regulations, to read as follows: 

PART 284 – CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS 

UNDER THE NATURAL GAS POLICY ACT OF 1978 AND RELATED 

AUTHORITIES

1. The authority citation for part 284 continues to read as follows: 

Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352; 43 U.S.C. 1331-

1356. 

2. Amend § 284.8 as follows: 

a. In paragraph (e), remove the words “(not over the maximum rate)”. 

b. Remove paragraph (i). 

c. Add two sentences to the end of paragraph (b) and revise paragraph (h) to read as 

follows. 

§ 284.8 Release of firm capacity on interstate pipelines.

* * * * * * 

(b) * * * The rate charged the replacement shipper for a release of capacity 

for more than one year may not exceed the applicable maximum rate. No rate limitation 

applies to the release of capacity for a period of one year or less. 

* * * * * 

(h)(1) A release of capacity by a firm shipper to a replacement shipper for any period of 

31 days or less, a release of capacity for more than one year at the maximum tariff rate, or 

a release to an asset manager as defined in (h)(3) of this section need not comply with the 
Docket No. RM08-1-000 - 79 - 

notification and bidding requirements of paragraphs (c) through (e) of this section. 

Notice of a firm release under this paragraph must be provided on the pipeline's 

electronic bulletin board as soon as possible, but not later than forty-eight hours, after the 

release transaction commences. 

(2) When a release of capacity for 31 days or less is exempt from bidding 

requirements under paragraph (h)(1) of this section, a firm shipper may not roll-over, 

extend, or in any way continue the release without complying with the requirements of 

paragraphs (c) through (e) of this section, and may not re-release to the same replacement 

shipper under this paragraph at less than the maximum tariff rate until 28 days after the 

first release period has ended. 

(3) A release to an asset manager exempt from bidding requirements under paragraph 

(h)(1) of this section is any prearranged capacity release that contains a condition that the 

releasing shipper may, on any day, call upon the replacement shipper to deliver to the 

releasing shipper a volume of gas equal to the daily contract demand of the released 

transportation capacity or the daily contract demand for storage withdrawals.