123 FERC ¶ 61,286 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 284 

(Docket No. RM08-1-000; Order No. 712) 

Promotion of a More Efficient Capacity Release Market 

(Issued June 19, 2008) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Final Rule. 

SUMMARY: In this Final Rule the Federal Energy Regulatory Commission revises 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 program. The Commission permits market based pricing 

for short-term capacity releases and facilitates asset management arrangements by 

relaxing the Commission’s prohibition on tying and on its bidding requirements for 

certain capacity releases. The Commission further clarifies that its prohibition on tying 

does not apply to conditions associated with gas inventory held in storage for releases of 

firm storage capacity. Finally, the Commission waives its prohibition on tying and 

bidding requirements for capacity releases made as part of state-approved retail open 

access programs. 

EFFECTIVE DATE: This rule will become effective 30 days after publication in the 

FEDERAL REGISTER. 
Docket No. RM08-1-000 - 2 - 

FOR FURTHER INFORMATION CONTACT: 

William Murrell, Office of Energy Market Regulation 

Federal Energy Regulatory Commission 

888 First Street, NE, Washington, DC 20426 

William.Murrell@ferc.gov

(202) 502-8703 

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 

SUPPLEMENTARY INFORMATION:
123 FERC ¶ 61,286 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Promotion of a More Efficient Capacity Release 

 Market 

 Docket No. RM08-1-000 

ORDER NO. 712 

FINAL RULE 

TABLE OF CONTENTS

 Paragraph Numbers

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

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

B. The NOPR .............................................................................................................. 15.

C. Comments............................................................................................................... 19.

II. Overview of the Final Rule......................................................................................... 24.

III. Price Cap Issues......................................................................................................... 30.

A. Removal of Maximum Rate Ceiling for Short-Term Capacity Releases............... 30.

1. Maximum Rate Ceiling Interferes with Efficient Transactions ......................... 32.

2. Assurance of Just and Reasonable Rates............................................................ 38.

a. Market Conditions Ensure Just and Reasonable Rates .................................. 39.

b. Recourse Rate Protection ............................................................................... 48.

c. Short-Term Customers are Not Captive......................................................... 50.

d. Non-cost factors ............................................................................................. 51.

e. Oversight ........................................................................................................ 55.

3. Comments........................................................................................................... 57.

a. Lack of Competition in Certain Areas ........................................................... 58.

b. Benefits from Removing the Price Ceiling .................................................... 63.

c. Promotion of Construction ............................................................................. 67.

d. Changed Circumstances ................................................................................. 68.

e. Exemption from Bidding for Short-Term Releases at the Maximum Rate ... 72.

B. Removal of Price Ceiling for Long-Term Releases ............................................... 74.

C. Removal of Price Ceiling for Pipeline Short-Term Transactions .......................... 81.

1. Removal of the Price Ceiling is Not Justified .................................................... 82.

2. Response to Specific Comments ........................................................................ 87.

a. Evidentiary Record......................................................................................... 87.

b. Infrastructure Incentives................................................................................. 90.
Docket No. RM08-1-000 - 2 - 

c. Competitive Market Structure........................................................................ 92.

d. Differences in Flexibility between Pipeline Capacity and Released Capacity95.

e. Bifurcation of the Markets ........................................................................... 103.

IV. Asset Management Arrangements .......................................................................... 109.

A. Background .......................................................................................................... 110.

B. Discussion............................................................................................................. 118.

1. Tying................................................................................................................. 127.

2. Bidding ............................................................................................................ 132.

3. Definition of AMAs.......................................................................................... 138.

a. NOPR Proposal ............................................................................................ 138.

b. Comments..................................................................................................... 141.

c. Modified Definition...................................................................................... 144.

4. Supply AMAs ................................................................................................... 148.

5. AMA profit sharing arrangements ................................................................... 154.

6. Exemption from Buy/Sell Prohibition ............................................................. 163.

7. Other AMA Terms and Conditions .................................................................. 170.

8. Posting and Reporting Requirements ............................................................... 172.

9. Part 157 Capacity.............................................................................................. 178.

V. Tying of Storage Capacity and Inventory................................................................. 186.

VI. Liquefied Natural Gas ............................................................................................. 191.

VII. State Mandated Retail Unbundling........................................................................ 194.

VIII. Implementation Schedule ..................................................................................... 202.

IX. Information Collection Statement ........................................................................... 203.

X. Environmental Analysis ........................................................................................... 216.

XI. Regulatory Flexibility Act....................................................................................... 217.

XII. Document Availability........................................................................................... 220.

XIII. Effective Date and Congressional Notification.................................................... 223.
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Joseph T. Kelliher, Chairman; 

 Suedeen G. Kelly, Marc Spitzer, 

 Philip D. Moeller, and Jon Wellinghoff. 

Promotion of a More Efficient Capacity Release 

 Market 

 Docket No. RM08-1-000 

ORDER NO. 712 

FINAL RULE 

(Issued June 19, 2008) 

1. In this Final Rule, the Commission revises its Part 284 regulations concerning the 

release of firm capacity by shippers on interstate natural gas pipelines. First, as proposed 

in its Notice of Proposed Rulemaking,1

 the Commission will remove, on a permanent 

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

Commission will 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 either purchase from, or supply the gas needs 

of, the capacity holder. Specifically, the Commission will exempt capacity releases made 

as part of AMAs from the prohibition on tying and from the bidding requirements of 

section 284.8. Third, the Commission clarifies that its prohibition on tying does not 

 1

 Promotion of a More Efficient Capacity Release Market, 72 Fed. Reg. 65,916, 

FERC Stats. and Regs. ¶ 32,625 (November 26, 2007) 121 FERC ¶ 61,170 (2007) 

(NOPR). 
Docket No. RM08-1-000 - 2 - 

apply to conditions associated with gas inventory held in storage for releases of firm 

storage capacity. Fourth, the Commission will modify its regulations to facilitate retail 

open access programs by exempting capacity releases made under state-approved retail 

access programs from the from the prohibition on tying and from the bidding 

requirements of section 284.8. This Final Rule is designed to enhance competition in the 

secondary capacity release market and to increase shipper gas supply options. This rule 

will become effective 30 days after publication in the Federal Register. 

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. 636.2

 In Order No. 636, the Commission 

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. 

 2

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

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, 1992), 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). 
Docket No. RM08-1-000 - 3 - 

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

reasonable price.”3

 

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 

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

not using it.4

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

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

 3

 Order No. 636 at 30,393 (citations omitted). 

4

 In brief, under the Commission’s current 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. 
Docket No. RM08-1-000 - 4 - 

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.”5

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 

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

it to the highest bidder.6

 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.”7

 

 5

 Order No. 636 at 30,418. 

6

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

7

 Order No. 636 at 30,416. 
Docket No. RM08-1-000 - 5 - 

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

were not frustrated by unduly discriminatory access to the market.8

 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.9

 In order to enforce the 

 8

 Order No. 636-A at 30,554. 

9

 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 

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). 
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.10 

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.11 This ceiling was derived from the Commissionapproved monthly maximum tariff rates, necessary for the pipeline to recover its annual 

cost-of-service revenue requirement.12

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 

 10 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). 

11 Order No. 636-A at 30,560. 

12 Order No. 637 at 31,270-71. 
Docket No. RM08-1-000 - 7 - 

the person offering the highest rate (not over the maximum rate).”13 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.14

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: 

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 

 13 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.” 

14 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 - 

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.15 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.16

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 

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 

 15 Secondary Market Transactions on Interstate Natural Gas Pipelines, Proposed 

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

61 Fed. Reg. 41,401 (Aug. 8, 1996), 76 FERC ¶ 61,120, order on reh’g, 77 FERC 

¶ 61,183 (1996). 

16 77 FERC ¶ 61,183 at 61,699 (1996). 
Docket No. RM08-1-000 - 9 - 

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

marketplace.17

13. Upon an examination of pricing data on basis differentials between points,18 the 

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

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 

 17 Order No. 637 at 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 31,279-80. 

18 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 - 

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.19 Throughout this 

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

available from the pipeline as well as for 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,

20 upheld the 

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

transactions as set forth in Order No. 637.21 The court found that the Commission's “light 

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 

 19 Order No. 637 at 31,280-81. 

20 285 F.3d 18 (D.C. Cir. 2002) (INGAA). 

21 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 “light handed” 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 - 

Cent. Exch. v. FERC.

22 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.23 The Commission’s experiment in 

lifting the price ceiling for short term capacity releases ended on September 20, 2002.24 

B. The NOPR

15. On January 3, 2007, the Commission, in response to petitions from various gas 

industry participants concerning issues related to capacity releases,25 issued a request for 

 22 734 F.2d 1486 (D.C. Cir. 1984) (Farmers Union) (finding that a move from 

heavy-handed to light-handed regulation can be justified by a showing that under current 

circumstances, the goals and purposes of the Natural Gas Act (NGA) will be 

accomplished through substantially less regulatory oversight. 

23 Id. at 33. 

24 Regulation of Short-Term Natural Gas Transportation Services and Regulation 

of Interstate Natural Gas Transportation Services, FERC Stats. & Regs., Regulations 

Preambles July 1996 - December 2000, ¶ 31,091 (Feb. 9, 2000), order on rehearing, 

Order No. 637-A, FERC Stats. & Regs., Regulations Preambles July 1996 - December 

2000, ¶ 31,099 (May 19, 2000), order on rehearing, Order No. 637-B, 92 FERC ¶ 61,062 

(July 26, 2000), aff'd in part and remanded in part, Interstate Natural Gas Association of 

America v. FERC, 285 F.3d 18 (D.C. Cir. Apr. 5, 2002). 

25 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 releases. 

(continued...) 
Docket No. RM08-1-000 - 12 - 

comments on the operation of the 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 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. 

16. After review of the petitions, comments, responses to its questions, and available 

data, the Commission issued a Notice of Proposed Rulemaking (NOPR), proposing two 

major changes to its capacity release regulations and policies. First, the Commission 

proposed to lift the price ceiling for short-term capacity release transactions of one year 

or less. The Commission determined that the traditional cost-of-service price ceilings in 

pipeline tariffs, which are based on annual costs recovered over twelve equal monthly 

payments, are not well suited to the short-term capacity release market, because they do 

not reflect short-term variations in the market value of the capacity. Therefore, removing 

the price ceiling for short-term capacity releases would permit more efficient utilization 

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

who place the highest value on the capacity to obtain it. The Commission determined 

 

Subsequently, in October 2006, a group of large natural gas marketers (Marketer 

Petitioners) requested clarification of the operation of the Commission’s capacity release 

rules in the context of asset (or portfolio) management services. 

26 Pacific Gas & Electric Co., 118 FERC ¶ 61,005 (2007). 
Docket No. RM08-1-000 - 13 - 

that the data obtained by the Commission both during the Order No. 637 experiment and 

more recently indicated that short-term release prices reflect market value of the capacity 

as revealed by basis differentials, rather than the exercise of market power. Moreover, 

the Commission reasoned that shippers purchasing capacity would 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 Commission stated that reporting requirements in Order No. 637 and 

the Commission’s implementation of the Energy Policy Act of 2005, specifically with 

respect to market manipulation, give the Commission an enhanced ability to monitor the 

market and detect and deter abuses. The Commission did not propose to remove the 

price ceiling on either long-term capacity releases or the pipelines’ sale of their own 

primary capacity. 

17. Second, the Commission proposed to revise its capacity release policies to give 

releasing shippers greater flexibility to negotiate and implement AMAs, based on the 

Commission’s findings that AMAs provide significant benefits to participants in the 

natural gas and electric marketplaces.27 Recognizing that the linking of transportation 

capacity with gas supply arrangements would violate the Commission’s prohibition 

against “tying” released capacity to any extraneous conditions, the Commission proposed 

 27 NOPR at P 67-74. 
Docket No. RM08-1-000 - 14 - 

to exempt pre-arranged capacity release transactions that met certain criteria28 from the 

prohibition against tying.29 This proposal would permit a releasing shipper in a prearranged release to require that the replacement shipper agree to supply the releasing 

shipper’s gas requirements and take assignment of the releasing shipper’s gas supply 

contracts, as well as released transportation capacity on one or more pipelines and storage 

capacity with the gas currently in storage.30 

18. The Commission’s second proposal to facilitate AMAs was to exempt prearranged releases to implement AMAs from competitive bidding.31 The Commission 

stated that, 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 

 28 The Commission’s definition of AMA as proposed in the NOPR is discussed in 

detail below. 

29 NOPR at P 75-82. 

30 In addition, the releasing shipper could require that, upon expiration of the 

AMA, the replacement shipper must return storage capacity included in the release with 

an appropriate level of inventory, e.g., to promise to replenish storage inventories to a 

mutually agreed upon level. 

31 See NOPR at P 83-90. Section 284.8 of the Commission’s regulations require 

capacity release transactions to be posted for competitive bidding unless the transactions 

are at the maximum tariff rate or are for a term of 31 days or less. 
Docket No. RM08-1-000 - 15 - 

chosen asset manager. The Commission concluded that in the AMA context the bidding 

requirement creates an unwarranted obstacle to the efficient management of pipeline 

capacity and supply assets. The Commission emphasized that AMAs would remain 

subject to all existing posting and reporting requirements.32

C. Comments

19. Over 60 entities from all segments of the natural gas industry filed comments on 

the NOPR. The vast majority of those who filed comments regarding the Commission’s 

proposal to permanently remove the price cap for short-term capacity releases of one year 

or less support the proposal, generally agreeing with the Commission’s reasoning in 

support of removing the cap. Many of the local distribution companies (LDC), 

marketers, producers, and end-users who support lifting the price cap on short-term 

capacity releases also support retaining the price cap on long-term capacity releases33

and/or primary pipeline capacity.34 These parties generally view retention of these price 

 32 While the NOPR originally required that any comments were due January 10, 

2008, a number of entities filed for an extension of that deadline until February 8, 2008. 

On January 14, the Commission granted an extension of time for filing comments until 

January 25, 2008. 

33 Those commenters include Direct Energy Services LLC (Direct Energy), New 

Jersey Natural Gas Company (NJNG), Oklahoma Independent Petroleum Association 

(OIPA), Reliant Energy Inc. (Reliant), Statoil Natural Gas, LLC (Statoil), and 

Weyerhaeuser Company (Weyerhaeuser). 

34 Such commenters include Edison Electric Institute (EEI), NJNG, NJR Energy 

Services Company (NJR), Nstar Gas Company (Nstar), OIPA, Piedmont Natural Gas 

Company, Inc. (Piedmont), Statoil, Weyerhaeuser, and the Wisconsin Distributor Group 

(continued...) 
Docket No. RM08-1-000 - 16 - 

caps as providing valuable safeguards in preventing the exercise of market power in the 

uncapped short-term capacity release market. 

20. Two commenters oppose the Commission’s proposal to lift the price cap for the 

short-term capacity release market, arguing that the Commission has not supported its 

proposed rule and that the proposed rule would fail a cost-benefit test.35 Other 

commenters express concern over the potential for capacity owners to exercise market 

power under the proposed rule.36 For example, some end-users of gas express concerns 

about the concentration of capacity ownership on lateral pipelines and therefore argue 

that the Commission should either not remove the price cap for laterals or do so on a 

case-by-case basis.37 Other parties generally urge the Commission to carefully monitor 

markets to ensure that they are functioning properly. Some suggest a final test period 

 

(WDG). American Gas Association (AGA), American Public Gas Association (APGA), 

and Independent Petroleum Producers of America (IPAA) oppose lifting the price cap for 

primary capacity, arguing that doing so would undercut a major premise for lifting the 

price cap in the short-term secondary market, namely, that the availability of recourse 

rates from the pipeline will constrain the exercise of market power in the secondary 

market. 

35 Tenaska Marketing Ventures (Tenaska) and National Energy Marketers 

Association (NEM). 

36 See Comments of NEM. 

37Weyerhaeuser, Northwest Industrial Gas Users (NWIGU), and Process Gas 

Consumers (PGC). 
Docket No. RM08-1-000 - 17 - 

before permanently removing the cap, periodic reassessments of the uncapped market, or 

a process to revisit the determination if the market becomes dysfunctional.38 

21. In general, commenters also overwhelmingly supported the Commission’s efforts 

to facilitate the development of AMAs.39 Those commenters agree with the 

Commission’s assessment that AMAs provide value and benefits to market participants 

and to natural gas markets overall. Virtually all who commented support the steps 

proposed by the Commission to facilitate AMAs, though many of those that support the 

Commission’s proposal regarding AMAs request that the Commission modify or clarify 

 38 Direct Energy, OIPA, Honeywell International, Inc. (Honeywell), Arizona 

Public Service Company (APS) (arguing that the market currently served by El Paso 

Natural Gas Pipeline east of California is not competitive). Commerce Energy Group, 

Inc. (Commerce Energy) suggests including a contingency for replacing the price cap in 

“exceptional capacity situations.” 

39 See e.g., Comments of the AGA at 1-2, Comments of APGA at 2-4; Comments 

of Atmos Energy Corporation (Atmos) at 2-4, Comments of BG Energy Merchants 

(BGEM) at 1-2, Comments of BP Energy Company (BP) at 2, Comments of Direct 

Energy at 3-4, Comments of Duke Energy Corporation (Duke Energy) at 3, Comments of 

the EEI at 6, Comments of the Electric Power Supply Association (EPSA) at 2, 

Comments of Florida Cities at 2, Comments of the Interstate Natural Gas Association of 

America (INGAA) at 6, Comments of Marketer Petitioners at 2, Comments of National 

Grid Delivery Companies (National Grid) at 2, Comments of NJNG at 1, Comments of 

the Natural Gas Supply Association (NGSA) at 3, Comments of NJR at 1, Comments of 

NWIGU at 6, Comments of Nstar at 1-2, Comments of the Ohio Gas Marketers Group 

(OGMG) at 1, Comments of Piedmont at 1, Comments of PPM Energy, Inc., (PPM) at 1-

3, Comments of PGC at 5, Comments of the Public Utilities Commission of Ohio 

(PUCO) at 5-7, Comments of Puget Sound Energy, Inc. (Puget Sound) at 8-9, Comments 

of Sequent Energy Management, L.P. (Sequent) at 5-6, Comments of the Financial 

Institutions Energy Group (FEIG) at 6-7, Comments of Turlock Irrigation District 

(Turlock) at 5, Comments of Ultra Petroleum Corporation (Ultra) at 4, Comments of the 

WDG at 3, and Comments of the Wyoming Pipeline Authority at 5. 
Docket No. RM08-1-000 - 18 - 

the proposal in various ways in order to permit broader use of AMAs and greater 

flexibility in the terms of permitted AMAs. They request, for example, that the 

Commission permit uncapped AMA releases of a year or less to be rolled over without 

bidding, clarify that profit sharing arrangements in an AMA do not violate any applicable 

price cap, relax the requirements concerning the replacement shipper’s obligation to 

deliver gas to the releasing shipper, exempt AMAs from the Commission’s prohibition 

against buy/sell arrangements, and allow supply side AMAs. Williston Basin commented 

that exempting AMAs from the tying prohibition and bidding requirements would 

encourage discrimination against pipelines and provide preferential treatment to asset 

managers. 

22. The Commission also received favorable comments on whether it should clarify 

its prohibition against tying agreements to allow a releasing shipper to include conditions 

in a storage release concerning the sale and/or repurchase of gas in storage inventory 

outside the AMA context. All comments that addressed this issue supported removing 

this prohibition for storage services. They assert that a shipper releasing storage capacity 

should be permitted to require the replacement shipper to take assignment of any gas that 

remains in the released storage capacity at the time the release takes effect; and/or to 

return the storage capacity to releasing shipper at end of the release with a specified 
Docket No. RM08-1-000 - 19 - 

amount of gas in storage.40 Commenters note that tying storage capacity with storage 

inventory will enable transactions to be consummated more readily and that the nature of 

the relationship between storage capacity and storage inventory calls out for a waiver of 

the tying rule. Others add that the ability of releasing shippers to “tie” storage capacity 

with storage inventory such that releasing shippers would be permitted to require that 

replacement shippers take inventory as a condition of release, even in circumstances 

outside the AMA context, will provide benefits to the marketplace similar to those 

provided by AMAs.41

23. The Commission also received numerous comments on its inquiry whether prearranged capacity release deals necessary to implement retail access programs should be 

treated as similar to releases made as part of an AMA, and thus accorded the same 

exemptions. The majority of comments on this issue advocated affording capacity 

releases under state retail choice programs the same blanket exemptions from the tying 

 40 Public Service Commission of New York (PSCNY) comments at 20–21. 

41 Comments of Marketer Petitioners. 
Docket No. RM08-1-000 - 20 - 

prohibition42 and bidding requirements as those granted to asset managers.43 AGA, for 

example, recommends that the Commission add an exemption from the bidding 

requirements for any prearranged, recallable capacity release from an LDC to a natural 

gas marketer in accordance with the terms of a retail choice program approved by a State 

commission. AGA also asks that the Commission clarify that LDC releases to retail 

choice marketers would be entitled to the same partial exemption from the tying 

prohibition as would be releases under AMAs. The SPSCNY would extend the AMA 

exemption from the tying prohibition to releases of storage capacity conducted according 

to state retail access programs. 

II. Overview of the Final Rule

24. In this Final Rule, the Commission is modifying its policies and regulations 

concerning the release of capacity by firm shippers on interstate pipelines in order to 

enhance the efficiency and effectiveness of the secondary capacity release market. The 

Commission’s capacity release program has created a successful secondary market for 

 42 Those commenters include AGA, Commerce Energy, Duke Energy, Hess 

Corporation (Hess), Interstate Gas Supply (IGS), NJNG, New York State Electric and 

Gas Corporation (NYSEG), Rochester Gas & Electric Corporation (RG&E), OGMG, the 

Public Service Commission of North Carolina (PSNC), South Carolina Electric and Gas 

Company (SCE&G), SCANA Energy Marketing (SEMI), PSCNY, and Sequent. 

43 Those commenters include the AGA, Boardwalk Pipeline Partners (Boardwalk), 

BP, Commerce Energy, Direct Energy, Duke Energy, FPL Energy, LLC (FPL Energy), 

Hess, IGS, NJNG, NYSEG, RG&E, Nstar, OGMG, Peoples Gas System, a Division of 

Tampa Electric Company (Peoples), PG&E, PSCNY, PUCO, SEMI, Sequent, and the 

WDG. 
Docket No. RM08-1-000 - 21 - 

capacity.44 As a result, natural gas markets in general, and the secondary release market 

in particular, have undergone significant development and change in the sixteen years 

since Order No. 636 and the inception of the capacity release program. As this market 

has developed, shippers and potential shippers have sought 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 capacity to better reflect the value of 

that capacity as revealed by the market price of gas at different trading points. They also 

seek to implement AMAs, in which capacity holders release their capacity to asset 

managers (generally marketers) that have greater expertise in maximizing the value of 

pipeline capacity and negotiating beneficial transactions in the gas commodity markets. 

25. In this Final Rule the Commission is taking actions to respond to the industry’s 

request for greater flexibility in the capacity release market and to revise its policies and 

regulations to reflect the changes and developments in the marketplace. The first major 

revision is the removal of the price ceiling on short term capacity releases. The 

permanent elimination of the price ceiling for short term releases will enable shippers to 

offer competitively-priced alternatives to pipelines’ negotiated rate offerings and will 

permit short-term capacity release prices to rise to market clearing levels, thereby 

 44 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, order on reh’g, 113 FERC ¶ 61,173 (2005). 
Docket No. RM08-1-000 - 22 - 

allocating capacity to those that value it the most. It will also provide more accurate 

price signals concerning the market value of pipeline capacity. 

26. The Commission is also revising its regulations and policies to accommodate and 

facilitate AMAs, a relatively recent development in the industry. AMAs provide 

significant benefits to many participants in the natural gas and electric marketplaces and 

to the secondary marketplace itself. They maximize the utilization and value of capacity 

by creating a mechanism for capacity holders to use third party experts to both 

(1) manage their gas supply arrangements and (2) use that capacity to make gas sales or 

re-releases of the capacity to others when the capacity is not needed to serve the releasing 

shipper. AMAs result in ultimate savings for end-use customers by providing for lower 

gas supply costs and more efficient use of the pipeline grid.45 The Commission’s goal in 

facilitating AMAs in this rule is to make the capacity release program more efficient by 

bringing it into line with the realities of today’s secondary gas marketplace. 

27. To that end, the Commission in this rule is adopting its NOPR proposal to exempt 

capacity releases made to implement AMAs from the prohibition on tying and the 

bidding requirements of section 284.8. The Commission is also making several revisions 

to the definition of AMAs as proposed in the NOPR. The Final Rule modifies the 

definition of AMAs proposed in the NOPR to relax the delivery obligation of the 

replacement shipper to the releasing shipper and to permit supply side AMAs. The Final 

 45 See Comments of BGEM at 2, Comments of BP at 5, Comments of Nstar at 8,

Comments of Piedmont at 4-5, Comments of PUCO at 7, Comments of WDG at 3. 
Docket No. RM08-1-000 - 23 - 

Rule also clarifies that short term AMAs may be rolled over without bidding. Further, 

the Final Rule clarifies that the price ceiling does not apply to any consideration provided 

by an asset manager to the releasing shipper as part of an AMA. These steps, requested 

by many industry commenters that support the Commission’s efforts in the NOPR to 

facilitate AMA’s, will further enhance the efficiency of AMAs by allowing greater 

flexibility for parties to customize arrangements to meet unique customer needs while at 

the same time ensuring that capacity releases that qualify for the exemptions from tying 

and bidding granted in this rule are bona fide AMAs. The rule also extends the benefits 

of AMAs to sellers of natural gas, creating an even greater diversity of potential suppliers 

and participants in the secondary market. 

28. The Commission is also revising its policies to reflect the realities of today’s 

marketplace by allowing a releasing shipper to include conditions in a release concerning 

the sale/and repurchase of gas in storage inventory, even outside the AMA context. 

Allowing such arrangements reflects the fact that in the storage context, storage capacity 

is inextricably linked to storage inventory. By permitting the tying of releases of storage 

capacity to conditions on storage inventory, the Commission will enhance the efficient 

use of storage capacity while at the same time ensuring that releasing shippers will have 

adequate storage inventories for the winter. 

29. The Final Rule also extends the blanket exemptions from the prohibition against 

tying and from bidding granted to AMAs to capacity releases made to a marketer 
Docket No. RM08-1-000 - 24 - 

participating in a state approved retail access program, finding that such programs 

provide benefits similar to AMAs. 

III. Price Cap Issues

A. Removal of Maximum Rate Ceiling for Short-Term Capacity Releases

30. In this Final Rule, the Commission amends section 284.8 of its regulations to 

eliminate the price ceiling for short-term capacity release transactions of one year or less. 

The Commission finds that this action will improve shipper options and market 

efficiency, particularly during peak periods, by allowing the prices of short-term capacity 

release transactions to reflect short-term variations in the market value of that capacity. 

This will enable shippers to better integrate capacity with the underlying gas transactions, 

and will permit more flexible methods of pricing capacity to better reflect the value of 

that capacity as revealed by the market price of gas at different trading points. The 

Commission has previously provided pipelines with the flexibility to enter into negotiated 

rate transactions which are permitted to exceed the maximum rate ceiling, and this rule 

will permit releasing shippers similar flexibility in pricing release transactions. 

31. At the same time, we are convinced that the rates resulting from removal of the 

price cap for capacity release will be just and reasonable. The data collected over many 

years shows that the value of short term capacity only exceeds the price ceiling in times 

when capacity is scarce. These data are confirmed by the data gathered during the 

experimental release of the price ceiling which showed that capacity release prices 

exceed the price ceiling only for brief periods of constraint. Moreover, we are not relying 
Docket No. RM08-1-000 - 25 - 

solely on competition to ensure just and reasonable prices. We are maintaining the rate 

cap on pipeline services that will provide the same protection for capacity release 

transactions as it now does for pipeline negotiated rate transactions. Further, we have 

required informational postings of capacity release transactions that will provide 

transparency and facilitate the filing of complaints if circumstances warrant. The 

Commission will also continue to actively monitor the release market. 

1. Maximum Rate Ceiling Interferes with Efficient Transactions

32. As we explained in Order No. 637,46 the traditional cost-of-service maximum rates 

in pipeline tariffs are not well suited to the short-term capacity release market.47 Under 

the traditional ratemaking methodology, the Commission develops a maximum annual 

transportation rate for each pipeline that, when applied to the pipeline’s contract demand 

and throughput levels, will enable the pipeline to recover its annual cost-of-service 

revenue requirement. Each pipeline’s maximum rates for services of less than a year are 

simply the maximum annual rate prorated over the shorter period. 

33. Such prorated annual rates bear no relationship to the competitive rates that would 

be established in the short-term capacity market, particularly during peak periods. The 

market value of transportation service from the production area to the downstream market 

 46 Order No. 637 at 31,271-75. 

47 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 many pipelines have taken 

advantage of negotiated rate authority. 
Docket No. RM08-1-000 - 26 - 

may be inferred by comparing the downstream delivered gas price in bundled sales to the 

market price at upstream market centers in the production area.48 As the D.C. Circuit 

recognized in INGAA, “if the difference between field prices and city gate prices in a 

particular pathway is only $.07, people will not pay more than $.07 for the unbundled 

transportation.”49 As discussed in more detail below, the data set forth in Order No. 637 

and the updated data in Figures 1 through 3 below concerning the implicit value of 

transportation in the bundled sales market demonstrates the variability of transportation 

value in the short-term market and the divergence between the transportation value and 

cost-of-service rates. This data shows that during most of the year, the value of 

transportation service is significantly less than the pipelines’ annual cost-of-service 

maximum transportation rates, but during brief, peak demand periods, the value of 

transportation service is measurably greater than the maximum transportation rates. 

34. Because the existing capacity release price ceiling does not reflect short-term 

variations in the market value of the capacity, the price ceiling inhibits the efficient 

allocation of capacity and harms, rather than helps, the short-term shippers it is intended 

to protect. The price ceiling operates to prevent the shipper most valuing short-term 

 48 In Order No. 637, the Commission explained “gas commodity markets now 

determine the economic value of pipeline services in many parts of the country. Thus, 

even as FERC has sought to isolate pipeline services from commodity sales, it is within 

the commodity markets that one can see revealed the true price for gas transportation.” 

Order No. 637 at 31,274 (quoting M. Barcella, How Commodity Markets Drive Gas 

Pipeline Values, Public Utilities Fortnightly, February 1, 1998 at 24-25). 

49 INGAA at 31. 
Docket No. RM08-1-000 - 27 - 

capacity on a peak day from being able to obtain it, because that shipper cannot offer a 

releasing shipper the full value the shipper places on that capacity. The price ceiling may 

also reduce the amount of released capacity available during peak periods. As the 

Commission explained in Order No. 637, “As a result of the maximum rate, firm capacity 

holders may not find it sufficiently profitable to make their capacity available for release. 

For instance, a dual fuel industrial customer might determine that it would be more 

economic not to use gas, and to substitute a different fuel, if it could obtain a sufficiently 

high price for its released capacity.”50 Thus, during a peak day the price ceiling may only 

serve to limit a purchasing shipper’s capacity options, with the result that it must 

purchase gas in a bundled transaction in the downstream market at a price reflecting the 

market-determined value of the transportation. 

35. The increased use by pipelines and shippers of negotiated rate transactions based 

on gas price differentials demonstrates that buyers and sellers value the ability to 

calibrate the price of transportation to its value in the market. The maximum rate ceiling 

applied to capacity release transactions denies releasing and replacement shippers the 

same ability to negotiate transactions that reflect the market value of capacity at all times. 

As the Commission has found, providing the ability to negotiate capacity release 

transactions based on price differentials will help in providing short-term capacity to 

 50 Order No. 637 at 31,279. 
Docket No. RM08-1-000 - 28 - 

replacement shippers, such as gas-fired electric generators.51 With the price ceiling in 

effect, releasing shippers are unable to effectively use price differentials as a measure of 

capacity value because they are denied the ability to recover the value of capacity during 

peak periods when that value exceeds the maximum rate cap. 

36. The price ceiling also harms captive customers holding long-term contracts on the 

pipeline. Those customers pay maximum rates for both peak and off-peak periods. 

During off-peak periods, they can only recover a small portion of the capacity cost 

through capacity release because of the low market value of off-peak capacity. However, 

during peak periods, the price ceiling prevents those customers from releasing their 

capacity for its full market value. 

37. Finally, the price ceiling reduces the dissemination of accurate capacity pricing 

information. That is because the price ceiling causes transactions to move to the bundled 

sales market during peak periods, so that there is no separate capacity transaction to be 

reported. 

2. Assurance of Just and Reasonable Rates

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

ratemaking upon: 

 51 Standards for Business Practices for Interstate Natural Gas Pipelines, Notice of 

Proposed Rulemaking, 71 FR 64,655 (November 3, 2006), FERC Stats. & Regs. 

Proposed Regulations ¶ 32,609, P 17 (Oct. 25, 2006), Order No. 698, 72 FR 38,757 

(July 16, 2007), FERC Stats. & Regs. Regulations Preambles ¶ 31,251 at P 51 (Jun. 25, 

2007). 
Docket No. RM08-1-000 - 29 - 

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.’52

Accordingly, we analyze below (1) the extent to which market conditions and other 

factors may be expected to keep short-term capacity release prices within a reasonable 

zone despite the removal of the price ceiling, (2) the non-cost factors supporting a 

removal of the price ceiling, and (3) our oversight of the short-term capacity release 

market after removal of the price ceiling. 

a. Market Conditions Ensure Just and Reasonable Rates

39. The Commission finds that the short-term capacity release market is generally 

competitive. Therefore competition, together with our continuing requirement that 

pipelines must sell short-term firm and interruptible services to any shipper offering the 

maximum rate, and the Commission’s ongoing monitoring efforts will keep short-term 

capacity release rates within the “zone of reasonableness” required by INGAA and

Farmers Union.

 52 INGAA at 31. 
Docket No. RM08-1-000 - 30 - 

40. In Order Nos. 636 and 637, the Commission instituted a number of policy 

revisions which have enhanced competition between releasing shippers as well as 

between releasing shippers and the pipeline. 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. 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 makes 

more capacity available and enhances competition. As the Commission explained in 

Order No. 637: 

The combination of flexible point rights and segmentation 

increases the alternatives available to shippers looking for 

capacity. In the example,53 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. 

 53 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. 
Docket No. RM08-1-000 - 31 - 

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.54

41. 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. 

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

as well as review of more recent data, confirm 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.55 The staff 

 54 Order No. 637 at 31,301. 

55 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. 
Docket No. RM08-1-000 - 32 - 

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

month period from March 2000 to December 2001.56

43. In brief, the data gathered during the 22-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 

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 1 2.6 40,000 4.7 

 56 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 - 33 - 

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 

Co. 

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 

44. 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 

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 
Docket No. RM08-1-000 - 34 - 

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.57

45. 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. 

 57 INGAA at 32. 
Docket No. RM08-1-000 - 35 - 

46. For example, 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. 58

 58 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 - 36 - 

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

47. 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 - 37 - 

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 - 38 - 

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

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.59 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 concluded that the price spikes 

 59 Order No. 637 at 31,273-75. 
Docket No. RM08-1-000 - 39 - 

reflected in the data were consistent with competition and that such spikes reflected 

scarcity rather than monopoly power.60

b. Recourse Rate Protection

48. Moreover, the Commission is not relying only on a competitive market to ensure 

just and reasonable rates. The pipeline’s maximum rates for short-term firm and 

interruptible services serve as recourse rate protection for negotiated rate transactions,61

and will provide the same protection to replacement shippers by giving them access to a 

just and reasonable rate if the releasing shipper seeks to exercise market power.62 As the 

Commission explained in Order No. 637: 

the Commission is continuing to protect against the 

possibility that, in an oligopolistic market structure, the 

pipeline and firm shipper will have a mutual interest in 

 60 INGAA at 31- 32. 

61 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, order dismissing reh’g and denying clarification, 

114 FERC ¶ 61,304 (2006). 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 the customer can fall back to traditional costbased service if the pipeline unilaterally demands excessive prices or withholds service.” 

74 FERC ¶ 61,076 at 61,240 (1996). 

62 The pipeline is obligated to sell capacity at the just and reasonable rate. 

Tennessee Gas Pipeline Co., 91 FERC ¶ 61,053 (2000), 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). 
Docket No. RM08-1-000 - 40 - 

withholding capacity to raise the price because the 

Commission is continuing cost based regulation of pipeline 

transportation transactions. The pipeline will be required to 

sell both short-term and long-term capacity at just and 

reasonable rates. In the short-term, a releasing shipper’s 

attempt to withhold capacity in order to raise prices above 

maximum rates will be undermined because the pipeline will 

be required to sell that capacity as interruptible capacity to a 

shipper willing to pay the maximum rate. Shippers also have 

the option of purchasing long-term firm capacity from the 

pipelines at just and reasonable rates.63

49. The court in INGAA similarly 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.64

c. Short-Term Customers are Not Captive

50. The releasing shippers’ ability to exercise market power in the short-term capacity 

release market also is limited because short-term customers are not captive, even if only 

connected to one pipeline. Short-term customers, those using interruptible or short-term 

firm pipeline service or relying on capacity release transactions, are by the very nature of 

the service for which they are contracting, expressly taking the risk that they may have to 

forgo the use of gas entirely if short-term capacity is too expensive, or not available, 

 63 Order 637 at 31,282. 

64 INGAA at 32. 
Docket No. RM08-1-000 - 41 - 

when they need it.65 Thus, short-term shippers always have the option simply not to take 

service, if the price demanded is above competitive market levels. 

d. Non-cost factors

51. Removal of the price ceiling on short-term capacity release transactions provides a 

number of advantages which “offset whatever harm the occasional high rate might 

entail.”66 Most importantly, removal of the price cap permits more efficient utilization of 

capacity by permitting prices for short-term capacity releases 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. Without the price ceiling, firm capacity holders will 

have a greater incentive to release capacity during times of scarcity, because they will be 

able to obtain the full market value of the capacity.67 Therefore, a shipper needing gas on 

a peak day will have a greater opportunity to obtain the capacity it needs from a firm 

capacity holder, instead of having only the choices of purchasing a bundled sale or taking 

 65 Order No. 637 at 31,285, 31,336-42. 

66 INGAA at 33. 

67 For example, an LDC shipper may hold capacity on one or more pipelines and 

have access to storage and peak shaving facilities. Using these facilities may cost the 

LDC more to deliver gas than purchasing gas in the upstream markets and using its 

transportation capacity to transport that gas to the city gate. However, the LDC might be 

willing to release its transportation capacity and use its peak shaving device instead if it 

could receive a price above the maximum rate for its transportation capacity so that the 

price it receives will cover the costs of the peak shaving device. Order No. 637 at 

31,277. 
Docket No. RM08-1-000 - 42 - 

gas out of the pipeline and paying the pipeline’s scheduling or overrun penalties.68 Thus, 

removal of the price ceiling benefits short-term shippers because the shipper placing a 

high value on the capacity has a greater assurance of obtaining the capacity it needs than 

it does under a price cap where that shipper may be unable to obtain any capacity. 

52. Second, even if replacement shippers do end up paying higher prices for capacity 

during peak periods than they did with the regulated rate in effect, it is appropriate for 

shippers using the system only during peak periods to pay higher prices reflecting the 

greater demand on the system. Short-term shippers currently receive the benefit of 

paying reduced capacity release prices during off-peak periods but face a cap on the 

market price during peak periods. Removal of the price ceiling on short-term capacity 

releases will ensure that those shippers that receive the benefit of lower market prices 

during off-peak periods face the higher market prices during peak periods. 

53. Third, removing the price ceiling on short-term capacity releases should benefit 

the “primary intended beneficiaries of the NGA – the ‘captive’ shippers”69 by removing 

the regulatory bias built into the current rate structure. Those shippers typically have 

long-term firm contracts with the pipeline. Long-term shippers pay the same rate for 

capacity during both peak and off-peak periods. During off-peak periods they can 

recover only a small portion of their capacity cost through capacity release, because the 

 68 Order No. 637 at 31,280; INGAA at 34. 

69 INGAA at 33. 
Docket No. RM08-1-000 - 43 - 

market value for release capacity is generally quite low due to the reduced demand for 

capacity and the increased availability of released capacity. But during peak periods, the 

price cap limits long-term captive customers (who cannot make bundled sales) from 

receiving the full market value of their capacity. Long-term shippers pay for the largest 

proportion of the pipeline’s fixed costs through their annual reservation charges, and 

permitting them to receive more revenue from capacity release during peak periods will 

help them defray those costs. In short, the captive customers 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.”70

54. Finally, by providing more accurate price signals concerning the market value of 

pipeline capacity, removal of the price ceiling for short-term capacity releases 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. 

e. Oversight

55. The reporting requirements in Order No. 637 and the Commission’s 

implementation of the Energy Policy Act of 2005, specifically with respect to market 

 70 Id.
Docket No. RM08-1-000 - 44 - 

manipulation, provide the Commission with enhanced ability to monitor the market and 

detect and deter abuses. 

56. 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 

web sites.71 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.72 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 directs 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. 

3. Comments

57. The vast majority of comments support the removal of the price ceiling for 

capacity release transactions. But some commenters have raised limited concerns. 

a. Lack of Competition in Certain Areas

58. A few commentors have alleged that certain discrete portions of the short term 

capacity release market may not be competitive at all times. For example, Arizona Public 

Service states that the transportation markets served by El Paso Natural Gas Company (El 

 71 18 CFR 284.8 (2007). 

72 Order No. 637 at 31,283; Order No. 637-A at 31,558. 
Docket No. RM08-1-000 - 45 - 

Paso) located east of California are not currently competitive. It asserts that during the 

2000-2002 California energy crisis, when the Commission had lifted the price cap on 

short term capacity releases, prices of releases of El Paso capacity spiked to levels in 

excess of $20 per Dth. Honeywell similarly argues that the Commission has failed to 

address the fact that many geographical areas do not operate as a free market and that 

areas in the Northeast, East, and Southwest portions of the country faced constrained 

capacity and difficulties in building new pipeline facilities. Honeywell argues that lifting 

the price cap on short term capacity release will only exacerbate prices while not 

addressing the underlying problem of these constrained markets. In addition, some endusers of gas express concerns about the concentration of capacity ownership on lateral 

pipelines and therefore argue that the Commission should either not remove the price cap 

for laterals or do so on a case-by-case basis, after a review of market concentration and a 

demonstration that the releasing shipper does not have market power on the lateral.73

59. While the Commission has not conducted a detailed market analysis for each 

discrete area of the interstate pipeline grid, the data previously discussed shows that the 

short-term capacity release market is generally competitive. Indeed, with respect to the 

El Paso market, the data in Table 1 shows that during the period March 26, 2000 to 

December 31, 2001, which included the California energy crisis referred to by APS, only 

12.5 percent of the total volume of capacity released on El Paso was released at prices 

 73 Weyerhaeuser, NWIGU, and PGC. 
Docket No. RM08-1-000 - 46 - 

above the maximum rate. Moreover, the updated data in Figure 3 for August 2006 

through July 2007 shows that the market value of transportation service from the Permian 

Basin to the California border was less than El Paso’s maximum transportation rate, 

except during brief, peak-demand periods when the value of transportation service was 

somewhat greater than the maximum transportation rate. Similar data for deliveries to 

East of California markets on El Paso’s South Mainline reflects the same overall pattern, 

as shown in the following graph.74

 74 The data for this chart comes from ICE, an on-line electronic trading platform. 

The El Paso South Mainline area is described on ICE as: El Paso - South Mainline – 

buyers’ choice west of Cornudas. 
Docket No. RM08-1-000 - 47 - 

Figure 4 El Paso Permian-to-South Main Line Basis Differentials vs. Maximum Transport Charge 

-$0.40

-$0.20

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

5/20/07 6/17/07 7/15/07 8/12/07 9/9/07 10/7/07 11/4/07 12/2/07 12/30/07 1/27/08 2/24/08 3/23/08 4/20/08 5/18/08

Date

Dollars Per MMBtu

S. Mainline Basis To EP Permian Daily Transport

60. Similarly, while Honeywell suggests that capacity is constrained in areas in the 

East and Northeast, the data in Figure 1 shows that for most of the year the value of 

transportation service from Louisiana to New York City is less than the maximum 

transportation rate on Transco, with only brief spikes above that level during peak 

demand periods. 

61. These data are consistent with the proposition that prices will exceed the 

maximum rate only during periods of constraint. Moreover, it is precisely for these 

reasons that the Commission is continuing to insist on the maintenance of the pipeline’s 

recourse rate as protection against the exercise of market power. Even on laterals or 

other parts of the pipeline grid where all firm capacity may be held by only a few or one 

firm shipper, those shippers cannot withhold their capacity in order to charge a price 
Docket No. RM08-1-000 - 48 - 

above competitive levels. The pipeline’s cost-based interruptible rate is always available 

as an alternative when a releasing shipper attempts to withhold its capacity. For example, 

assume that a releasing shipper with available capacity on a little used lateral seeks to 

exercise market power by withholding capacity unless a potential replacement shipper 

pays a higher than justified rate. If market demand for capacity at that rate does not 

exist,75 the replacement shipper has the option of turning down the deal and purchasing 

the capacity from the pipeline at the just and reasonable interruptible rate. 

62. NEM remains concerned that in spite of the Commission’s finding that the short 

term capacity release market is competitive, market power may exist for some market 

participants resulting in historically high natural gas prices reaching even higher levels. 

However, the data reflects the competitive nature of the short term capacity release 

market and the safeguards that the Commission employs in the instant Final Rule to 

mitigate any residual market power. The Commission accordingly finds that NEM’s 

speculative concerns are unwarranted.76

 75 In other words, the market is not constrained. 

76 NEM also posits that the lifting of the short term capacity release market price 

ceiling in states where LDCs are required to release their capacity to marketers as part of 

a state retail unbundling program will place the marketer in a position where they would 

no longer be guaranteed the same underlying capacity costs as if the capacity had 

remained with the utility, and this could increase the costs the marketers must pass on to 

their state retail customers. To the extent that this feature causes problems in states 

where capacity release assignments are a mandatory part of a state retail unbundling 

program, the Commission would expect that the State would consider this in its policies. 
Docket No. RM08-1-000 - 49 - 

b. Benefits from Removing the Price Ceiling

63. Tenaska contests some of the benefits the Commission has cited for removing the 

price ceiling. It argues there will be no overall increase in allocative efficiency from 

removal of the short term release price cap. It asserts that capacity that is in excess to the 

current capacity holder’s needs already finds it way to those who value it more by a 

variety of means, including bundled downstream sales, short and long term capacity 

releases, and pipeline sales of short-term firm and interruptible service. It also argues 

that releasing shippers with excess capacity are more likely to release that capacity over a 

longer term, perhaps multiple years, rather than speculate that it could profit by making 

very short-term releases during peak period price spikes. It states that releases over 

relatively long term with few exceptions allow the releasing shipper to realize its full 

market value without being constrained by maximum pipeline rates.77

64. Rather than undercutting the removal of the price cap, Tenaska’s argument that 

releasing shippers can now avoid the price ceiling by making gas sales (in effect bundled 

sales of gas and transportation) supports our determination. Shippers may well find that 

releasing transportation alone is far more efficient than making a bundled sales 

transaction, and therefore, removal of the price ceiling will serve only to promote 

 77 Tenaska explains, “[c]apacity that basis markets show to be worth more than 

the applicable pipeline maximum rate in the prompt month will almost always drop in 

value to a level below that maximum rate at some future point. Such capacity can be sold 

for its full value within the pipeline maximum rate cap simply by extending the term.” 

Tenaska comments at 4-5. 
Docket No. RM08-1-000 - 50 - 

efficiency with negligible effect, if any, on price levels. Similarly, requiring shippers to 

execute long-term contracts in order to effectuate short-term transactions is inefficient, 

and would mask more accurate short-term price signals. Moreover, as discussed earlier, 

releasing and replacement shippers want to contract based on price differentials between 

markets even when such differentials exceed the maximum rate, and executing long term 

contracts at some approximate capped rate would not achieve that goal. 

65. Tenaska also argues that holders of long term pipeline contracts, that are “net 

long” compared to their actual capacity needs will be the only shippers to benefit. 

Market participants that are “net short” hold less capacity than they need and choose to 

match some portion of their demand with short term services and delivered gas purchases 

rather than to rely exclusively on long term pipeline contracts. Tenaska argues that the 

effect of the removal of the short term release rate cap, if there is any effect on 

reallocation of capacity at all, will be a transfer of value from net short companies to net 

long companies and states that there will be no net market benefit of the type the 

Commission must show to justify the proposed removal of the cap. 

66. Tenaska ignores the fact that “net short” holders of capacity under its scenario will 

benefit from the removal of the price cap from short term capacity release because they 

may be able to gain access to capacity in a constrained market that they could not if the 

price cap remained. A releasing shipper, subject to a rate ceiling, may well hold onto 

capacity if the maximum rate is less than its opportunity cost, such as using an alternative 
Docket No. RM08-1-000 - 51 - 

fuel, using expensive storage, or conservation of gas.78 Moreover, the fact low load 

factor “net long” holders of capacity of the type described by Tenaska can profit from 

above-cap short term releases is one of the benefits of removing the short-term price cap. 

c. Promotion of Construction

67. Honeywell argues that the Commission has failed to show that more accurate price 

signals concerning the value of pipeline capacity will, in fact, promote construction of 

needed capacity. First, higher prices should serve as price signals indicating where 

capacity shortages exist and where potentially profitable construction can take place. If 

prices are “exacerbated” as Honeywell argues, replacement shippers paying such prices 

have every incentive to go to the pipeline and support economically efficient construction 

to rectify the shortage. While political and environmental obstacles are also a factor in 

construction, this factor has not stymied construction. The Commission has processed a 

large number of certificate applications for new construction of capacity, storage, and 

liquefied natural gas terminals in every region.79 Third, providing incentives for new 

construction is not the only benefit of removing the price ceiling. As discussed earlier, 

 78 Order No. 637 at 31,554. 

79In 2007 alone, approximately 34 major pipeline projects were authorized by the 

Commission which was comprised of approximately 2,782 miles of pipeline, 850 

thousand horsepower of compression and the capacity to transport some 23,000 million 

MMd/t of gas. See the “2007” data at www.ferc.gov/industries/gas/indusact/pipelines/approved-projects.asp. See similar data for storage at 

www.ferc.gov/industries.asp and liquefied natural gas terminals at 

www.ferc.gov/industries/lng.asp. 
Docket No. RM08-1-000 - 52 - 

removal of the price ceiling will benefit the market even in the short term by providing 

for a more efficient allocation of capacity to those who value that capacity. 

d. Changed Circumstances

68. Tenaska and APS argue that even if the Commission’s conclusion that all pipeline 

capacity release markets are competitive is supportable at this time, circumstances could 

change dramatically in this industry. As a result, they assert that the Commission must 

include a process for promptly revisiting its determination that the market is competitive 

if there is evidence that the market is dysfunctional. Honeywell also states that the 

Commission also proposes to blind itself for almost three years to any problems in the 

capacity release market by directing its staff to issue a report within six months after 

gaining two years of experience under the new rules. 

69. As set forth above, we are maintaining oversight over the market and can act if 

market power is being abused in particular circumstances. 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 web sites.80 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.81 

Such information allows the Commission to monitor, with the assistance of all industry 

 80 18 CFR 284.8 (2007). 

81 Order No. 637 at 31,283; Order No. 637-A at 31,558. 
Docket No. RM08-1-000 - 53 - 

participants, the overall competitiveness of the market including discrete portions of the 

market that may not be competitive at all times. Moreover, the Commission will 

entertain complaints and respond to specific allegations of market power on a case-bycase basis if necessary. This action will also guard against the use of market power by 

any market participant. 

70. Further, Honeywell misreads the Commission’s directives and intent when it 

claims the Commission has voluntarily blinded itself to market forces for some three 

years. While the Commission directs its staff to monitor the capacity release program 

and issue a report on the general performance of the capacity release program within six 

months after two years of experience under the new rules, nothing in this directive 

precludes staff from alerting the Commission to any irregularities in the capacity release 

market before it issues its general report.

71. Moreover, while Tenaska refers to the Commission lifting of the short term price 

cap as permanent, and notes that the INGAA court reviewed a proposal by the 

Commission to lift the price ceiling only on a temporary basis, it is important to note that, 

although the Commission will remove the price ceiling on short term capacity releases it 

will monitor the capacity release market and review its staff’s report on the effects of the 

new rule and the overall functioning of the capacity release market. 

e. Exemption from Bidding for Short-Term Releases at the 

Maximum Rate

72. The NGSA and others request that the Commission continue to allow market 

participants to enter into a pre-arranged capacity release transaction without bidding for 
Docket No. RM08-1-000 - 54 - 

releases of capacity with a term of a year or less as long as those releases are made at the 

pipeline’s maximum tariff rate. NGSA asserts that prearranged releases at the pipeline’s 

maximum rate without the competitive bidding requirement have been proven to provide 

significant market benefits and should not be eliminated, solely because the Commission 

removes the rate cap on short-term capacity release transactions. 

73. The reason for the prior exemption from bidding for pre-arranged capacity release 

transactions at the maximum rate was based solely on the fact that with the rate cap in 

place, no one could submit a higher bid and win the capacity. As discussed earlier, one 

of the reasons for removing the price ceiling for short-term releases is to ensure that 

capacity is allocated to the shipper that values it the most. NGSA has not provided a 

sufficient justification for permitting shippers to consummate a capacity release at the 

maximum rate when another potential shipper places a greater value on that capacity. 

B. Removal of Price Ceiling for Long-Term Releases

74. Several commenters to the NOPR 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. 82 These commenters assert that the same arguments that 

support removal of the price cap for short-term capacity releases apply equally to lifting 

the price cap for long-term capacity releases. For example, commenters argue that lifting 

the price ceiling on long-term capacity releases would increase liquidity and competition 

 82 See, e.g., Comments of Allegheny Energy Supply Co. (Allegheny), Duke 

Energy, Dynegy Marketing and Trade (Dynegy), and Southwest . 
Docket No. RM08-1-000 - 55 - 

in the market for capacity release and primary pipeline capacity, thereby promoting the 

goals of allocative efficiency. Moreover, commentors assert that lifting the price cap on 

long-term capacity releases will promote the construction of additional pipeline capacity 

by providing more accurate price signals reflecting the value of such capacity. 

75. Commentors also point out that the Commission’s concern over replacement 

shippers being “locked in” to high price long-term contracts is misplaced because such 

releases of capacity would likely be priced using basis differentials at different price 

index locations.83 Other commentors such as Duke assert that the Commission’s 

concerns are misplaced because replacement shippers accepting such multi-year deals are 

sophisticated market participants capable of negotiating fair agreements. 

76. Allegheny argues that the pipelines’ recourse rates will serve as a check on overpriced long-term capacity releases because replacement shippers would have the ability 

to negotiate for capacity from a pipeline at the recourse rate if the releasing shippers were 

seeking excessive prices. Allegheny also points to the Commission’s reporting 

requirements, complaints process, and enhanced civil penalty authority as additional 

safeguards against the exercise of market power. 

77. Several commenters support the retention of the price ceiling on long term 

capacity releases and argue that it protects customers from being locked into a long term 

contract without price cap protection, that the price cap provides protection against 

 83 See e.g., Comments of Southwest at 10; Allegheny at 6-7. 
Docket No. RM08-1-000 - 56 - 

possible abuse of market power and that removal of the price cap for long term capacity 

releases does not provide the efficiency gains provided by the removal of the price ceiling 

on short term capacity release.84

78. In this instant Final Rule, the Commission will not extend the removal of price 

ceilings to long term releases as urged by these commentors. The data discussed above 

indicate only that removal of the price cap for short-term releases is needed to reflect 

market values. The Commission removed the price ceiling to permit shippers to quickly 

align their capacity prices with the fluctuating short term market for capacity releases. 

Such flexibility is not relevant to long-term releases. 

79. Limiting this rulemaking to short-term transactions is a reasonable response to the 

circumstances the Commission is trying to address, i.e., short term price spikes. Only 

under these conditions do Commission-approved maximum rates prevent the market from 

rationally allocating scarce capacity to those shippers who value it most. Removing the 

price cap only for short-term transactions allows a more efficient market-driven 

allocation of capacity during those brief peak demand periods, and provides more 

detailed price signals to the market on the value of peak capacity, while retaining 

valuable consumer protections provided by the price ceiling for longer term transactions. 

The Commission’s policy emphasis in this rule is on short-term transactions, because that 

is where there is a problem to be solved. No commenter has made a convincing 

 84 See, e.g., Comments of NJNG at 33, OIPA at 3, Statoil at 14, Weyerhaeuser at 

11. 
Docket No. RM08-1-000 - 57 - 

argument that price ceilings on longer term transactions create significant allocative 

inefficiencies or market failures. Accordingly, the Commission concludes that the 

current record does not warrant removal of the price ceiling on long-term capacity 

releases. 

80. Moreover, as we said in the NOPR,85 limiting the release to one year will not 

prevent the releasing and replacement shipper from continuing an index-based release 

past one year, because they could repost the release for another year, and the price ceiling 

would not apply to the release. However, such reposting provides additional assurance to 

the market that capacity will be allocated to those who value it the most. 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.86 This 

bidding process could provide an opportunity for re-determining the current market value 

of the capacity. 

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

81. Pipelines request that the Commission remove the price ceiling for short-term 

primary pipeline capacity whether firm or interruptible. In sum, the Interstate Natural 

Gas Association of America (INGAA) and the commenting pipelines argue that if the 

 85 NOPR at P 44-45. 

86As discussed below, however, short term capacity releases made in context of an 

AMA need not be re-posted for bidding at the end of their term. 
Docket No. RM08-1-000 - 58 - 

Commission lifts the price cap for short-term capacity releases, it should also lift the 

price cap for primary pipeline capacity.87

1. Removal of the Price Ceiling is Not Justified

82. The Commission declines to remove the ceiling from short-term pipeline capacity. 

In the Alternative Rate Design Policy statement, we offered the pipelines the flexibility to 

exceed the price cap in one of two ways: either pipelines can make a filing with 

appropriate information to establish the market is competitive or pipelines can negotiate 

rates as long as the shipper has the option of purchasing capacity at the recourse 

(maximum) tariff rate.88 These two approaches assured shippers that the pipelines were 

not exercising market power. The pipelines request for lifting the maximum rate on 

short-term releases would effectively negate the recourse rate protection we included in 

the negotiated rate program. 

83. Our action here is designed to permit releasing shippers some of the same flexible 

pricing authority the Commission has already granted pipelines through the negotiated 

rate program. But, as discussed earlier, the Commission is retaining the maximum rate 

ceiling on pipeline capacity because it acts as the recourse rate for both pipeline 

 87 See e.g., Comments of Boardwalk, Spectra Energy Transmission, LLC and 

Spectra Energy Partners, LP (Spectra), and Williston Basin Interstate Pipeline Co. 

(Williston Basin). 

88 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). 
Docket No. RM08-1-000 - 59 - 

transactions as well as release transactions. Removing the rate ceiling for pipeline 

transactions would therefore remove an important protection both for pipeline customers 

and for replacement shippers on capacity release transactions. 

84. In addition, pipelines are the principal holders of capacity. As the court 

recognized in INGAA: 

there seems every reason to suppose that [releasing shipper] 

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. 

* * * 

Here, the distinction between pipelines and other holders of 

unused capacity, based on probable likelihood of wielding 

market power, seems to us to pass muster.89

85. Unlike releasing shippers, the pipeline holders of primary capacity have a greater 

ability to exercise market power by withholding capacity and not constructing 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.”90 As long as cost-of-service rate ceilings 

 89 INGAA at 35. 

90 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. 

(continued...) 
Docket No. RM08-1-000 - 60 - 

apply, however, “pipelines [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.”91 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 prices above the maximum rate will indicate that pipeline 

capacity is constrained and demonstrate that constructing additional capacity could be 

profitable. 

86. Further, pipelines already have significant pricing discretion. As discussed above, 

pipelines 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.92 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.93 The proposed rule is designed solely to 

 

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). 

91 Id.

92 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). 

93 See Order No. 637 at 31,574 – 81. 
Docket No. RM08-1-000 - 61 - 

give releasing shippers some of the same flexibility enjoyed by the pipelines, subject to 

the same recourse rate protection. But removing the ceiling price from the release market 

does not justify removing all regulatory protections applicable to the primary capacity 

holder. 

2. Response to Specific Comments

a. Evidentiary Record

87. INGAA states that the same evidentiary record relied upon by the Commission to 

propose lifting the ceiling on capacity releases reflects that the entire market, including 

short-term pipeline services, is competitive, and therefore contends that the Commission 

should lift the rate ceilings on the entire short-term market. Spectra adds that the 

evidence cited by the Commission supports the existence of competition by all 

participants in the single market for short-term capacity, not just competition in the 

capacity release sector of the overall market. INGAA asserts that if the market is 

competitive, the identity of the seller should be irrelevant. 

88. As we have explained above, while the data indicates that the short-term 

secondary market is competitive in general, we have not made a finding that every 

segment of every pipeline is competitive; we retained the recourse rate as a protection 

against the potential exercise of market power by both pipelines and releasing shippers in 

those cases in which the market may not be competitive. While the purpose of capacity 

release, segmentation, and flexible point rights is to encourage competition between the 

pipeline’s sale of its own capacity and capacity release, and those policies have 
Docket No. RM08-1-000 - 62 - 

successfully created a robust secondary market as demonstrated by the data discussed 

earlier in this rule, that does not necessarily mean that every pipeline faces competition in 

the sale of its short-term capacity on all segments of its system. For example, the 

Commission’s selective discounting policy permits pipelines to restrict a shipper’s 

discount to specific points, so that the shipper must pay the pipeline’s maximum rate if it 

releases the capacity to a replacement shipper who uses different points where the 

pipeline faces less competition.94 This may reduce that shipper’s incentive to release its 

capacity to a replacement shipper who will use points on a segment with less 

competition.95 Retaining the recourse rate helps protect against the pipeline’s abuse of 

market power in the sale of capacity on any such segments of its system. 

 94 Williston Basin Interstate Pipeline Co., 110 FERC ¶ 61,210 at P 22, order on 

reh’g, 112 FERC ¶ 61, 038 (2005). These orders responded to a decision by the United 

States Court of Appeals for the District of Columbia Circuit in Williston Basin Interstate 

Pipeline Co. v. FERC, 358 F.3d 45 (D.C. Cir. 2004) (Williston), vacating orders in an 

Order No. 637 compliance proceeding permitting releasing shippers to retain primary 

point discounts when their replacement shippers used different points. The D.C. Circuit 

held that the policy could undermine the benefits of selective discounting, stating that 

“economic theory tells us price discrimination, of which selective discounting is a 

species, is least practical where arbitrage is possible-that is, where a low price buyer can 

resell to a high price buyer . . . yet this is precisely what the Commission’s policy would 

appear not only to allow but to encourage.” 358 F.3d at 50 (cite omitted). 

95 In addition, a particular shipper’s incentive to release capacity in competition 

with the pipeline could be reduced, if its discounted or negotiated rate agreement contains 

a provision, as permitted by Commission policy, providing that the pipeline will share 

any revenues the shipper receives from a capacity release in excess of its discounted or 

negotiated rate. See LSP Cottage Grove, L.P. v. Northern Natural Gas Co., 111 FERC 

¶ 61,108 at P58-59 (2005), and cases cited. 
Docket No. RM08-1-000 - 63 - 

89. Further, the repercussions of removing price ceilings for pipeline transactions are 

more serious than for released capacity, because the exercise of market power by 

pipelines could reduce the total amount of primary pipeline capacity available to the 

market. Finally, to the extent pipelines believe their markets are competitive, they have a 

full opportunity to make a filing with the Commission to obtain market based rates based 

on a showing of lack of market power.96 

b. Infrastructure Incentives

90. INGAA alleges that maintaining cost-based recourse rates for pipelines is not 

required to preserve an incentive for pipelines to construct needed pipeline infrastructure. 

It asserts this runs counter to the general presumption that market-based rates send the 

proper signals as to whether new pipeline construction is needed and can be constructed 

economically. In their comments, INGAA and Spectra argue that pipelines actually 

compete to build new capacity, and that there is no reason to assume that non-pipeline 

investment will not fill any void caused by pipelines withholding capacity. 97 

 96 Pipelines so far have not been successful in demonstrating that their major 

markets are competitive. See e.g., Gas Transmission Northwest Corp., 119 FERC 

¶ 61,288 (2007); Koch Gateway Pipeline Co., 85 FERC ¶ 61,013 (1998), order on reh’g, 

89 FERC ¶ 61,046 (1999). 

97 Spectra also argues that the Commission should remove the price caps for 

pipeline short-term firm and interruptible capacity, and suggests that to the extent the 

Commission retains its concerns regarding withholding of capacity, the Commission 

could retain the price caps for interruptible service. Spectra further argues that this action 

would provide shippers with a recourse alternative that would be available if the pipeline 

attempted to withhold short-term firm capacity or the releasing customer tried to withhold 

short-term release capacity. 
Docket No. RM08-1-000 - 64 - 

91. Neither INGAA nor Spectra have shown that the entry barriers to constructing 

capacity on existing pipeline rights of way are so low that there is effective competition. 

Moreover, they have the opportunity to present any such detailed evidence in a 

proceeding seeking to show that they do not have market power, and other parties would 

have an opportunity to challenge such evidence. This is not a finding we can make on a 

generic basis in this proceeding. 

c. Competitive Market Structure

92. INGAA asserts that the Commission’s concern that pipelines own more pipeline 

capacity than their firm shippers is based on a pre-restructuring, pre-open access view of 

the industry, and not based on any empirical study of pipeline market power. Moreover, 

INGAA and Spectra assert that control of the short-term market is now primarily in the 

hands of pipelines’ firm shippers, which have substantial rights such as capacity release, 

flexible point rights and segmentation rights. These shipper rights produce a competitive 

short-term market that cannot reasonably be bifurcated based on the identity of the seller. 

INGAA and Spectra state that the Commission should focus its concern not on formal 

ownership, but rather on the entity that controls access to or use of the capacity. 

93. Spectra points out that a check on prices is not needed to prevent the exercise of 

market power because sufficient safeguards - in the form of competition between 

shippers seeking to release or acquire capacity in the short-term markets, as well as the 

competition between shippers and pipelines themselves - will protect the market from 

abuse. Further, Spectra asserts that construction of new capacity, the open access tariff, 
Docket No. RM08-1-000 - 65 - 

reporting and posting requirements, and the Commission’s oversight and enforcement 

authority will also serve as added safeguards. 

94. However, as the Court of Appeals found, these arguments are comparing “apples 

and oranges.”98 First, the available capacity of the pipeline is on hand and ready to be 

sold, whereas the capacity held by releasing shippers is not necessarily available, since 

much of it may be needed to serve its native loads: 

The petitioning pipelines assert that pipelines hold only about 

7% of pipeline transportation capacity, while shippers hold 

the remaining 93%. This is classic apples and oranges. The 

Commission points out that whereas the uncontracted 

capacity of a pipeline is presumptively available for the shortterm market, no such presumption makes sense for the nonpipeline capacity holders: they presumably contracted for the 

capacity in anticipation of actually using it.99 

Second, using the market shares for already existing capacity does not reflect the more 

important relationship of the price ceiling to construction of new capacity infrastructure 

which is far more critical to ensuring that the pipeline grid is expanded to meet demand. 

Because the pipelines are the principal parties constructing additional capacity, it is 

crucial that their incentive to build is not diluted by the ability to earn scarcity rents in the 

short-term market. 

 98 INGAA at 24. 

99 Id. In addition, as previously discussed, there may be circumstances in which 

shippers’ discounted or negotiated rate agreements contains provisions that have the 

effect of reducing competition from capacity release on some segments of the pipeline. 
Docket No. RM08-1-000 - 66 - 

d. Differences in Flexibility between Pipeline Capacity and 

Released Capacity

95. INGAA and the pipelines argue that the pricing flexibility available to the 

pipelines does not allow pipelines to compete with shippers offering short-term capacity 

releases without a price ceiling. They argue that market-based pricing for pipelines is 

subject to a strenuous market-power test that involves lengthy and costly administrative 

proceedings. They argue that the Commission rarely finds that a pipeline meets this 

market-power test, and therefore it is impractical for pipelines to engage in competition 

with capacity releases.100

96. In regard to negotiated rates, the pipelines argue that their flexibility is limited 

because the maximum rate is always subject to the shipper’s right to elect the recourse 

rate, and implementation is subject to regulatory delays. INGAA and Williston also 

argue that the negotiated rate program offers pipelines very little, if any, opportunity to 

employ market-based pricing to efficiently allocate capacity to those who desire it most. 

97. Third, INGAA asserts that seasonal rates do not provide the flexibility necessary 

to address the pipelines’ competitive disadvantage under the Commission’s proposal 

because seasonal rates result in new recourse rates, capped at the pipeline’s annual 

revenues, not the ability to charge rates in excess of recourse rates. Spectra adds that 

 100 INGAA at12 (citing, KN Interstate Gas Transmission Co., 76 FERC ¶ 61,134 

(1996); and Rendezvous Gas Services, L.L.C., 112 FERC ¶ 61,141, at 61,792-94 (2005)). 

Spectra notes that the Commission has never approved market based rates for a major 

natural gas pipeline. Spectra comments at 24. 
Docket No. RM08-1-000 - 67 - 

seasonal rates do not allow pipelines to award the capacity to the customers who value it 

most because there is still a maximum rate. In addition, Spectra notes that pipelines are 

unable to respond to market signals in the short-term market using seasonal recourse 

rates. Williston asserts that seasonal rates are not a substitute for the removal of a price 

ceiling because they do not necessarily align prices with what the market will bear. 

98. We agree that the flexibility offered to pipelines and releasing shippers is not 

identical, due to the differences already noted between the primary and secondary 

markets. The recourse rate, for example, may operate somewhat differently in the two 

markets by virtue of the design of these markets; but as we have found, the retention of 

the recourse rate is necessary to provide an effective check on both markets. Thus, we 

have sought to provide both pipelines and shippers with reasonably comparable 

flexibility consistent with the differences between these entities and the need to provide 

protection against market power. 

99. For example, the commentors assert that the Commission has rarely granted a 

pipeline authority to price its capacity upon market based rates. INGAA and the 

pipelines make this allegation to show that it is administratively difficult to obtain 

market-based rates from the Commission and that is a difference from the pricing 

authority the Commission grants capacity releases in this rule. On the other hand, the 

fact that the pipelines have not been granted market based rates based on their factual 

showings is strong evidence that the recourse rate is still needed to protect shippers 
Docket No. RM08-1-000 - 68 - 

against the exercise of market power.101 This fact also leaves the Commission reluctant 

to find that it should remove the ceiling from primary short term pipeline capacity. 

100. Spectra argues that the Commission uses a stricter market power analysis to 

determine whether to grant a pipeline market based rates than it did to conclude that it 

would remove the price caps for short term capacity releases. Spectra asserts that the 

Commission, in removing the price ceiling from short term capacity releases, did not 

define the relevant product market and the relevant geographic market, nor did it 

calculate a Herfindahl-Hirschman Index to measure market concentration of the releasing 

shippers and other competing sellers in the market. Spectra argues that the Commission 

should remove the price caps on short-term pipeline capacity on the same basis it used for 

removing the caps on short-term capacity releases. 

101. The Commission is not using the same analysis to remove the price ceiling from 

short term capacity releases as it does to determine whether a pipeline lacks market 

power and should therefore be permitted market based rates. As we have explained, one 

of the principal reasons for removing the price ceiling on released capacity is the 

 101 See e.g., Gas Transmission Northwest Corp., 119 FERC ¶ 61,288 (2007); Koch 

Gateway Pipeline Co., 85 FERC ¶ 61,013 (1998), order on reh’g, 89 FERC ¶ 61, 046 

(1999). 
Docket No. RM08-1-000 - 69 - 

existence of the pipeline’s service as recourse in the event market power is exercised.102 

As the court in INGAA observed: 

If 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. 

[footnote omitted] Even though interruptible service may not 

be as desirable as firm service, the Commission concluded 

that it would provide an adequate substitute, whose 

availability would place a meaningful check on whatever 

anti-competitive tendencies the resellers might have.103

102. The analysis we have employed in removing the price ceiling for released capacity 

is therefore more comparable to that used for pipeline negotiated rates than for the market 

power analysis under the Alternative Rate Design Policy statement. The continuation of 

the recourse rate provides sufficient protection to enable us to remove the price ceiling 

for short term capacity releases without doing a more detailed market power analysis.104 

 102 Tennessee Gas Pipeline Co., 91 FERC ¶ 61,053 (2000), 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). 

103 INGAA at 22. 

104 Moreover, the Commission’s use of stricter standard in reviewing petitions by a 

pipeline for alternative pricing authority for its primary transportation is not a new 

concept and is based upon the different risks of abuses of market power. In Koch 

Gateway Pipeline Co., 89 FERC ¶ 61,046 (1999), the Commission stated: 

As reflected in the market power analysis set forth in the Policy Statement, 

the Commission has taken a conservative and cautious approach concerning 

the showing a pipeline must make in order to justify a finding that it lacks 

market power in its primary transportation market, i.e., the pipeline’s own 

sale of its transportation capacity. In fact, many commenters asserted that it 

(continued...) 
Docket No. RM08-1-000 - 70 - 

The Commission finds, however, that there are sufficient concerns about the ability of 

pipelines to exercise market power in short-term transactions on at least some segments 

of their systems, that a blanket removal of the price cap on all such pipeline transactions 

in this rulemaking proceeding, without consideration of specific circumstances on 

individual pipeline systems, would be inappropriate. 

e. Bifurcation of the Markets

103. The pipelines maintain that continuing the price ceiling on pipeline short term 

services will create a bifurcated market with higher market prices in the uncapped release 

market. The premise of this argument is that if shippers that place a lower value on 

transportation are able to acquire the capped pipeline service, the prices in the uncapped 

market will be higher than if all capacity were sold without a price ceiling. In the NOPR, 

the Commission responded to similar arguments.105 The Commission pointed out that 

 

would be unlikely that the pipeline’s primary market would meet the 

proposed criteria for market-based rates. The Commission recognizes that 

it has taken a more relaxed and light-handed approach toward market-based 

rates in other contexts, including for example, the pipeline’s sales of 

storage service and unbundled sales of the gas commodity. Purchasers of 

such other services are more likely to have good alternatives to purchasing 

from the pipeline; for example, barriers to entry in the storage and gas 

commodity markets are likely to be less. The Commission also recognizes 

that its Short-Term Transportation NOPR proposed a different approach for 

justifying removal of the price cap on short term (less than one year) 

transportation services in both the pipeline's primary transportation market 

and the secondary, capacity release market. That proposal included the 

establishment of mandatory capacity auctions to control market power. Id.

at 61,129 (footnote omitted). 

105 NOPR at P 51. 
Docket No. RM08-1-000 - 71 - 

interruptible service has lower priority than firm service so that 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 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. 

104. With respect to short-term firm service, the Commission stated that higher market 

clearing prices would not occur 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. 

105. INGAA asserts that the Commission’s observation that pipeline short-term 

capacity is interruptible and inferior to firm released capacity is a partial answer to its 

argument that a bifurcated market will produce higher prices in the regulated portion of 

the market than would otherwise be the case. But INGAA and Spectra assert that shortterm pipeline capacity is not always interruptible -- unsubscribed pipeline capacity can 

be sold on a firm basis during periods of peak demand, and would, if treated on a par with 

released capacity, compete on a head to head basis. INGAA and Spectra argue that if the 

rate for that short-term firm pipeline capacity is capped, the pricing inefficiencies will 

occur because the arbitrage opportunities relied upon by the Commission in the abovequoted text often entail high costs, making reliance on such opportunities inefficient. For 
Docket No. RM08-1-000 - 72 - 

example, Spectra cited articles for the proposition that arbitrage opportunities “often 

entail high costs, making the reliance on them also inefficient.”106

106. The only arbitrage costs at issue in this case are the costs of releasing that 

capacity, which is precisely the same cost releasing shippers must incur and we have 

sought to reduce the costs of capacity release over the years. In particular, the 

Commission’s action in Order No. 637, where the Commission instituted a number of 

policy revisions that were designed to enhance competition and improve efficiency across 

the pipeline grid should reduce arbitrage costs. There the Commission required pipelines 

to permit releasing shippers to use flexible point rights in order to compete effectively on 

release transactions with other shippers and to fully segment their pipeline capacity which 

permits the releasing shipper to retain the portion of the pipeline capacity it needs while 

releasing the unneeded portion.107 This combination of flexible point rights and 

segmentation increases the alternatives available to shippers looking for capacity. 

Moreover, the Commission also required that pipelines provide shippers with scheduling 

equal to that provided by the pipeline, so that replacement shippers can submit a 

 106 Spectra comments at 12, citing, Stephen J. Choi and A.C. Pritchard, Behavioral 

Economics and the SEC, 56 Stan. L. Rev. 1, n. 11 (2003) (discussing that “arbitrage is 

costly, which may limit its effect”). See also Lynn A. Stout, The Mechanics of Market 

Inefficiency: An Introduction to the New Finance, 28 J. Corp. L. 635, 655 (2003) 

(observing that “arbitrage is costly and imperfect”) and Andrei Shleifer & Robert W. 

Vishny, The Limits of Arbitrage, 52 J. Fin. 35 (1997) (explaining why the capital costs 

required to engage in arbitrage opportunities can hamper market efficiency). 

107 Order No. 637 at 31,300. 
Docket No. RM08-1-000 - 73 - 

nomination at the first available opportunity after consummation of the capacity release 

transaction. This action also makes the two types of capacity more interchangeable and 

should reduce arbitrage costs. 

107. On the other hand, we have to recognize that arbitrage can never be perfect. If it 

were, no interruptible transportation would be sold on fully subscribed pipelines. 

Moreover, as previously discussed, in order to preserve at least some of the benefits of 

selective discounting, the Commission permits pipelines to include provisions in 

discounted rate agreements which may reduce a shipper’s incentive to engage in arbitrage 

in certain circumstances. It is also important to recognize that the pipelines’ argument for 

removing the price ceiling for pipeline interruptible and short-term firm capacity is 

predicated on arbitrage. Their essential argument is that as long as long-term prices are 

regulated, short-term price ceilings can be removed because shippers can purchase firm 

capacity in the long-term market and arbitrage that capacity by releasing it in the shortterm market. If such arbitrage is costly or ineffective, as the pipelines argue here, or if a 

pipeline uses selective discounting to discourage arbitrage on some parts of its system, 

the pipelines retain market power over their sales of short-term capacity. Thus, even if 

arbitrage is not fully effective, that fact does not require removal of the price ceiling 

because impediments to arbitrage may enhance pipeline market power.108

 108 Further, even if maintenance of the price ceiling on short-term firm capacity 

serves to bifurcate the market, we are concerned that lifting the price ceiling on short 

term firm capacity would create a perverse incentive for pipelines to forgo the sale of 

(continued...) 
Docket No. RM08-1-000 - 74 - 

108. In balancing the risks of creating a somewhat bifurcated market against the 

possibility of the exercise of market power by the pipelines in the short-term market, we 

have determined to err on the side of enhanced protection against market power. In 

INGAA, the court recognized the importance of the same trade-off between the possible 

bifurcation of the market and the need to continue to regulate pipeline short-term 

capacity. It recognized that while price distortions might occur if arbitrage is not 

effective,109 the recourse rate applied to the pipelines provided protection with respect to 

both pipeline and released capacity: 

If 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.110

The Court concluded, and we agree that, the essential differences between pipelines and 

releasing shippers justified their differential treatment: 

 

firm capacity for periods of more than a year in order to reap the uncapped rates that 

would be available in the short term. 

109 “The basic proposition asserted by the pipelines (and, as we say, recognized by 

the Commission) is that where (1) a portion of the supply of a good or service is subject 

to price controls, and (2) demand exceeds (the price-controlled) supply at the fixed price, 

the market-clearing price in the uncontrolled segment will be normally higher than if no 

price controls were imposed on any of the supply.” INGAA at 33. 

110 Id. 
Docket No. RM08-1-000 - 75 - 

Here, the distinction between pipelines and other holders of 

unused capacity, based on probable likelihood of wielding 

market power, seems to us to pass muster.111

IV. Asset Management Arrangements

109. In this Final Rule, the Commission is revising its capacity release policies to give 

releasing shippers greater flexibility to negotiate and implement AMAs. AMAs are a 

relatively recent development in the capacity release market, and are beneficial to 

numerous market participants and to the market in general. However, the Commission’s 

existing regulations and policies concerning capacity release interfere with the ability of 

releasing shippers to implement the most efficient AMAs. Accordingly, as discussed 

below, the Commission is adopting its NOPR proposals to grant an exemption from the 

prohibition against tying and an exemption from bidding for AMAs. The Commission is 

also revising the definition of AMAs proposed in the NOPR so as to relax the 

requirements concerning an asset manager’s obligation to deliver gas to the releasing 

shipper and to allow supply side AMAs. In addition, the Final Rule clarifies that 

uncapped AMA capacity releases of one-year or less may be rolled over without 

competitive bidding, and that profit sharing arrangements included in an AMA will not 

violate any applicable price cap. The Commission also exempts certain AMAs from the 

buy/sell prohibition. 

 111Id at 36. 
Docket No. RM08-1-000 - 76 - 

A. Background

110. 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. 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. 

111. 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 
Docket No. RM08-1-000 - 77 - 

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 price below market levels. 

112. 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. 

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. 

113. As the Commission described in the NOPR, there are several ways in which the 

Commission’s current capacity release regulations may interfere with the ability of 

shippers to negotiate and implement AMAs. The first relates to the Commission’s 

prohibition against the “tying” of release capacity to any condition. The Commission 

established this prohibition in Order No. 636-A, using the following language: 
Docket No. RM08-1-000 - 78 - 

[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 30,559.112 

A critical component of many AMAs is that the releasing shipper 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. However, such requirements could be considered 

prohibited tying conditions that go beyond “the details of acquiring transportation on the 

interstate pipelines,” because they relate to the purchase and sale of the gas 

commodity.113 

 112 The Commission stated in Order No. 636-A that releasing shippers may include 

in their offers to release capacity reasonable and non-discriminatory 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. 

113 Since Order No. 636-A, the Commission has granted several waivers of the 

prohibition against tying, Tennessee Gas Pipeline Co., 113 FERC ¶ 61,106 (2005); 

Northwest Pipeline Corp. and Duke Energy Trading and Marketing, 109 FERC ¶ 61,044 

(2004), but only where an entity sought the waiver to exit the natural gas transportation 

business. See Louis Dreyfus Energy Services, L.P., 114 FERC ¶ 61,246, at 61,780 

(2006), denying a waiver request. 
Docket No. RM08-1-000 - 79 - 

114. AMAs also have implications for the rate cap and bidding regulations. Section 

284.8 of the Commission’s regulations requires capacity release transactions to be posted 

for competitive bidding, unless the transactions are at the maximum rate or are for 31 

days or less.114 Section 284.8 also allows the releasing shipper to enter into a “prearranged” release with a designated replacement shipper before any posting for 

bidding.115 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.116 

115. 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 exemption from bidding of all maximum rate prearranged capacity 

releases. 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. 

 114 18 CFR 284.8(h). 

115 18 CFR 284.8(b). 

116 18 CFR 284.8(e). 
Docket No. RM08-1-000 - 80 - 

116. 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. The Commission has held that 

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

the prearranged release be posted for bidding.117 

117. 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.118 

 117 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). 

118 See Consumers Energy Co., 82 FERC ¶ 61,284, order approving settlement, 

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 

(continued...) 
Docket No. RM08-1-000 - 81 - 

B. Discussion

118. In this rule, the Commission is revising its capacity release regulations and 

policies in order to facilitate the use of AMAs. Based on the industry-wide support for 

AMAs as shown in the comments, the Commission finds that AMAs are in the public 

interest because they are beneficial to numerous market participants and to the market in 

general. Thus, the Commission is modifying the prohibition on tying, the section 284.8 

regulations concerning bidding, and making additional policy changes requested by the 

commenters discussed below in order to eliminate obstacles to the utilization and 

implementation of AMAs. 

119. AMAs are a relatively recent development in the natural gas market, which the 

Commission did not anticipate when it adopted the capacity release program in Order No. 

636. The purpose of that program was to permit shippers to “reallocate unneeded firm 

capacity” to those who do need it.119 The bidding requirements of section 284.8 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 

 

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

acquiring.” 

119 Order No. 636 at 30,418. 
Docket No. RM08-1-000 - 82 - 

customers and, therefore, efficient use of pipeline capacity on a firm basis throughout the 

year.”120

120. The Commission thus developed its capacity release policies and regulations based 

on the assumption that shippers would handle their own gas purchase and transportation 

arrangements and release their capacity only when they were not using the capacity to 

serve their own needs. For example, the Commission envisioned that LDCs with longterm 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 but otherwise would retain the 

capacity to serve their own needs. 

121. However, this basic assumption underlying the capacity release program does not 

hold true in the context of AMAs. As the Commission stated in the NOPR, a 

distinguishing factor between standard capacity releases and AMAs is that in the AMA 

context, the releasing shipper is not releasing unneeded capacity, but capacity that it 

needs to serve its own supply function. Releasing shippers in the AMA context are 

releasing capacity for the 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 

 120 Id.
Docket No. RM08-1-000 - 83 - 

capacity to a third party expert who 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 adopted by the Commission herein is to 

make the capacity release program more efficient by bringing it in line with these 

developments in today’s secondary gas markets. 

122. As virtually all the commenters on the NOPR agree, AMAs provide significant 

benefits to a variety of participants in the natural gas and electric marketplaces and to the 

secondary natural gas market itself. One of the most important aspects of AMAs is that 

they provide broad benefits to the marketplace in general. By permitting capacity holders 

to use third party experts to manage their gas supply arrangements and their pipeline 

capacity, AMAs provide for lower gas supply costs and more efficient use of the pipeline 

grid. Asset managers have resources and market knowledge not necessarily available to 

natural gas capacity holders, such as trading platforms, credit portfolios, hedge fund and 

risk management experience, cost containment and counterparty credit and contracting 

expertise, which allow asset managers to better maximize the value of the releasing 

party’s assets and manage the associated risk. AMAs 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 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. AMAs benefit the 
Docket No. RM08-1-000 - 84 - 

natural gas market by creating efficiencies as a result of more load responsive gas supply, 

and an increased utilization of transportation capacity. 

123. AMAs are an important mechanism used by LDCs to enhance their participation 

in the secondary market and allow LDCs to increase the utilization of facilities and lower 

gas costs. They provide the needed flexibility to customize arrangements to meet unique 

customer needs. AMAs allow LDCs to use an entity with more expertise to manage their 

gas supply and thus relieve LDCs of administrative burdens. 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. 

124. AMAs also provide LDCs and their customers an increased ability to offset their 

upstream transportation costs. The profit sharing arrangements in AMAs often allow an 

LDC to reduce reservation costs that it normally passes on to its customers. They 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. 

125. LDCs are not the only entities that benefit from AMAs. As evidenced by certain 

comments on the NOPR, many other large gas purchasers, including electric generators 
Docket No. RM08-1-000 - 85 - 

and industrial users, may desire to enter into such arrangements.121 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. 

126. Finally, AMAs 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.122 In light of these substantial benefits provided 

 121 See e.g., Comments of the EPSA, Comments of the EEI, Comments of FPL and 

Comments of the NWIGU. See also Comments of NJNG to the Commission’s January 3, 

2007 request for comments (“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.”) at 9, 

n.9. 

122 See e.g., Comments of BGEM to the January 3, 2007 request for comments at 

8-9, citing to the Indiana Utility Regulatory Commission’s order in Case No. 42, 973, 

approved April 25, 2006. See also Orders of the Massachusetts Department of 

Telecommunications and Energy, attached to the Marketer Petitioners comments on the 

January 3, 2007 request for comments, which describe and approve certain asset 

management arrangements. 
Docket No. RM08-1-000 - 86 - 

by AMAs, the Commission is modifying its capacity release regulations and policies in 

the specific respects discussed below. 

1. Tying

127. First, the Commission adopts its proposal to exempt 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 pipelines123 and storage capacity with the 

gas currently in storage. This exemption will 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.124 

128. 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 

 123 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. 

124 The exemption is limited to releases to an asset manager to implement an 

AMA, and does not apply to re-releases to third parties during the term of the AMA. 
Docket No. RM08-1-000 - 87 - 

single package. The very purpose of the transaction would be frustrated if the releasing 

shipper could not 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 is 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. 

129. All the commenters support this change in Commission policy, except Williston. 

Williston argues that approval of the proposed changes to exempt AMAs from the 

prohibition on tying (as well as the bidding requirements discussed in the next section) 

would encourage discrimination and preferential treatment toward asset managers by 

allowing participants in the secondary capacity release market to engage in activities 

prohibited to pipelines.125 According to Williston, allowing releasing shippers to tie 

releases to a requirement that the replacement shipper provide asset management 

services, and exempting such releases from bidding, will give releasing shippers a strong 

competitive edge over the pipelines for the sale of similar types of services. Williston 

asserts the pipelines’ reduced sale of similar types of services will result in increased firm 

transportation rates charged by pipelines. Williston also claims that exempting AMAs 

 125 Comments of Williston Basin at 12-14. 
Docket No. RM08-1-000 - 88 - 

from tying will nullify the goal of awarding capacity to the shipper that values it most and 

that removing the bidding requirement will inhibit transparency.126 

130. Williston has failed to show that exempting capacity releases to implement AMAs 

from the prohibition against tying and bidding will subject pipelines to unfair 

competition. Pipelines’ core business is providing unbundled transportation services. By 

contrast, a major component of asset management service is the purchase and sale of gas 

as a commodity. Williston does not assert that it has any interest in either providing or 

purchasing asset management services. Therefore, Williston has no need or reason to tie 

the sale of its transportation services to the provision of asset management services. 

Many shippers, by contrast, have indicated a desire to purchase (or provide) asset 

management services, and as discussed above, the Commission has found that such 

services provide substantial benefits to the natural gas and electric markets as a whole. 

Williston has not identified any tying requirement that it would desire to impose on the 

sale of its unsubscribed capacity that would provide comparable benefits to the market as 

a whole. 

131. The Commission recognizes that, to the extent asset managers are more skilled at 

releasing and managing capacity in competition with the pipelines’ interruptible services, 

pipelines may face increased competition from capacity release as a result of this rule. 

 126 The Commission explains in the next section how the benefits AMAs outweigh 

any disadvantages in exempting such releases from bidding and how the Final Rule will 

continue to satisfy the goals of disclosure and transparency. 
Docket No. RM08-1-000 - 89 - 

The Commission, however, has always intended that capacity releases would compete 

with the pipelines’ short-term firm and interruptible transportation services.127 

Accordingly, the fact that this rule may result in greater competition for pipelines’ 

interruptible services is not a compelling reason for the Commission to decline to 

facilitate AMAs as set forth in this Final Rule. 

2. Bidding 

132. Second, the Commission adopts its proposal to exempt pre-arranged releases to 

implement AMAs from the bidding requirements of section 284.8 of its regulations. In 

light of its experience with capacity releases and the comments discussed above, the 

Commission concludes that, in the AMA context, the bidding requirement creates an 

unwarranted obstacle to the efficient management of pipeline capacity and supply assets. 

133. 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 

 127 See Order No. 636-A at 30,553 and 30,556 (stating “the Commission views the 

competition between interruptible transportation and capacity releasing as part of a 

healthy secondary market” and finding “pipeline capacity (firm and interruptible) must 

compete with released capacity”); see also UDC v. FERC, 88 F.3d 1105, 1149 (D.C. Cir. 

1996) (recognizing that capacity release is intended to develop an active secondary 

market with holders of unutilized firm capacity rights reselling those rights in 

competition with capacity offered directly by the pipeline). 
Docket No. RM08-1-000 - 90 - 

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. 

Moreover, AMAs at their core entail a bundling of commodity sales with capacity 

release. As a result, it is difficult to have meaningful bidding on the released capacity as 

a stand-alone component of the arrangement, because the values of the commodity and 

capacity components of the arrangement are not easily separated. The Commission 

concludes that the benefits of facilitating AMAs outweigh any disadvantages in 

exempting such releases from bidding. 

134. The exemption from bidding adopted by this rule will apply to all releases to asset 

managers, made for the purpose of implementing an AMA, regardless of the term of the 

AMA and whether the release is subject to the price ceiling. As discussed above, in this 

rule the Commission is removing the price ceiling for all short-term capacity release 

transactions of one year or less, but is continuing the price ceiling for capacity release 
Docket No. RM08-1-000 - 91 - 

transactions of more than one year. In the NOPR, the Commission stated that, if the 

parties wanted to continue an uncapped short-term capacity release beyond one year, the 

release “would have to be re-posted for bidding to ensure the capacity is allocated to the 

highest valued use.”128 Some commenters129 request that the Commission clarify that the 

reposting and bidding requirements for extending uncapped, short-term capacity releases 

beyond one year do not apply in the context of short-term AMAs. They assert that the 

proposed exemption from bidding for capacity releases to asset managers should apply in 

all circumstances, including the circumstance of an expiring short-term release related to 

an AMA. In essence, they inquire whether the reposting and bidding requirements for 

extensions of short-term capacity releases would trump the general exemption from 

bidding requirements proposed by the Commission for AMAs. 

135. The Commission clarifies that the exemption from bidding for AMAs adopted in 

this rule applies to all releases to an asset manager, including those made for the purpose 

of extending a short-term AMA.130 The rationale for exempting releases to an asset 

 128 NOPR at P 44. 

129 See e.g., comments of Southwest and BGEM. 

130 Section 284.8(h)(1), as adopted by this rule, provides a blanket exemption from 

posting and bidding for all releases to an asset manager: 

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 notification and bidding requirements 

of paragraphs (c) through (e) of this section. (emphasis added). 

(continued...) 
Docket No. RM08-1-000 - 92 - 

manager from bidding applies equally to releases made for the purpose of extending a 

short-term AMA as to any other release to an asset manager. In all such releases, the 

identity of the asset manager is critical to the releasing shipper, because the releasing 

shipper will be relying on the asset manager to obtain its gas supplies. Therefore, as with 

any other release to an asset manager, requiring releases made for the purpose of 

extending a short-term AMA to be posted for bidding could interfere with the negotiation 

of beneficial AMAs by potentially preventing such releases to be made to the releasing 

shipper’s chosen asset manager. 

136. While the Commission is exempting releases made to implement AMAs from the 

capacity release bidding requirements, those releases will remain subject to existing 

posting and reporting requirements, including the section 284.13(c)(2)(viii) requirement 

to post the name of any asset manager. In addition, as discussed below, the Commission 

is adding a requirement to post the asset manager’s delivery obligation to the releasing 

shipper. Therefore, the Commission’s goals of disclosure and transparency will still be 

met. Williston’s argument that the exemption from bidding for AMAs will impair 

 

The section 284.8(h)(2) prohibition on extending exempt releases without 

posting and bidding expressly applies only to the first category of releases 

included in the section 284.8(h)(1) exemption: releases for a period of 31 days or 

less. 
Docket No. RM08-1-000 - 93 - 

transparency and allow deals to be consummated without Commission or market 

participant knowledge thus fails.131

137. The exemption from bidding adopted by this rule does not extend to releases made 

outside the AMA context. 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. 

Accordingly, non-maximum rate capacity releases of more than 31 days, made outside 

the AMA context, will still need to be posted for bidding in order to ensure that the 

capacity is allocated to the highest valued use. 

3. Definition of AMAs

a. NOPR Proposal

138. In the NOPR, the Commission proposed to define AMAs that would qualify for 

the tying and bidding exemptions, as follows: 

 131 Williston Basin is also incorrect in suggesting that the Commission requires 

pipelines to sell their available capacity in a bidding auction. See Northern Natural Gas 

Co., 110 FERC ¶ 61,361, at P 10 (2005) ("[T]he Commission has not required pipelines 

to sell capacity solely through open seasons. Rather, so long as the pipeline posts all 

available firm capacity, it may sell that capacity on a first-come, first-served basis"). 
Docket No. RM08-1-000 - 94 - 

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. 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 (emphasis added). 

139. The Commission developed this definition in order to address two concerns 

relating to its facilitation of AMAs. It wanted to limit the exemptions from tying and 

bidding to bona fide AMAs, that is, arrangements that place a significant delivery 

obligation on the replacement shipper so as to distinguish AMAs eligible for the 

exemptions from standard capacity releases. The Commission also sought to avoid a 

definition that was too narrow and would effectively limit efficient and innovative 

AMAs. The Commission focused on what it understood to be the fundamental purpose 

of AMAs, namely that the asset manager would use the released capacity to deliver gas 

supplies to the releasing shipper. Thus, it included 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. The Commission 

reasoned this would achieve the goal of exempting only bona fide AMA transactions 

from bidding and the prohibition against tying. 

140. The Commission also believed that the proposed definition was sufficiently 

flexible to allow releasing shippers to use AMAs to obtain only a portion of its required 

gas supplies or to enter into multiple AMAs with different asset managers. In addition, 

the Commission noted that the proposed definition does not require that the asset 
Docket No. RM08-1-000 - 95 - 

manager make all its deliveries to the releasing shipper over the released capacity, nor did 

it limit the types of entities that can use AMAs and take advantage of the exemptions. 

The Commission recognized that electric generators and industrial end-users may make 

use of AMAs, and thus the exemption is not limited to LDCs utilizing AMAs. 

b. Comments

141. Numerous commenters132 requested that the Commission revise or clarify the “on 

any day” and/or the “equal to” phrases highlighted in the definition above. They claim 

that “on any day” may be interpreted as requiring the asset manager to stand ready to 

deliver the contract quantity on “every day” in order for the arrangement to be considered 

an AMA. Commenters assert that such a requirement would severely inhibit the asset 

manager’s flexibility and its ability to maximize the value of the capacity. Many 

commenters also seek to replace “equal to” the daily contract demand of the released 

capacity with “up to.” Again, commenters cite a lack of flexibility and devaluation of the 

released capacity because it would inhibit the asset manager from re-releasing the 

capacity. Commenters note that the beneficial aspects of AMAs are hindered if the asset 

manager must hold in reserve the entire portfolio of its assets even on days when the 

releasing shipper does not need the capacity for its supply needs. 

 132 Those commenters include the AGA, BGEM, BP, Canadian Association of 

Petroleum Producers (CAPP), FPL Hess, the Marketer Petitioners, National Grid, NJNG, 

NGSA, Nicor Enerchange (Nicor), NJR, Piedmont, PPM, PSNC, SCE&G, SEMI, 

Sequent, Statoil and WDG. 
Docket No. RM08-1-000 - 96 - 

142. Commenters suggest several general language changes to remedy these perceived 

problems. AGA recommends that the Commission clarify the definition by adding “but 

not necessarily every day” after the phrase “on any day.” It also suggests changing 

“equal to” to “up to” as noted above.133 BGEM agrees with this latter change, as do FPL, 

National Grid, PPM, and PSNC. Others take a broader view, suggesting that the delivery 

obligation should be left to the parties to negotiate. BP, for example, advocates 

permitting the parties to determine by mutual agreement when the releasing shipper may 

call upon the replacement shipper to deliver to it a volume of gas equal to the daily 

contract demand.134 Numerous parties agree with the concept that the details of the 

delivery obligation should be left to the parties and spelled out in the contract. NGSA 

comments that “may, on any day, call upon” should be revised to “may, as agreed by the 

parties, require....”135 Nicor would add the phrase “pursuant to the terms of its contract” 

after “any day”. It would also clarify that the replacement shipper should be required to 

deliver gas to a “location” specified in the agreement.136 Piedmont suggests that parties 

be permitted to negotiate call rights “as necessary and appropriate for the contracting 

 133 AGA provides a revised definition on page 21 of its comments. 

134 See BP comments at 2, 5-8. 

135 NGSA comments at 10. 

136 Nicor comments at 2-3. 
Docket No. RM08-1-000 - 97 - 

parties.”137 SCANA suggests that because the releasing shipper is in the best position to 

know the appropriate level of delivery obligation it will require, the definition should be 

revised to clarify that the delivery requirement is limited to specified days set forth in the 

agreement.138 The WDG suggests that parties should be given the flexibility to “tailor” 

capacity recall rights in AMA transactions to the releasing shipper’s market and supply 

needs.139

143. NJNG also recommends that the definition of AMA be clarified such that a 

releasing shipper’s recall rights up to the maximum daily quantity of the released 

capacity is limited to use by the releasing shipper for its “own load” requirements – either 

its utility retail service obligation or its own system generation or consumption needs. 

c. Modified Definition

144. In light of the comments received, the Commission has reconsidered its definition 

of AMAs and in this rule is modifying the definition to strike a balance between 

facilitating flexible and innovative AMAs and drawing a clear line between AMAs and 

 137 Piedmont comments at 6. 

138 Scana comments at 4-7. 

139 WDG comments at 4-5. 
Docket No. RM08-1-000 - 98 - 

standard capacity releases.140 The specific modifications to the definition which the 

Commission is making for this purpose are shown in bold below: 

any pre-arranged release that contains a condition that the 

releasing shipper may, on any day during a minimum 

period of five months out of each twelve-month period of 

the release, call upon the replacement shipper to deliver to 

the releasing shipper a volume of gas up to one-hundred 

percent of the daily contract demand of the released 

transportation capacity. If the capacity release is for a 

period of less than one year, the asset manager’s delivery 

obligation described in the previous sentence must apply 

for the lesser of five months or the term of the release. If 

the capacity release is a release of storage capacity, the asset 

manager’s delivery obligation need only be one-hundred 

percent of the daily contract demand under the release for 

storage withdrawals.141

145. The Commission finds that this definition of AMA will further its goal of 

delineating AMAs from standard capacity releases. First, it continues to differentiate 

bona fide AMAs from standard capacity releases by placing a significant delivery 

obligation, applicable during at least five months out of each 12 month period of the 

release, on the asset manager, while alleviating the concerns of those commenters that 

assert the NOPR definition was too restrictive. The Commission has replaced “equal” in 

 140 As discussed in detail below, the Commission is also revising the AMA 

definition to allow for supply AMAs and to extend to retail state unbundling programs 

the same blanket exemption from bidding granted for AMAs. 

141 The annual five month minimum would apply to AMAs with terms of one year 

or longer. The delivery obligation for any AMA between five months and a year would 

be for five months of the release. The delivery obligation would apply to the entire term 

for any AMA of less than five months. 
Docket No. RM08-1-000 - 99 - 

the definition with “up to” in order to clarify that the asset manager does not have to 

actually make deliveries equal to the daily contract demand on every day the delivery 

obligation is in effect. However, by using the phrase “up to” in the adopted definition, 

the Commission doest not intend to allow the parties to negotiate a potential delivery 

obligation of less than one hundred percent of the daily contract demand for the required 

time period, even though that amount may not actually be delivered to the releasing 

shipper every day. Before entering into an AMA an asset manager should be able to 

make reasonable judgments about the releasing shipper’s requirements based upon the 

releasing shipper’s gas usage in earlier years, and thus make reliable estimations as to 

when it can use the capacity for bundled sales or re-releases. Thus, under the definition 

adopted in this rule, the releasing shipper will have the right to call upon the asset 

manager to deliver the full contract volume on every day of the five month minimum, 

though it need not actually do so. This delivery obligation for the asset manager will 

adequately distinguish AMAs from standard capacity releases as well as ensure that 

AMAs eligible for the exemptions from tying and bidding will fulfill the primary purpose 

of using the releasing shipper’s capacity to supply its gas needs during peak periods. 

146. The definition also furthers the goal of defining AMAs in such a way that they 

will be flexible enough to allow diverse parties to enter into AMAs and for those parties 

to be able to maximize the value of pipeline capacity within the context of an AMA. The 

definition only requires a delivery obligation on behalf of the replacement shipper for a 

portion of each twelve month period, thus giving the asset manager additional assurance 
Docket No. RM08-1-000 - 100 - 

it can utilize the capacity during non peak periods. The definition adopted in this rule 

also allows for releasing shippers to only release a portion of their capacity, places no 

limitations on the asset manager that would require it to use the released capacity to make 

its deliveries to the releasing shipper, and does not limit the type of party that can enter 

into an AMA. 

147. The Commission considered the comments that the extent of the asset manager’s 

delivery obligation should be left to the parties to negotiate themselves but ultimately 

determined that approach would not further the primary goal of AMAs that they be used 

to serve the releasing shipper’s supply needs. Absent a specific delivery obligation in the 

definition, there would be no assurances that capacity releases meant to implement an 

AMA would actually contain a substantial delivery obligation that would differentiate it 

from a standard capacity release. Parties would be able to enter into arrangements that 

may require an asset manager to deliver supply to the releasing shipper on only one day 

of the year for instance. Such arrangements would technically qualify as AMAs but 

would not serve the Commission’s goal to ensure that AMAs be used to serve the 

releasing shipper’s needs. Accordingly, the Commission does not deem it appropriate to 

grant the benefits of the exemptions from tying and bidding to such arrangements. 

4. Supply AMAs

148. In the NOPR the Commission sought comments on whether it should expand the 

definition of AMAs and if so, how supply side AMAs should be distinguished from other 

capacity releases. The Commission in this Final Rule is revising its regulations and the 
Docket No. RM08-1-000 - 101 - 

proposed definition of AMAs to allow for supply side AMAs. Pursuant to the revised 

definition for AMAs discussed below, a supply AMA will be distinguishable from a 

standard capacity release, and thus eligible for the tying and bidding exemptions, only if 

it includes a condition that requires the replacement shipper to purchase a volume from 

the releasing shipper up to the maximum daily contract demand of the released capacity. 

149. In general, gas supply AMAs are arrangements where a production area capacity 

holder releases capacity to an asset manager that commits to purchase (receive) the 

releasing shipper’s gas and use the capacity to transport and market that gas. The asset 

manager nets back to the producer a fixed percentage of the price that the asset manager 

is able to obtain for resale of the gas on a delivered basis. Numerous producer and 

marketer commenters filed in favor of AMAs for gas sellers.142 No commenter opposed 

expanding the AMA definition to include gas supply AMAs. 

150. Based on the comments received, the Commission finds that the benefits of AMAs 

as identified in the NOPR apply with equal weight to producers that want to optimize the 

value of their capacity and minimize costs. The Commission understands from producer 

commenters that producers often acquire firm pipeline capacity for flow assurance, that 

is, to ensure that there will be sufficient capacity to transport the gas they produce to 

 142 See e.g., comments of NGSA, BGEM, BP, Dominion Marketers, FPL, 

Marketer Petitioners, Mewbourne Oil, NEM, Nicor, NJR, Statoil, Ultra, Walter Oil and 

Gas, and the Wyoming Pipeline Authority. 
Docket No. RM08-1-000 - 102 - 

relevant markets.143 Because of the fluctuation in flows related to new wells in particular, 

producers often purchase capacity in excess of their immediate needs to ensure that there 

is sufficient capacity for their gas to flow once the production volumes ramp up. The 

Commission’s approval of supply AMAs will allow a producer to release all of its 

capacity to an asset manager who could maximize the value of that capacity during the 

start-up period when producers may not need it, resulting in increased and efficient use of 

capacity. 

151. The Commission also finds that the rationale supporting AMAs for end users 

equally supports supply AMAs. Supply AMAs will help to alleviate a producer’s burden 

of administering capacity on a day to day basis, will maximize the value of pipeline 

capacity, and will further diversify the mix of capacity holders and customers served 

through capacity releases. Similar to delivery AMAs, supply AMAs involve an ongoing 

relationship between the releasing shipper and the asset manager that differentiates the 

deals from normal capacity releases.144 Further, supply AMA capacity will be used for 

its original purpose, that is, to transport the producer’s gas to the market place. The 

Commission finds reasonable comments that the purchase obligation in a supply side 

 143 See e.g., comments of BP. 

144 See e.g., comments of NGSA at 14. 
Docket No. RM08-1-000 - 103 - 

AMA is a mirror image of the delivery obligation required by the Commission for the 

downstream AMA’s facilitated in the NOPR.145 

152. As discussed above, in the Commission’s view the most important aspect of a 

supply AMA is the requirement that the asset manager commit to purchasing the 

releasing shipper’s gas as a part of the agreement. While several commenters suggest 

definitional language for gas supply AMAs that would require the replacement shipper to 

“receive” the releasing shipper’s gas,146 the Commission finds that the condition must be 

to “purchase” the gas in order to avoid running afoul of the shipper must have title rule.147 

 145 Comment of NGSA at 13, comments of Ultra at 8. 

146 For example, Statoil states that the Commission should extend the exemption to 

include supply-side AMAs by expanding its proposed section 284.8(h) as follows: 

(h)(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 (i) 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 or (ii) receive from 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. Statoil 

comments at 12-13. 

147 As described in the comments, a typical supply AMA could involve a 

requirement that the replacement shipper accept delivery of the releasing shipper’s gas, 

and use the capacity released to ship and market that gas. Under that scenario, where the 

replacement shipper would accept the releasing shipper’s gas and transport that gas on 

the released capacity to the releasing shippers’ customers, the arrangement would violate 

the Commission’s requirement that the shipper hold title to the gas. The shipper in that 

(continued...) 
Docket No. RM08-1-000 - 104 - 

This condition would also help ensure that such arrangements are bona fide AMAs 

because it imposes a significant purchase obligation on the asset manager. 

153. Based on the determination to allow supply AMAs, the Commission will further 

modify the proposed definition of capacity releases to asset managers to accommodate 

supply AMAs. Thus, the full definition of the capacity releases that will be eligible for 

the tying and bidding exemptions adopted by this rule is as follows: 

any pre-arranged release that contains a condition that the 

releasing shipper may, on any day during a minimum period 

of five months out of each twelve-month period of the 

release, call upon the replacement shipper to (i) deliver to the 

releasing shipper a volume of gas up to one-hundred percent 

of the daily contract demand of the released transportation 

capacity or (ii) purchase a volume of gas up to the daily 

contract demand of the released transportation capacity. If 

the capacity release is for a period of less than one year, the 

asset manager’s delivery or purchase obligation described in 

the previous sentence must apply for the lesser of five months 

or the term of the release. If the capacity release is a release 

of storage capacity, the asset manager’s delivery or purchase 

obligation need only be one-hundred percent of the daily 

contract demand under the release for storage withdrawals or 

injections, as applicable. 

5. AMA profit sharing arrangements 

154. AMAs generally include provisions for the asset manager to share with the 

releasing shipper the value it is able to obtain from the releasing shipper’s capacity and 

 

situation would be the replacement shipper, and it would be transporting gas that was 

owned by the releasing shipper. Thus, in order for there to be a valid supply AMA, the 

replacement shipper must purchase and take title to the gas that it will ship for the 

releasing shipper. 
Docket No. RM08-1-000 - 105 - 

other assigned assets when those assets are not used to serve the releasing shipper. The 

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

shipper; (2) sharing with the releasing shipper the asset manager’s profits from the use of 

the released capacity and other assigned assets148 pursuant to an agreed-upon formula; 

(3) making gas sales to the releasing shipper at a below-market commodity price; or 

(4) in some other way mutually agreed to by the contracting parties.149 

155. As discussed above, while this rule removes the price ceiling for all short-term 

capacity release transactions of one year or less, the Commission is continuing the price 

ceiling for capacity release transactions of more than one year. Numerous commenters, 

including marketers, LDCs, and producers are concerned that AMA profit sharing 

arrangements, such as those described above, may be considered to violate the price 

ceiling for long-term capacity releases. Accordingly, they contend that the Commission 

should either (1) exempt long-term capacity releases to asset managers from the price 

ceiling or (2) determine that the maximum rate does not apply to the asset manager’s 

payments to the releasing shipper under such profit sharing arrangements. 

 148 These uses could include re-releases of the capacity or bundled sales to third 

parties. 

149 The AMA may also require the releasing shipper to make payments to the 

manager for the services performed by the manager for the releasing shipper under the 

AMA. These payments may include the releasing shipper paying the manager: (1) a 

management fee for transportation related tasks (e.g. nominations, scheduling, storage 

injections) associated with the manager’s obligation to provide gas supplies to the 

releasing shipper, and (2) the manager’s cost of purchasing gas supplies for the releasing 

shipper. 
Docket No. RM08-1-000 - 106 - 

156. AGA, FPL, Integrys,150 the Marketer Petitioners, NGSA, PGC, NWIGU, 

Southwest, and others request that the Commission clarify that the various payments 

made by or to an asset manager under an AMA will not be attributed or imputed to the 

transportation component of an AMA, and that payments by the parties to one another 

will not be viewed as causing the maximum rate ceiling to be exceeded for any releases 

made pursuant to an AMA. Alternatively, they request that the Commission clarify that 

the price ceiling is removed for all capacity releases associated with an AMA, regardless 

of their term. 

157. These commenters explain that applying the price ceiling to profit sharing 

arrangements in long-term releases to an asset manager could significantly hinder parties’ 

ability to successfully structure an acceptable AMA. They assert that limiting the 

compensation the releasing shipper can collect from the asset manager under long-term 

releases would prevent the releasing shipper from sharing in the full market value the 

asset manager is able to obtain from the capacity, contrary to the basic purpose of an 

AMA. This could discourage parties from entering into AMAs with terms of more than a 

year. These commenters further state that the parties frequently desire to enter into 

AMAs with terms of two or three years, because longer-term AMAs provide the parties 

 150 The Integrys Gas Group (Integrys) consists of the Michigan Gas Utilities 

Corporation, Minnesota Energy Resources Corporation, North Shore Gas Company, The 

Peoples Gas Light and Coke Company, and Wisconsin Public Service Corporation. 
Docket No. RM08-1-000 - 107 - 

with a greater ability to plan their business operations for a longer period of time and are 

administratively more efficient. 

158. In response to these comments, the Commission is modifying section 284.8(b) of 

its regulations to clarify that the price ceiling does not apply to any consideration 

provided by an asset manager to the releasing shipper as part of an AMA. However, 

apart from this clarification, capacity releases of more than one year to an asset manager 

will, like any other long-term capacity release, remain subject to the price ceiling. This 

modification of the Commission’s regulations will provide the parties to an AMA the 

flexibility to negotiate mutually acceptable arrangements under which the asset manager 

shares with the releasing shipper the value it obtains from the released capacity, without 

running afoul of the capacity release price ceiling. However, the price ceiling will 

continue to apply to the rates the asset manager pays to the pipeline for the released 

capacity.151 

 151 As pointed out in the NOPR, in Consumers Energy Co., 82 FERC ¶ 61,284, 

order approving settlement, 84 FERC ¶ 61,240 (1998), the Commission investigated 

certain joint marketing agreements whereby replacement shippers agreed either to share 

with the releasing shipper revenues obtained by the replacement shippers on the sales of 

the gas transported by means of the released capacity or to pay the releasing shipper 

prices based on the amount of gas bought and sold. The Commission found in this 

situation that Consumers had collected money in excess of the pipeline’s maximum rate, 

thereby violating the capacity release price ceiling. Recently, the Commission similarly 

held in Louis Dreyfus Energy Services, L.P., 114 FERC ¶ 61,246, at 61,779 (2006), that 

if a pre-arranged release is at the maximum rate, additional payments by the replacement 

shipper to the releasing shipper are deemed to render the release price above the 

maximum rate. As a result of the modification to section 284.8(b) adopted in this rule, 

(continued...) 
Docket No. RM08-1-000 - 108 - 

159. The Commission finds that this change in its regulations is consistent with the 

overall goal of this rulemaking of facilitating beneficial AMAs. In the AMA context, 

unlike in other capacity release situations, 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 enter into AMAs “for the primary 

purpose of transferring the[ir] capacity to entities 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 that 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 it owns needs.”152 

160. Thus, a fundamental purpose of an AMA is for the asset manager to extract as 

much value from the released capacity and assigned assets as possible and to share that 

value with the releasing shipper, who has contracted with the asset manager precisely 

because of the asset manager’s expertise in this area. The asset manager generally 

obtains revenues related to the released capacity from two basic revenue sources. First, 

the asset manager may earn money through the re-release of the releasing shipper’s 

 

these precedents will not apply in the context of capacity releases to asset managers. 

However, these precedents will continue to apply to all other capacity releases. 

152 NOPR at P 66. 
Docket No. RM08-1-000 - 109 - 

capacity for a higher value. For example, the asset manager could enter into short-term 

re-releases of the capacity that are not subject to the price cap. Second, the asset manager 

could garner funds through utilizing the released capacity to make bundled sales to third 

parties. In either situation, the releasing shipper could have attempted to garner these 

revenues by itself, but instead it utilized the asset manager’s skills through the use of an 

AMA to increase the value of its capacity.153 

161. Given that the purpose of an AMA is to allow a releasing shipper to maximize the 

value of its capacity by obtaining the services of an asset manager with greater expertise 

at accomplishing that goal, it makes little sense to apply the price ceiling on long-term 

capacity releases in a manner which limits the amount of that value which the asset 

manager can share with the releasing shipper. As discussed above, permitting the asset 

manager to maximize the value of released capacity and share that value with the 

releasing shipper provides numerous benefits, including reducing the releasing shipper’s 

costs of reserving pipeline capacity, and these benefits ultimately serve to reduce 

consumer costs. Moreover, as some commenters point out, applying the long-term 

 153 There are a number of other potential methods for an asset manager to gain 

additional revenues from a releasing shipper’s transportation, storage, gas supply, and 

hedging “assets”. An asset manager may use the full range of acquired “assets” to enter 

into a variety of financial, commodity, transportation, or storage-related arrangements 

which allows the asset manager to generate more revenues from these “assets,” when 

they are not needed to serve the releasing shipper’s direct needs, than the releasing 

shipper would have generated on its own. We do not mean to suggest here any limit to 

the range of legally-allowed transactions that an asset manager may pursue, but merely 

provide illustrative examples. 
Docket No. RM08-1-000 - 110 - 

capacity release price ceiling to AMA profit sharing arrangements would likely 

discourage parties from negotiating AMAs with terms of more than a year in order to 

avoid the price ceiling. However, longer-term AMAs may provide the parties significant 

advantages, for example, by enabling the parties to obtain greater certainty concerning 

their gas supply and sale arrangements for a longer period of time and by minimizing the 

administrative costs of negotiating multiple AMA arrangements over a relatively short 

period of time. 

162. Thus, the Commission concludes that profit sharing agreements between the 

releasing shipper and the replacement shipper in the context of an AMA, where the 

releasing shipper could have earned the monies itself, should not violate the price ceiling 

just because the releasing shipper utilized the skills of an asset manager. Modifying our 

regulations to exempt all such profit sharing arrangements from the price ceiling will 

permit the parties flexibility to craft AMAs in a manner that they perceive as capturing 

the true value of the release and related assignments of other assets, consistent with our 

goal of facilitating the use of AMAs. 

6. Exemption from Buy/Sell Prohibition 

163. Some commenters state that they wish to enter into AMAs whereby they would 

release their capacity to an asset manager, but would continue to negotiate their own gas 

purchase contracts. Because such gas supply contracts would be competitively 

negotiated arrangements containing confidential pricing information, these commenters 
Docket No. RM08-1-000 - 111 - 

do not want to assign such contracts to the asset manager.154 Instead, they want to sell the 

gas they purchase from their supplier to their asset manager and then direct the asset 

manager to transport the gas to their city gate and resell the gas to them. These 

commenters ask that the Commission exempt such arrangements from the Commission 

prohibition on buy/sell arrangements. 

164. The Commission prohibited buy/sell arrangements in Order No. 636 and 

companion orders in El Paso Natural Gas Company.

155 Order No. 636 stated that 

“[u]nder those arrangements, an LDC will purchase gas in the production area from an 

end-user or a merchant designated by an end-user. The LDC will ship the gas on its own 

firm capacity and sell the gas to the end-user at the retail delivery point.”156 The 

Commission explained that it had adopted a nationally uniform capacity release program 

in order to provide greater assurance that transfers of capacity from one shipper to 

another were transparent and not unduly discriminatory. The Commission found that 

permitting buy/sell arrangements would frustrate this goal, because such arrangements 

 154 See e.g., NWIGU comments at 7, PGC comments at 6, Weyerhaeuser 

comments at 3-11. 

155 59 FERC ¶ 61,031, reh’g denied, 60 FERC ¶ 61,117 (1992). 

156 Order No. 636 at 30,416. In Order No. 636-B, 61 FERC ¶ 61,272, at 61,997 

(1992), the Commission clarified that the buy/sell prohibition applies to all firm capacity 

holders, not just LDCs. See also, In re BP Energy Co., 121 FERC ¶ 61,088, at P 14 

(2007). 
Docket No. RM08-1-000 - 112 - 

“would provide a major loophole, potentially inviting substantial circumvention of the 

capacity release mechanism.”157 

165. The Commission grants an exemption from the buy/sell prohibition for AMAs that 

qualify for the exemptions from bidding and tying, but only for volumes of gas delivered 

to the releasing shipper. In this proceeding, the Commission is modifying its regulations 

and policies in order to facilitate the development of efficient and beneficial AMAs. 

Consistent with this objective, the Commission will permit shippers to hire an asset 

manager solely for the purpose of managing their interstate pipeline capacity, while they 

continue to purchase their gas supplies from a different marketer under contracts which 

they do not assign to the asset manager. 

166. As the commenters explain, the marketer having the best terms and price for asset 

management services is not always the marketer who is able to supply the gas commodity 

at the lowest cost. Moreover, such marketers may be in direct competition with each 

other, both in the asset management field and in the commodity supply area. Such 

competition helps the end-user obtain the lowest possible delivered cost for its gas 

supplies. The commenters state, however, that in such circumstances, the releasing 

shipper may prefer not to assign its gas purchase contracts to the marketer providing asset 

management services for their pipeline capacity because this would reveal competitively 

sensitive information concerning the commodity prices offered by the other marketer. 

 157 El Paso, 59 FERC at 61,080. 
Docket No. RM08-1-000 - 113 - 

Rather, the releasing shipper could avoid this result by entering into what is in essence a 

buy/sell transaction, in which the releasing shipper would purchase the gas commodity 

from someone other than its asset manager and sell that gas to the asset manager.158 The 

asset manager would then use the released capacity to transport the gas to the shipper and 

resell the gas to the shipper at the delivery point. 

167. The Commission finds that exempting such transactions from the buy/sell 

prohibition is appropriate, in light of the above-described benefits of AMAs in which the 

asset manager only manages the releasing shipper’s pipeline capacity. This exemption 

will not undercut the Commission’s goal in adopting the prohibition on buy/sell 

arrangements of preventing circumvention of the capacity release program. As we have 

previously explained, capacity releases to an asset manager differ from other releases, 

because the releasing shipper is not releasing unneeded capacity, but capacity that will 

continue to be used to serve its own supply function during the term of the release. The 

purpose of the buy/sell transactions at issue here is to permit the releasing shipper to 

negotiate its own gas purchase arrangements with a third party, while having its asset 

manager transport the gas over the released capacity to the releasing shipper. Thus, the 

asset manager’s purchase from the releasing shipper and resale to that shipper enables the 

released capacity to be used to meet the releasing shipper’s own gas requirements and is a 

condition of the capacity release. This is unlike the buy/sell transactions prohibited by 

 158 The sale to the asset manager is necessary to avoid a violation of the shippermust-have title requirement. 
Docket No. RM08-1-000 - 114 - 

Order No. 636, where the purchases, transportation, and re-sales were for the purpose of 

meeting the gas requirements of a third party, and there was no capacity release to any 

participant in the transactions. While, here, the asset manager would be buying gas from, 

and reselling it to, the releasing shipper, the capacity release to the asset manager would 

be done in accordance with the Commission’s capacity release regulations and as such, 

would be transparent to the market. The parties would need to comply with all the notice 

and posting provisions currently in place. Further, the Commission has found that AMAs 

are beneficial to the secondary gas markets. By providing a limited exemption from the 

buy/sell prohibition for AMAs, the Commission is further facilitating the flexibility of 

AMAs and promoting enhanced competition in the capacity release market. 

168. The Commission also clarifies, as requested by several commenters, that an AMA 

does not necessarily need to involve an assignment of gas supply contracts.159 Those 

commenters suggest that while an AMA may involve an assignment of gas supply 

agreements, an AMA should not be so limited because the asset manager may have 

different supply sources from which to draw. For example, the releasing shipper may 

enter into a supply agreement directly with the asset manager, or the asset manager itself 

may be responsible for acquiring supply for delivery to the releasing shipper. Some 

commenters seek clarification that an end use customer need not assign actual gas supply 

 159 Commenters supportive of this general view include the AGA, BGEM, Direct 

Energy, NWIGU, Nstar, PPM, PGC, Sequent and Weyerhaeuser. 
Docket No. RM08-1-000 - 115 - 

contracts under which it takes service to an asset manager but that it may avail itself of 

“any lawful mechanism for transferring title to gas supply.”160

169. The Commission notes that the definition for AMAs approved in this rule does not 

include a requirement that the releasing shipper assign gas supply contracts. As 

discussed above, the releasing shipper may want to negotiate its own gas supply 

contracts. Alternatively, the releasing shipper may not currently have any of its gas 

supply contracts to assign, but is hiring an asset manager in part for the purpose of having 

the asset manager negotiate and enter into gas supply contracts for the purpose of 

supplying the releasing shippers’ gas supply needs. Consistent with the Commission’s 

desire to give the parties the flexibility to negotiate the most efficient AMA arrangements 

to fit their needs, the definition of AMA-related releases adopted in this rule only requires 

that the replacement shipper enter into a contractual commitment to make the requisite 

delivery of gas supplies to the releasing shipper. The mechanism by which the 

replacement shipper will obtain those supplies is left to the parties to negotiate. 

7. Other AMA Terms and Conditions

170. Several commenters request that the Commission clarify that parties are free to 

negotiate all relevant terms and conditions of an AMA, and the Commission does not 

intend to preclude parties from including in their AMA agreements terms and conditions 

relating to matters beyond the asset manager’s delivery obligation to the releasing 

 160 Weyerhaeuser comments at 2-5. 
Docket No. RM08-1-000 - 116 - 

shipper. For example, Sequent comments that the definition of AMA should not preclude 

parties from negotiating terms and conditions in addition to capacity release and 

delivery/receipt requirements, such as form of service and other related agreements, 

compensation, operating and communication protocols, asset descriptions and risk 

allocations.161 NJNG likewise seeks clarification that the tying exemption for AMAs 

applies to all aspects of an AMA, including financial risk management products and 

services, nominations and scheduling services, asset optimization fees and profit sharing 

arrangements and other products and services reasonably related to an AMA. 

171. The Commission clarifies that its definition of AMAs is not meant to preclude the 

parties from negotiating the terms and conditions of other agreements necessary to 

implement AMAs, provided the elements of the AMA definition are satisfied. It is the 

Commission’s intention in this rule to facilitate innovative and efficient AMAs. The 

Commission recognizes that in order to successfully implement an AMA, the parties will 

need to negotiate and agree upon certain other practical elements of the transaction aside 

from the release terms and delivery aspects of the deal. Those items may include 

communication protocols, risk management arrangements, nominations and scheduling 

services, asset optimization fees and profit sharing arrangements and other products and 

services reasonably related to an AMA. It would be counterproductive to the 

Commission’s goal of facilitating AMAs to disallow parties to tie these other necessary 

 161 Sequent comments at 8-9. 
Docket No. RM08-1-000 - 117 - 

aspects of AMAs to the deal. Thus, the Commission clarifies that if the arrangement 

meets the essential elements of the definition of AMAs, then the tying exemption applies 

to all other agreements necessary to implement the AMA. The Commission also clarifies 

that payments made by or to an asset manager under an AMA that are separate and apart 

from the cost of the released capacity do not violate the prohibition against tying. 

8. Posting and Reporting Requirements

172. In the NOPR, the Commission stated that, while it proposed to exempt capacity 

releases implementing AMAs from bidding, such releases would remain subject to all 

existing posting and reporting requirements. Accordingly, the Commission stated, 

pipelines would still be obligated to provide notice of the release pursuant to 18 CFR 

section 284.8(d). In addition, the details of the release transaction would have to be 

posted on the pipeline’s Internet web site under 18 CFR section 284.13(b)(1)(viii), which 

requires the posting of “special terms and conditions applicable to a capacity release 

transaction.” The Commission also stated that sections 284.13(c)(2)(viii) and (ix) require 

that the pipeline’s index of customers 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. 

173. Several parties filed comments regarding the posting and reporting requirements 

for AMAs.162 While most support the Commission’s goals of transparency and 

 162 See e.g., Comments of AGA; Comments of FPL, Comments of Hess; 

Comments of Integrys, and NGSA comments. 
Docket No. RM08-1-000 - 118 - 

disclosure, they seek clarification as to what exactly must be posted. Essentially these 

comments request clarification that commercially sensitive details of an AMA, such as 

the structure, assets available for use by the asset manager, and the compensation to be 

paid, do not need to be posted as “special terms and conditions” of the release pursuant to 

section 284.13(b)(1)(viii). They assert that only the fact that the release is an AMA needs 

to be disclosed. FPL requests that the Commission specifically define the facts that must 

be reported for there to be a valid AMA. Hess makes a similar request, and emphasizes 

that releasing shippers should not be required to post an RFP or any other details of the 

AMA because they are proprietary, confidential and commercially sensitive. Hess also 

requests the Commission confirm that it is not expanding the details that it expects to be 

disclosed as special terms and conditions. Hess and Integrys assert that posting and 

reporting on AMAs should be limited to the fact that the release is part of an AMA and 

describing the terms and conditions of the release associated with the AMA.163 NGSA 

also requests clarification that the posting of a capacity release in the context of an AMA 

should require only the information normally posted for a typical release of capacity 

(receipt and delivery points, term), along with a statement that acknowledges that it is 

part of an AMA. 

174. In response to these comments, the Commission clarifies in this rule the posting 

and reporting requirements that will be applicable to release transactions implementing 

 163 Integrys comments at 6-7. 
Docket No. RM08-1-000 - 119 - 

AMAs. By stating in the NOPR that existing section 284.13(b)(1)(viii) requires that any 

“special terms and conditions” of such releases must be posted, the Commission did not 

intend to require that commercially sensitive details of an AMA be disclosed, particularly 

information concerning the gas commodity aspects of the AMA.164 The Commission 

recognizes that in order to promote competition certain details of the AMA are 

commercially sensitive and thus should remain confidential. 

175. However, the Commission finds that any posting under section 284.13(b) that 

relates to a release to implement an AMA should include (1) the fact that the release is to 

an asset manager and (2) the delivery or purchase obligation of the AMA, in addition to 

the information required to be posted for all capacity releases. As discussed in detail 

above, the requirement that the asset manager deliver or purchase gas to fulfill the 

releasing shipper’s supply or marketing obligations is the cornerstone for differentiating 

AMAs from standard capacity releases. In order to ensure that capacity releases posited 

as AMAs eligible for the exemptions from tying and bidding are bona fide AMAs, the 

Commission must have a means to monitor this critical component of the arrangement. 

Other information specifically related to the AMA, however, such as the pricing of any 

sales of gas commodity and any profit sharing arrangements between the releasing and 

replacement shipper need not be posted pursuant to section 284.13(b). Consistent with 

 164 The Commission retains the right, however, to require a releasing shipper to 

make all relevant agreements and supporting documents available to the Commission for 

review if questions arise as to whether a purported AMA satisfies the Commission’s 

regulations. 
Docket No. RM08-1-000 - 120 - 

this discussion, the Commission is revising section 284.13(b)(1) of its regulations to add 

a new subsection (x) specifying the information concerning an AMA that must be 

included in the posting of any capacity release meant to implement an AMA. The 

required posting concerning the delivery or purchase obligation that qualifies the release 

as an AMA under the definition discussed above should specify the volumetric level of 

the replacement shipper’s delivery or purchase obligation and the time periods during 

which that obligation is in effect. 

176. INGAA and other pipeline commenters state that as pipelines already have a 

substantial role in administering the Commission’s capacity release program, pipelines 

should not be overburdened by the proposed changes nor should they be responsible for 

policing asset managers’ compliance therewith. They assert that pipelines’ obligations 

should be limited to posting offers submitted by releasing shippers using the terms and 

conditions provided to the pipeline.165 

177. The Commission hereby clarifies in this rule that pipelines are responsible for 

posting offers submitted by releasing shippers that are meant to implement AMAs using 

the terms and conditions provided by the releasing shipper to the pipeline. It is 

incumbent upon the releasing shipper to include the details discussed above to qualify the 

release as an AMA. The Commission further clarifies that the pipeline has no obligation 

to act on any information other than is provided to it by its customers. The pipeline must 

 165 INGAA comments at 21; Spectra comments at 29. 
Docket No. RM08-1-000 - 121 - 

of course, comply with all applicable elements of section 284.13 of the Commission’s 

regulations. 

9. Part 157 Capacity

178. Several commentors166 urge the Commission to permit Part 157 individually 

certificated transportation and storage agreements to be used in the AMA context.167 The 

Commission’s Part 284 regulations, including the provisions for flexible receipt points 

and capacity release, do not apply to Part 157 services. This is because pipelines perform 

Part 157 services pursuant to an individual certificate rather than a Part 284 blanket 

certificate for open access transportation. Under Part 157, a pipeline negotiates a service 

with a particular shipper, including the terms and conditions of service. Such an 

agreement generally would only provide for service between specified receipt and 

delivery points. Subsequently, the pipeline would apply to the Commission under NGA 

section 7 for a certificate to perform this individual service. 

179. NJNG states that the Commission should permit a capacity holder desiring to enter 

into an AMA “to release Part 157, as well as Part 284, capacity to the asset manager.” 

However, it qualifies its request to explain that while it believes that a release of Part 157 

capacity should be permitted in this context, it does not request all the flexibility of Part 

 166 See e.g., comments of AGA, National Grid, NJNG, Nstar, and PPM. 

167 Individually-certificated service agreements are transportation and storage 

services that have been certificated pursuant to Part 157 of the Commission’s regulations 

and under the authority of Section 7(c) of the NGA. See 18 CFR 157 Subpart A (2007). 
Docket No. RM08-1-000 - 122 - 

284 capacity. NJNG states that a limited expansion of flexibility afforded to Part 157 

transactions will facilitate the asset manager’s ability to optimize the customer’s portfolio 

of transactions.168 NGNJ also suggests that inclusion of Part 157 service in AMAs could 

be achieved “either by making Part 157 services releasable for this limited purpose, or it 

could be effectuated by affording the asset manager a waiver of the Shipper Must Have 

Title requirement . . . .”169 

180. National Grid also requests that the Commission clarify that “as part of an AMA, a 

shipper can include all of its pipeline contracts, including individually certificated Part 

157 contracts and upstream sales agreements without violating any otherwise applicable 

Commission rules or policies . . . .”170 AGA recommends that the Commission allow 

Part 157 capacity to be included in the portfolio of assets that a releasing shipper may 

assign to an asset manager, but does not advocate that Part 157 capacity be permitted to 

be released or assigned on a stand-alone basis.171 PPM and Nstar request that the 

Commission permit customers to include Part 157 service as part of an AMA. They 

argue that inclusion of Part 157 capacity in AMAs would further advance the 

Commission’s goal of facilitating AMAs and warrants an exception from the rules that 

 168 NJNG comments at 3. 

169 Id. 

170 National Grid comments at 5. 

171 AGA comments at 22. 
Docket No. RM08-1-000 - 123 - 

otherwise prohibit shippers from releasing their Part 157 capacity, while exclusion of Part 

157 capacity, would serve as an obstacle to the maximization of efficient capacity. 

181. On February 15, 2008, Spectra filed a reply to these comments. Spectra supports 

the ability of customers to have asset managers act as their agents in managing Part 157 

service agreements, so long as the agreements themselves are not released or otherwise 

assigned to the asset manager and the customer and asset manager follow all other 

Commission policies and regulations related to Part 157 service. Spectra opposes 

requests that the Commission allow Part 157 service to be released or, in any way, be 

treated in the same manner as Part 284 services and states that such suggestions are 

inconsistent with Commission policy and are outside the scope of the NOPR. 

182. On March 3, 2008, Nstar filed a response to Spectra and clarifies that commentors 

requesting this treatment for Part 157 capacity are not arguing for flexibility equal to that 

the Commission provides shippers under Part 284 service. Rather, they simply urge the 

Commission to clarify that Part 157 rights may be among the assets conveyed under an 

AMA, and that they seek no additional Part 284 service flexibilities. Nstar argues that 

the Commission should not require shippers to convert Part 157 service to Part 284 

service as a condition of subjecting such capacity to an AMA. Nstar argues that such 

conversion would be costly and the added flexibilities would not warrant the cost of 

conversion as they are unnecessary. 

183. The Commission did not propose in the NOPR to require pipelines to allow 

shippers to transfer their Part 157 service agreements to an AMA, because the essence of 
Docket No. RM08-1-000 - 124 - 

an AMA, as defined by Commission, is a pre-arranged capacity release, pursuant to the 

Part 284 regulations, from the holder of the capacity to the asset manager. The 

Commission’s policies regarding the release of Part 157 capacity are well set: 

In Order No. 636-A, the Commission determined that holders 

of individually certificated transportation under section 7 (c) 

of the Natural Gas Act and Part 157 of the Commission’s 

regulations (Part157 shippers), i.e. not Part 284 shippers, are 

not eligible to release capacity under section 284.243 since 

they are not governed by Part 284 or affected by the 

provisions of Order No. 636 that amended the Part 284 

regulations.172

184. In its Order No. 636 proceeding, the Commission recognized that shippers under 

Part 157 service would not have the same rights and flexibility as Part 284 shippers such 

as flexible receipt and delivery points and the right to release their capacity to another 

shipper. However, the Commission stated that shippers with Part 157 service could 

convert their Part 157 service to Part 284 service if they wanted to release capacity or use 

flexible receipt and delivery points.173 Further, in Order No. 636-B, the Commission 

 172 Order No. 636-B, 61 FERC ¶ 61,272 at 61,992 (1992), citing, Order No. 636-A 

at 30,569. 

173 Order No. 636-A at 30,569. Moreover, in Order No. 636-B, the Commission 

stated: 

Although the Commission is denying the requests for rehearing, the 

Commission reemphasizes that it finds conversions from individually 

certificated transportation to open access transportation to be in the public 

interest. The Commission anticipates that pipelines and their customers 

will be able to reach agreement on proposals for implementing such 

conversions and encourages them to do so. Id. at 61,994. (footnote omitted) 
Docket No. RM08-1-000 - 125 - 

recognized that while its open access program under Part 284 granted shippers benefits 

not enjoyed by Part 157 shippers, it also imposed obligations upon Part 284 shippers that 

were not imposed on Part 157 shippers, such as requiring non-discriminatory access for 

all shippers under Part 284 while Part 157 arrangements may include unique terms and 

conditions.174 The Commission also pointed out that, because the Part 284 capacity 

releasing program permits releases at discounted rates but Part 157 capacity cannot be 

discounted, Part 157 shippers cannot simply be included in the Part 284 capacity release 

program.175 

185. For the reasons stated above, the Commission is not persuaded to revise its 

longstanding policy of not permitting Part 157 shippers to participate in the capacity 

release program without converting their services to service under Part 284 blanket 

authority. Further, to the extent that Nstar argues that the commentors do not seek 

capacity release rights such as those enjoyed by Part 284 shippers but, rather the ability to 

assign a Part 157 individually certificated service agreement to its asset manager, such a 

request entails a change of the contract between the pipeline and the shipper. That is 

because such a modification would replace the existing shipper under a contract 

individually certificated by the Commission with another shipper. If the contract does 

not include a provision permitting such an assignment, the Commission could only 

 174 Order No. 636-B at 61,992. 

175 Order No. 636-B at 61,993. 
Docket No. RM08-1-000 - 126 - 

require the pipeline to permit the assignment by acting under NGA section 5. The 

Commission finds that such modifications to individually certificated agreements should 

be addressed on a case by case basis, rather than in this rulemaking proceeding. 

V. Tying of Storage Capacity and Inventory

186. In its decision in Texas Eastern Transmission, LP,176 the Commission found that a 

proposed tariff provision stating that "[i]f the Releasing Customer proposes or requires a 

transfer of all or a portion of its Storage Inventory in conjunction with its release of 

storage capacity rights, it shall so specify in its offer to release capacity” constituted a 

broad authorization for shippers on Texas Eastern’s system to tie their release of storage 

capacity to an extraneous condition (i.e. the taking of gas inventory) in all situations. The 

Commission held that this proposed tariff provision violated the Commission's current 

prohibition against tying a release of its capacity to any extraneous conditions. The 

Commission thus required Texas Eastern to delete the proposed language. 

187. Subsequent to the Texas Eastern decision, the Commission in the NOPR requested 

comment on whether it should clarify its prohibition concerning tying agreements outside 

of the AMA context to allow a releasing shipper to include conditions in a storage release 

 176 Texas Eastern Transmission LP, 120 FERC ¶ 61,199, order on compliance 

filing, 121 FERC ¶ 61,026 (2007), reh’g denied without prejudice, 122 FERC 61,014 

(2008) (Texas Eastern). The Commission stated in its rehearing order that the issues 

raised in the requests for clarification and/or rehearing in the Texas Eastern case were 

general policy issues that would be more appropriately addressed in this rulemaking 

proceeding. 
Docket No. RM08-1-000 - 127 - 

concerning the sale and/or repurchase of gas in storage inventory.177 All commenters that 

addressed this issue supported removing the tying prohibition for storage services to 

allow a shipper that releases storage capacity to condition a release of storage capacity on 

the sale and/or repurchase of gas in storage inventory. They want to be able to require 

that a replacement shipper take title to any gas that remains in the storage at the time the 

release takes effect and/or to require the releasing shipper to return the storage capacity to 

the releasing shipper at the end of the release with a specified amount of gas in storage.178 

Commenters supporting this change argue that there is nothing extraneous about a 

releasing shipper addressing gas in storage at the time it releases storage capacity, and 

thus the requisite “tying” should be permitted. 

188. Commenters note that tying storage capacity with storage inventory will allow the 

releasing shipper greater ease in releasing capacity and will enable transactions to be 

consummated more readily.179 Further, because releasing shippers may want to release 

storage capacity in the summer when they do not need it, they need to get the capacity 

back with gas in storage or there will not be enough time to re-fill it for the winter season. 

189. Commenters also assert that the nature of the relationship between storage 

capacity and storage inventory calls out for a waiver of the tying rule. They add that the 

 177 NOPR at P 82. 

178 See e.g. Comments of the AGA, Duke Energy, Florida Cities, INGAA, the 

NGSA, Piedmont, National Grid, NYSEG and RG&E. 

179 See e.g. Comments of Piedmont at 7. 
Docket No. RM08-1-000 - 128 - 

ability of releasing shippers to “tie” storage capacity with storage inventory such that 

releasing shippers would be permitted to require that replacement shippers take inventory 

as a condition of release, even outside the AMA context, will provide benefits to the 

marketplace similar to those provided by AMA.180 Finally, the NYPSC asserts that the 

AMA exemption from tying prohibition should be extended to releases of storage 

capacity performed pursuant to state retail access programs. 

190. Based on the substantial support expressed in the comments, the Commission is 

clarifying in this rule its prohibition on tying to allow a releasing shipper to include 

conditions in a release concerning the sale and/or repurchase of gas in storage inventory 

even outside the AMA context. Specifically, this exception to the tying rule is meant to 

allow a shipper that releases storage capacity to require the replacement shipper to 

(1) take title to any gas in the released storage capacity at the time the release takes effect 

and/or (2) return the storage capacity to the releasing shipper at the end of the release 

with a specified amount of gas in storage. The Commission is persuaded in the storage 

context, storage capacity is inextricably attached to the gas in storage. By allowing 

releasing shippers to condition the release of storage capacity on sale and or repurchase 

of gas in storage inventory and on there being a certain amount of gas left in storage at 

the end of the release, the Commission will enhance the efficient use of storage capacity 

while at the same time ensuring that the releasing shipper will have gas in storage for the 

 180 Comments of Marketer Petitioners at 15-16. 
Docket No. RM08-1-000 - 129 - 

winter. The Commission also agrees that allowing the tying of storage capacity to 

storage inventory will provide benefits to the market by enabling more active release of 

storage capacity into the wholesale market. 

VI. Liquefied Natural Gas

191. Statoil seeks clarification that akin to the exemption for AMAs that would allow 

the tying of released capacity to gas sales agreements, it would be permissible to link 

throughput agreements and/or sales of gas at the outlet of an NGA Section 3 liquefied 

natural gas (LNG) terminal with a prearranged capacity release on an interstate pipeline 

connected to the terminal. Statoil comments that LNG importers often hold firm capacity 

on interstate pipelines adjacent to the terminals to ensure that re-gasified LNG can exit 

the terminal efficiently and be transported to the markets on the interstate pipeline grid. 

Noting that while the contracts governing the use of NGA section 3 capacity are not 

subject to the Commission’s open access or capacity release policies, and that the terms 

of agreements for the sale of LNG are not governed by the Commission, the NGA section 

7 pipelines that connect the terminals to the interstate grid are subject to those 

regulations. Accordingly, Statoil suggests that the Commission should recognize and 

permit the natural link between an LNG terminal throughput agreement and an agreement 

to release downstream pipeline capacity and clarify that such a tie is permissible. Shell 

LNG filed in support of Statoil’s comments.181

 181 Chevron also filed late supporting comments on May 27, 2008. 
Docket No. RM08-1-000 - 130 - 

192. The Commission declines to grant the requested clarification in this generic 

rulemaking proceeding. In this rule, the Commission is providing an exemption from 

bidding and the prohibition on tying in order to permit gas sellers to use supply AMAs. 

Statoil and other LNG importers holding firm capacity on interstate pipelines connected 

to an LNG terminal can use a supply AMA. The comments of Statoil and other LNG 

importers do not provide adequate detail on the types of transactions for which they seek 

a tying exemption to explain why a further exemption beyond that provided for supply 

AMAs is required for LNG facilities. Likewise, it is unclear from the comments how far 

downstream they seek to have the exemption apply. For example, while some terminals 

may have direct connection to a dedicated lateral line, others interconnect directly with a 

major interstate natural gas pipeline. Nor do we have a sufficient record at this time to 

evaluate the possible benefits of such an exemption or the effect on open access 

competition that such an exemption might have. 

193. While the Commission declines to grant the clarification in this general 

rulemaking proceeding, the Commission is open to considering this issue on a case –bycase basis if presented to it in a fully justified proposal. 

VII. State Mandated Retail Unbundling

194. Section 284.8(h)(1) of the Commission’s current capacity release regulations 

exempts 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 
Docket No. RM08-1-000 - 131 - 

on this “safe harbor” exemption from bidding in structuring their programs. Specifically, 

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. 

195. However, the Commission’s removal of the price ceiling for releases of one year 

or less in this rule eliminates the bidding exemption for releases with terms of between 31 

days and one year. That is because there will no longer be a maximum tariff rate 

applicable to such releases. As a result, absent some additional modification of the 

regulations concerning bidding, LDCs will 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. 

196. In the NOPR, the Commission proposed to address this issue in a manner 

generally consistent with its actions in Order No. 637, when a similar issue arose with 

respect to the experimental lifting of the price ceiling for short-term capacity releases. In 

Order Nos. 637-A and 637-B,182 the Commission denied the request by LDCs for a 

 182 Order No. 637-A at 31,569; Order No. 637-B, 92 FERC at 61,163. 
Docket No. RM08-1-000 - 132 - 

blanket exemption from bidding of all capacity releases made as part of a state retail 

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 provided that, if an LDC considered an 

exemption from bidding essential to further a state retail unbundling program, the LDC 

could request a waiver of the bidding regulation to allow the LDC to consummate prearranged capacity release deals at the maximum rate, subject to certain conditions.183

197. In the NOPR, the Commission similarly proposed to permit LDCs to request a 

waiver of the bidding regulation to allow them to consummate short-term pre-arranged 

capacity release deals necessary to implement retail access at the maximum rate without 

bidding. The Commission stated that this limited waiver of the bidding requirement 

would enable retail access programs to continue to operate with the same exemption from 

bidding which they now have. While the Commission did not propose a blanket 

exemption from bidding for releases made by LDCs under state retail choice programs 

 183 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, finding that the Commission’s concern about 

discrimination was reasonable. However, the court remanded the issue of the 

reasonableness of the Commission’s condition that an LDC seeking a waiver must agree 

to subject all its releases to the maximum rate. 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 - 133 - 

comparable to the blanket exemption for AMAs, the Commission requested 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. The Commission recognized 

that there are similarities between releases made pursuant to a state retail unbundling 

program and those made as part of an AMA, but requested comment on whether a 

blanket exemption for state programs would entail greater potential for undue 

discrimination. 

198. The vast majority of comments that addressed this issue supported treating 

capacity releases under state retail choice programs the same way as AMAs, advocating 

that those capacity releases be afforded the same blanket exemptions from capacity 

release bidding requirements as those granted to releases to implement AMAs.184 

Commenters assert that releases made by LDCs for state unbundling programs closely 

resemble AMAs in that the capacity is committed to be used for its original purpose, to 

serve the LDC’s customers. Commenters also note that the reasons given by the 

Commission in the NOPR for the bidding and tying exemptions for AMAs apply with 

equal force to releases to implement state approved retail access programs. Others argue 

that the Commission’s case-by-case exemption analysis creates a greater potential for 

discrimination than a blanket exemption would. As pointed out by the NYPSC, requiring 

 184 Those commenters include the AGA, Boardwalk, BP, Commerce Energy, 

Direct Energy, Duke Energy, FPL, Hess, IGS, NJNG, NStar, NYSEG, RG&E, Ohio 

OGMG, PG&E, PSCNY, PUCO, SEMI, Sequent and WDG. 
Docket No. RM08-1-000 - 134 - 

LDCs seeking to participate in state approved unbundling programs will inject a level of 

uncertainty into the process as well as impose additional expensive burdens on those 

LDCs. AGA urges the Commission to permit LDCs to make exempt releases at the price 

the LDC paid for the capacity as opposed to the applicable maximum tariff rate.185 FPL 

Energy provides the Commission with an alternative suggestion that would continue to 

allow a general exemption from bidding for prearranged releases where the replacement 

shipper agrees to pay the maximum tariff rate.186

199. The Commission finds that capacity releases by LDCs to implement state 

approved retail access programs should be granted the same blanket exemptions from the 

prohibition against tying and the bidding requirements as capacity releases made in the 

AMA context. As the Commission stated in Georgia Public Service Commission,

187

“state retail unbundling is consistent with the Commission’s overall goals in Order No. 

636 of improving the competitive structure of the natural gas industry by promoting 

access to the interstate pipeline transportation grid and the wellhead market so that 

willing buyers and sellers can meet in a competitive, national market to transact the most 

efficient deals possible. Therefore the Commission does not wish to discourage state 

retail unbundling programs that give retail end-users a greater choice of suppliers from 

 185 AGA comments at 7. 

186 FPL Energy comments at 23. 

187 110 FERC ¶ 61,048 at P 20 (2005). 
Docket No. RM08-1-000 - 135 - 

whom to purchase their gas.” State retail unbundling programs provide benefits similar 

to AMAs. 

200. Accordingly, this rule clarifies that the prohibition against tying does not apply to 

releases by an LDC to a marketer that agrees to sell gas to the LDC’s retail customers 

under a state approved retail access program. The final rule also amends section 284.8(h) 

in order to provide for such an exemption from bidding. The exemption from bidding will 

apply regardless of the rate at which the LDC makes its releases to the marketers 

participating in the state retail unbundling program. In order to qualify for the 

exemption, the capacity release must be used by the replacement shipper to provide the 

gas supply requirement of retail consumers pursuant to a retail access program approved 

by the state agency with jurisdiction over the LDC that provides delivery service to such 

retail consumers. The exemption does not apply to re-releases made by marketers 

participating in the retail access program. 

201. In light of our granting this blanket bidding exemption, the Commission is also 

modifying section 284.13(b)(1) of its regulations to add a requirement that the pipeline’s 

posting of a capacity release must state whether the release is to a marketer participating 

in an eligible state retail access program. 

VIII. Implementation Schedule

202. The regulatory changes in this rule will become effective as of the effective date of 

this rule, at which time parties may act in accordance with the revised regulations 

adopted by this rule. Pipelines must file within 180 days of the effective date of this rule 
Docket No. RM08-1-000 - 136 - 

to remove any inconsistent tariff provisions and can incorporate this filing into any other 

tariff filing made by the pipeline within the 180 day period. 

IX. Information Collection Statement

203. The Office of Management and Budget (OMB) regulations require that OMB 

approve certain reporting, recordkeeping, and public disclosure (collections of 

information) imposed by an agency.188 Accordingly, pursuant to OMB regulations, the 

Commission is providing notice of its proposed information collections to OMB for 

review under section 3507(d) of the Paperwork Reduction Act of 1995.189

204. The Commission identifies the information provided under Part 284.13 as 

contained in FERC-549B. As mentioned above, natural gas pipelines must also amend 

their tariffs to remove inconsistent language and to incorporate the provisions from this 

rule into another tariff filing as covered under FERC-545 and file with the Commission. 

205. The Commission did not receive specific comments concerning its burden 

estimates and uses the same estimates here in the Final Rule, as modified to reflect the 

addition of what must be included in the posting of any capacity release to implement an 

asset management agreement or a release made as part of a state retail access program 

and to make the require tariff filings. The burden estimates for complying with additional 

filing requirements of this rule pursuant to the procedures in proposed new sections 

 188 5 CFR §1320.11 (2007). 

189 44 U.S.C. 3507(d) (2000). 
Docket No. RM08-1-000 - 137 - 

284.13(b)(1) are set forth below. For the most part, the burden on respondents to comply 

with the existing reporting requirements in section 284.13 of the Commission’s 

regulations will not be changed by this proposed rule. In 1992 in Order No. 636 the 

Commission established a capacity release mechanism under which shippers could 

release firm transportation and storage capacity on either a short or long term basis to 

other shippers wanting to obtain capacity. This Final Rule modifies policies and 

regulations concerning capacity releases by shippers on interstate pipelines in order to 

enhance the efficiency and effectiveness of the secondary capacity release market. The 

Commission is responding to industry’s request for greater flexibility in the capacity 

release market and to reflect changes and developments in the marketplace. On average, 

we expect the burden of making the corresponding changes under this Final Rule to be 35 

hours. This estimate is based on the modification of websites to account for the posting 

of the delivery and /or purchase obligation and whether a release is to a marketer serving 

as an asset manager or a shipper who is participating in a state unbundling program, as 

well as to make the required tariff changes. 

Data 

Collection 

No. of 

Respondents 

No. of 

Responses Per 

Respondent 

Hours Per 

Response 

Total Annual 

Hours 

FERC-549B 102 1 10 1,020 

FERC-545 102 1 25 2,550 
Docket No. RM08-1-000 - 138 - 

Totals 102 1 25 3,570 

Total Annual Hours for Collection: 3570 hours. 

206. Information Collection Costs: The Commission sought comments on the cost to 

comply with these requirements. No comments were received. The Commission has 

projected the average annualized cost for all respondents to be $$145,350. This takes 

into account IT technical support 5 hours @$125 an hour, legal review 3 hours @$250 an 

hour and administrative support 22 hours @$25 an hour. 

207. Title: Capacity Information (FERC-549B), Gas Pipeline Rates: Rate Change 

(Non-Formal)(FERC-545)... 

208. Action: Proposed Information Collection. 

209. OMB Control Nos.: 1902-0169, 1902-0154. 

210. The applicant shall not be penalized for failure to respond to these collections of 

information unless the collections of information display valid OMB control numbers. 

211. Respondents: Business or other for profit. 

212. Frequency of Responses: On occasion. 

213. Necessity of Information: This Final Rule will 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. 

Elimination of the price ceiling for short-term capacity releases will provide more 

accurate price signals concerning the market value of pipeline capacity. Further, 
Docket No. RM08-1-000 - 139 - 

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. 

214. Interested persons may obtain information on the reporting requirements by 

contacting the following: Federal Energy Regulatory Commission, 888 First Street, NE, 

Washington, D.C. 20426 (Attention: Michael Miller, Office of the Executive Director, 

202-502-8415, fax: 202-273-0873, e-mail: michael.miller@ferc.gov). 

215. For submitting comments concerning the collection of information and the 

associated burden estimate(s) including suggestions for reducing this burden, please send 

your comments to the contact listed above and to the Office of Management and Budget, 

Room 10202 NEOB, 725 17th Street, N.W., Washington, D.C. 20503 (Attention: Desk 

Officer for the Federal Energy Regulatory Commission, 202-395-7345, fax: 202-395-

7285). 

X. Environmental Analysis

216. The Commission is required to prepare an Environmental Assessment or an 

Environmental Impact Statement for any action that may have a significant adverse effect 
Docket No. RM08-1-000 - 140 - 

on the human environment.190 The Commission has categorically excluded certain 

actions from these requirements as not having a significant effect on the human 

environment.191 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.192 Therefore an 

environmental review is unnecessary and has not been prepared in this rulemaking. 

XI. Regulatory Flexibility Act

217. The Regulatory Flexibility Act of 1980 (RFA)193 generally requires a description 

and analysis of the impact the proposed rule will have on small entities or a certification 

that the proposed rule will not have significant economic impact on a substantial number 

of small entities. The amendments to our regulations would apply only to natural gas 

companies, most of which are not small businesses. Under the industry standards used 

for purposes of the RFA, a natural gas pipeline company qualifies as a “small entity” if it 

 190 Order No. 486, Regulations Implementing the National Environmental Policy 

Act, 52 FR 47,897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles 1986-

1990 ¶ 30,783 (1987). 

191 18 CFR 380.4 (2007). 

192 See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5) and 380.4(a)(27)(2007).

193 5 U.S.C. 601-612, 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 - 141 - 

has annual revenues of $6.5 million or less. As we stated in both the NOPR and in this 

Final Rule, removal of the price ceiling will enable releasing shippers to offer 

competitively-priced alternatives to the pipelines’ negotiated rate offerings. 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. 

218. The RFA directs agencies to consider at a minimum four regulatory alternatives in 

drafting a rulemaking to lessen the impact on small entities: tiering or establishment of 

different compliance or reporting requirements for small entities; classification, 

consolidation, clarification or simplification of compliance and reporting requirements; 

performance rather than design standards; and exemptions. In this Final Rule, the 

Commission has revised its regulations to lift the ceiling price from the release market 

and provided a different compliance regime for shippers making short-term capacity 

release transactions. This gives releasing shippers some of the same flexibility that is 

currently enjoyed by jurisdictional pipelines. In addition, the Commission will exempt 

capacity releases made as part of AMAs from the prohibition of tying and from the 

bidding requirements of section 284.8. AMAs provide significant benefits to many 

participants in the natural gas and electric marketplaces particularly by allowing greater 

flexibility for entities to customize arrangements to meet unique customer needs. Sellers 

of natural gas by using the benefits of AMAs create a greater diversity of potential 

suppliers and participants in the secondary markets. AMAs benefits also include better 
Docket No. RM08-1-000 - 142 - 

management of risks to the fuel supply which in turn allows generators to focus on the 

electric market and not to be consumed with administrative burdens relating to multiplier 

suppliers, overheads and capital requirements for and the risks associated with marketing 

excess gas. In addition, capacity releases made under state-approved retail access 

programs are also exempt from the prohibition on tying and bidding requirements of 

section 284.8 A small entity that participates in the market will no longer be constrained 

by a ceiling price for its unused capacity. 

219. Accordingly, pursuant to section 605(b) of the RFA, the Commission certifies that 

the Final Rule would not have a significant economic impact on a substantial number of 

small entities. 

XII. Document Availability

220. 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. 

221. 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 
Docket No. RM08-1-000 - 143 - 

eLibrary, type the docket number excluding the last three digits of this document in the 

docket number field. 

222. User assistance is available for eLibrary and the FERC’s website 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. 

XIII. Effective Date and Congressional Notification

223. These regulations are effective insert date 30 days from publication in Federal

Register. The Commission has determined, with the concurrence of the Administrator of 

the Office of Information and Regulatory Affairs of OMB, that this rule is not a “major 

rule” as defined in section 351 of the Small Business Regulatory Enforcement Fairness 

Act of 1996. 

List of subjects in 18 CFR Part 284

By the Commission. Commissioner Moeller dissenting in part with a separate statement 

 attached. 

( S E A L ) 

Kimberly D. Bose, 

Secretary. 
Docket No. RM08-1-000 - 144 - 

 In consideration of the foregoing, the Commission proposes to amend part 284, 

Chapter I, Title 18, Code of Federal Regulations, 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. Payments or other 

consideration exchanged between the releasing and replacement shippers in a release to 

an asset manager as defined in (h)(3) of this section are not subject to the maximum rate. 

No rate limitation applies to the release of capacity for a period of one year or less. 
Docket No. RM08-1-000 - 145 - 

* * * * * 

(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, a 

release to an asset manager as defined in (h)(3) of this section, or a release to a marketer 

participating in a state-regulated retail access program as defined in (h)(4) of this section 

need not comply with the 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 the first 

nomination, 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 pre-arranged release that contains a condition that the 

releasing shipper may, on any day during a minimum period of five months out of each 

twelve-month period of the release, call upon the replacement shipper to (i) deliver to the 

releasing shipper a volume of gas up to one-hundred percent of the daily contract demand 

of the released transportation capacity or (ii) purchase a volume of gas up to the daily 
Docket No. RM08-1-000 - 146 - 

contract demand of the released transportation capacity. If the capacity release is for a 

period less than one year, the asset manager’s delivery or purchase obligation described 

in the previous sentence must apply for the lesser of five months or the term of the 

release. If the capacity release is a release of storage capacity, the asset manager’s 

delivery or purchase obligation need only be one-hundred percent of the daily contract 

demand under the release for storage withdrawals or injections, as applicable. 

(4) A release to a marketer participating in a state-regulated retail access program 

exempt from bidding requirements under paragraph (h)(1) of this section is any 

prearranged capacity release that will be utilized by the replacement shipper to provide 

the gas supply requirement of retail consumers pursuant to a retail access program 

approved by the state agency with jurisdiction over the local distribution company that 

provides delivery service to such retail consumers. 

3. Amend § 284.13 as follows: 

a. Add sections (x) and (xi) to the end of paragraph (b)(1) to read as follows. 

§ 284.13 Reporting requirements for interstate pipelines.

* * * * * * 

(b) * * * 

(1) * * * 

(x) Whether a capacity release is a release to an asset manager as defined in section 

284.8(h)(3) and the asset manager’s obligation to deliver gas to, or purchase gas from, the 

releasing shipper. 
Docket No. RM08-1-000 - 147 - 

(xi) Whether a capacity release is a release to a marketer participating in a stateregulated retail access program as defined in section 284.8(h)(4). 
UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

 

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

 

(Issued June 19, 2008) 

 

MOELLER, Commissioner dissenting, in part: 

 Several commenters with interests in the importation of liquefied natural gas 

(LNG) seek clarification that a prohibited tying arrangement would not occur if an LNG 

importer combines an LNG throughput agreement (or the sale of regasified LNG at the 

outlet of the terminal) with a prearranged release of pipeline transportation capacity on 

the terminal’s directly connected pipeline. In the alternative, the parties seek a limited 

exception from the Commission’s tying prohibition. Today’s final rule declines to grant 

either the requested clarification or the limited tying exception, but instead provides for 

adjudication on a case-by-case basis. I cannot support this determination. 

 While LNG imports admittedly have characteristics that are similar to both natural 

gas production and storage, LNG imports have important differences that merit a 

somewhat different policy. LNG cargo owners and terminal operators may have less 

flexibility as they enter into negotiations and supply arrangements in the global market on 

the high seas, and the Commission should provide the regulatory certainty to permit the 

linkage of such agreements without fear of running afoul of the tying prohibition. 

Providing such an assurance could benefit the public interest by encouraging increased 

LNG supply deliveries and the efficiencies associated with linking the terminal capacity 

and pipeline capacity (since the commodity would flow uninterrupted from the terminal 

to its directly connected pipeline – although separately contracted arrangements on other 

pipeline(s) may be necessary to deliver the gas to its final destination.) However, 

separating these arrangements risk stranding capacity at the import terminal or may even 

result in LNG suppliers serving more flexible markets that do not have such regulatory 

obstacles. Moreover, due to the limited nature of the exception being sought, I would not 

expect that either domestic producers or interstate shippers would be placed at a 

competitive disadvantage. 

The need for LNG imports will undoubtedly increase in the coming years and the 

Commission should take steps to provide regulatory certainty to ensure that LNG tankers 

can reach our domestic markets without unnecessary risk. Accordingly, I believe that 

this narrow exception is appropriate in light of the unique position of LNG terminals in 

the interstate pipeline system. 

 _______________________ 

 Philip D. Moeller 

 Commissioner