125 FERC ¶ 61,216 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 284 

[Docket No. RM08-1-001; Order No. 712-A] 

Promotion of a More Efficient Capacity Release Market 

(Issued November 21, 2008) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Final Rule; Order on Rehearing. 

SUMMARY: The Federal Energy Regulatory Commission (Commission) is issuing an 

order addressing the requests for clarification and/or rehearing of Order No. 712 [73 Fed. 

Reg. 37058, June 30, 2008]. Order No. 712 revised Commission 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 order permitted market based pricing for short term 

capacity releases and facilitated asset management arrangements (AMA) by relaxing the 

Commission’s prohibition on tying and on its bidding requirements for certain capacity 

releases. The Commission further clarified in the order 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 waived its prohibition on tying and bidding 

requirements for capacity releases made as part of state-approved open access programs. 

This order generally denies rehearing and clarifies Order No. 712. 
Docket No. RM08-1-001 - 2 - 

EFFECTIVE DATE: The amendments to the regulations will become effective 30 days 

after publication in the Federal Register. 

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 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:
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 Docket No. RM08-1-001 

 Release Market 

ORDER NO. 712-A 

TABLE OF CONTENTS

Paragraph Numbers

I. Removal of the Price Ceiling for Released Capacity..................................................... 3.

A. Background .............................................................................................................. 3.

B. Price Ceiling Applicable to Pipeline Capacity....................................................... 13.

1. Rehearing Requests ........................................................................................... 13.

2. Commission Determination ............................................................................... 16.

a. Competitive Market Findings......................................................................... 22.

b. Withholding Construction of Needed Pipeline Infrastructure ....................... 29.

c. Pricing Flexibility........................................................................................... 38.

d. Bifurcated Markets......................................................................................... 50.

e. Proposed Alternatives..................................................................................... 54.

C. Clarification Regarding Specific Issues ................................................................. 57.

1. Consecutive Releases.......................................................................................... 57.

a. Clarification Requests .................................................................................... 57.

b. Commission Determination ........................................................................... 60.

2. Definition of Short-Term.................................................................................... 63.

3. Lump Sum Payments.......................................................................................... 65.

II. Asset Management Arrangements .............................................................................. 68.

A. Background ............................................................................................................ 68.

B. Definition of AMAs ............................................................................................... 73.

C. Exemption from Bidding for AMAs ...................................................................... 89.

D. Posting and Reporting Requirements................................................................... 101.

1. Posting requirements ........................................................................................ 102.

2. Index of Customers........................................................................................... 104.

E. Miscellaneous AMA Issues .................................................................................. 107.
Docket No. RM08-1-001 ii 

III. State Mandated Retail Unbundling ......................................................................... 115.

IV. Tying of Storage Capacity and Inventory .............................................................. 128.

V. Liquefied Natural Gas............................................................................................... 139.

VI. Information Collection Statement ........................................................................... 147.

VII. Document Availability........................................................................................... 148.

VIII. Effective Date and Congressional Notification.................................................... 151.
 

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. RM08-1-001 

ORDER ON REHEARING AND CLARIFICATION 

ORDER NO. 712-A 

(Issued November 21, 2008) 

1. On June 19, 2008, the Commission issued Order No. 712,1

 a Final Rule that 

revised the Commission’s Part 284 regulations concerning the release of firm capacity by 

shippers on interstate natural gas pipelines in order to enhance the efficiency and 

effectiveness of the secondary capacity release market. Specifically, the Final Rule made 

the following changes to the Commission’s policies and regulations: 

• The rule lifted the maximum rate ceiling on secondary capacity releases of one 

year or less to enhance the efficiency of the market while continuing to 

regulate long term capacity releases of more than one year and pipeline rates 

and services. 

1 Promotion of a More Efficient Capacity Release Market, 73 Fed. Reg. 37058 

(June 30, 2008), FERC Statutes and Regulations ¶ 31,271 (2008). 
Docket No. RM08-1-001 - 2 - 

• The rule modified the Commission’s policies and regulations to facilitate the 

use of AMAs. The first modification is to exempt capacity releases that 

implement AMAs from the Commission’s prohibition on tying capacity 

releases to any extraneous conditions. The second change is to exempt 

capacity releases made as part of an AMA from the bidding requirements set 

forth in section 284.8 of the Commission’s regulations. 

• The rule established a definition of AMAs that will qualify for the tying and 

bidding exemptions. The definition provides for both delivery and supply side 

AMAs and requires that an asset manager satisfy certain delivery and/or 

purchase obligations. 

• The rule also revised the Commission’s prohibition against tying to allow a 

releasing shipper to include conditions in a release of storage capacity 

regarding the sale and/or repurchase of gas in storage inventory, even outside 

the AMA context. Specifically, this exemption from tying is meant to allow a 

shipper that releases storage capacity to require a replacement shipper to take 

title to any gas in the released capacity at the time the release takes effect 

and/or to return the storage capacity to the releasing shipper at the end of the 

release with a specified amount of gas in storage. 

• Finally, the rule modified the Commission’s regulations to facilitate retail 

open access programs by exempting capacity releases made under state-
Docket No. RM08-1-001 - 3 - 

approved programs from the Commission’s capacity release bidding 

requirements. 

2. Three parties sought rehearing of Order No. 712.2

 Six parties sought rehearing 

and/or clarification.3

 Three parties filed for clarification only.4 The Marketer Petitioners 

requested clarification and reconsideration. As discussed below, the Commission largely 

denies rehearing but grants clarification in part and makes certain adjustments to the 

regulations regarding AMAs. 

I. Removal of the Price Ceiling for Released Capacity

A. Background

3. In Order No. 712, the Commission revised its regulations to remove the price 

ceiling on short term capacity releases. The Commission found that it had previously 

provided pipelines with the flexibility to enter into negotiated rate transactions that are 

 2

 Those parties are Allegheny Energy Supply Company, LLC (Allegheny), Shell 

NA LNG LLC (Shell LNG) and Statoil Natural Gas LLC, Chevron USA Inc., and 

Constellation Energy Commodities Group, Inc., (collectively, LNG Petitioners). 

3

 Those parties are the Interstate Natural Gas Association of America (INGAA), 

Iroquois Gas Transmission System, LP (Iroquois), the Natural Gas Supply Association 

and the Electric Power Supply Association (NGSA), Public Service Company of North 

Carolina, Inc., South Carolina Electric & Gas Company, and Scana Energy Marketing 

Inc., (collectively Scana), Spectra Energy Transmission LLC and Spectra Energy 

Partners (Spectra), Vector Pipeline LP (Vector) and Williston Basin Interstate Pipeline 

Company (Williston). INGAA filed a separate request for rehearing and a separate 

request for clarification. 

4

 Those parties are the American Gas Association (AGA), BP Energy Company 

(BP) and Reliant Energy Inc., (Reliant). 
Docket No. RM08-1-001 - 4 - 

permitted to exceed the maximum rate ceiling, as long as the shipper could avail itself of 

the pipeline’s cost-of-service recourse rate. The Commission also found that removing 

the price ceiling for short term releases would extend such pricing flexibility to releasing 

shippers, subject to the continued protection of the recourse rate for capacity purchased 

directly from the pipeline. 

4. The Commission noted the increased use of negotiated rate transactions by 

shippers and pipelines based on gas price differentials and found that such use 

demonstrated that buyers and sellers are attracted to the ability to calibrate the price of 

transportation to its value in the market. The Commission also found that the maximum 

rate ceiling as applied to capacity release transactions denied releasing and replacement 

shippers the same ability enjoyed by the pipelines to negotiate transactions that reflect the 

market value of capacity at all times. With the price ceiling in effect, releasing shippers 

were unable to effectively use price differentials as a measure of capacity value because 

they were denied the ability to recover the value of capacity during peak periods when 

that value exceeds the maximum rate cap. 

5. The Commission further found that because the existing capacity release price 

ceiling did 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 shortterm shippers it is intended to protect. Removal of the price ceiling will permit shortterm capacity release prices to rise to market clearing levels, thereby allocating capacity 
Docket No. RM08-1-001 - 5 - 

 

to those that value it the most while providing accurate price signals to the marketplace. 

The Commission also found that the price ceiling harmed captive customers holding 

long-term contracts on the pipeline, and that the price ceiling reduces the dissemination 

of accurate capacity pricing information. 

6. The Commission recognized that in removing the price ceiling from short term 

capacity releases it was departing from a cost-of-service ratemaking methodology, but 

determined that given the benefits to be derived from removing the price ceiling, 

sufficient protections existed against the exercise of market power by releasing shippers. 

7. The Commission reviewed data collected over many years, which showed that as a 

general matter, the rates resulting from removal of the price cap for capacity release 

should be reasonably competitive. But the Commission did not rely solely on 

competition to ensure just and reasonable prices.5

 The Commission found that the same 

recourse rate that protects against the potential exercise of market power in pipeline 

negotiated rate transactions would serve a similar function in protecting against the 

5

 Specifically, the Commission also stated: 

[t]he 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. Order No. 712 at P 39. 
Docket No. RM08-1-001 - 6 - 

 

potential exercise of market power by releasing shippers. The Commission found that 

any attempt by a releasing shipper to withhold capacity in order to raise 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.6

8. The Commission also reasoned that the releasing shippers’ ability to exercise 

market power in the short-term capacity release market is limited because short-term 

customers are not captive, even if only connected to one pipeline. Thus, the Commission 

found that short-term shippers always have the option simply not to take service, if the 

price demanded is above competitive market levels.7

9. In sum, the Commission found that its removal of the price ceiling on short-term 

capacity release transactions provides on balance advantages that “offset whatever harm 

the occasional high rate might entail.”8

 The Commission found that removal of the price 

6

 Order No. 712 at P48-49. In this respect, the Commission continued the same 

protection on which it relied in Order No. 637. 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 31,282, 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) (Order No. 637). 

7

 Order No. 712 at P 50. 

8

 Order No. 712 at P 51 (citing, Interstate Natural Gas Association of America, 

285 F.3d 18, 33 (D.C. Cir. 2002) (INGAA)). 
Docket No. RM08-1-001 - 7 - 

 

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 and that it will also provide potential customers 

with additional opportunities to acquire capacity. Finally, the Commission found that by 

providing more accurate price signals concerning the market value of pipeline capacity, 

removal of the price ceiling for short-term capacity releases promotes the efficient 

construction of new capacity by highlighting the location, frequency, and severity of 

transportation constraints. 

10. The Commission determined not to remove the price ceiling for pipeline shortterm services, stating that by its action in removing the price ceiling from short term 

capacity releases, the Commission intended to permit releasing shippers some of the 

same flexible pricing authority the Commission has already granted pipelines through the 

negotiated rate program.9

 The Commission stated that the pipelines’ request to lift the 

maximum rate on short-term releases would effectively negate the recourse rate 

protection against the use of market power that the Commission included in its negotiated 

9

 Order No. 712 at P 83. In fact, the Commission reasoned that pipelines already 

possess significant pricing discretion in that they may enter into negotiated rate 

transactions above the maximum rate or by establishing that they lack market power and 

requesting market based rate authority or by requesting seasonal rates for their systems. 

The Commission stated that its rule was designed solely to give releasing shippers some 

of the same flexibility enjoyed by the pipelines, subject to the same recourse rate 

protection. Order No. 712 at P 86. 
Docket No. RM08-1-001 - 8 - 

rate program. The Commission also determined that the maximum rate ceiling on 

pipeline capacity acts as a recourse rate for both pipeline transactions and capacity 

release transactions and thereby protects both pipeline customers and replacement 

shippers on capacity release transactions.10

11. The Commission also explained that pipelines differed from capacity releasers in 

that they are the principal holders of capacity and, therefore, the pipelines possess greater 

ability to exercise market power by withholding capacity and not constructing facilities 

than do releasing shippers.11 

12. No party sought rehearing of the Commission’s determination to remove the price 

ceiling for capacity release transactions. The only major issue raised on rehearing is 

whether to remove the price ceiling from pipeline short-term services. A number of 

clarification and rehearing requests also were filed regarding specific issues related to the 

removal of the price ceiling for released capacity. 

B. Price Ceiling Applicable to Pipeline Capacity

1. Rehearing Requests 

13. INGAA, Williston and Spectra filed requests for rehearing regarding the 

Commission’s decision to retain the price ceiling for short-term pipeline services, while 

 10 Order No. 712 at P 83. 

11 Order No. 712 at P 84-85. 
Docket No. RM08-1-001 - 9 - 

 

removing the price ceiling on short term capacity releases.12 They assert that the same 

data and rationale that supports removing the price ceiling from short term capacity 

releases also supports the removal of the price ceiling for short-term pipeline capacity.13 

14. They argue that the Commission acknowledged that short-term released capacity 

and short-term pipeline capacity compete in the same market, and maintain that the 

finding that the short-term market is “generally competitive,” supports lifting the price 

ceiling for short-term pipeline capacity. 

15. They also maintain that the distinctions between released capacity and pipeline 

capacity set forth by Order No. 712 do not support retention of the price ceiling for 

pipeline capacity. They maintain that these distinctions are based on two incorrect 

premises: first, that interstate pipelines have market power in the relevant market; and 

second that a capped rate for pipeline capacity is necessary as a safeguard against abuse 

in the released capacity and pipeline capacity markets. Therefore, they maintain that the 

Commission acted arbitrarily and capriciously in not treating short-term pipeline and 

released capacity similarly. Further, INGAA argues that the disparate treatment of 

released and pipeline capacity under Order No. 712 cannot be excused by reference to 

12 These parties do not object to the removal of the price ceiling for capacity 

release transactions. See INGAA at 6. (“INGAA supports lifting the price cap on shortterm released capacity . . .”), Spectra at 5 (“The Commission was correct to remove the 

price caps on short-term capacity release capacity”). 

13 INGAA at 1, Williston at 2, Spectra at 2. 
Docket No. RM08-1-001 - 10 - 

flexible rate options and policies open to the pipelines because such options continue to 

leave rates capped or cannot be attained as a practical matter. 

2. Commission Determination 

16. The Commission denies the requests for rehearing, and continues to find that 

maintenance of the maximum rate ceilings for pipeline short term transactions is 

necessary to protect against the potential exercise of market power. As we explained in 

Order No. 712, the removal of the rate ceiling for short term capacity release transactions 

is designed to extend to capacity release transactions the pricing flexibility already 

available to pipelines through negotiated rates without compromising the fundamental 

protection provided by the availability of recourse rate service. In the Alternative Rate 

Design Policy statement, we offered the pipelines the flexibility to exceed the price cap in 

one of two ways: pipelines can either 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.14 In Order 

No. 712, we provide releasing shippers with flexibility similar to that enjoyed by the 

 14 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. RM08-1-001 - 11 - 

 

pipelines, while retaining the recourse rate as a protection for the buyer against the 

potential exercise of market power by both pipelines and releasing shippers.15

17. While our examination of the capacity release record did indicate that capacity 

release prices seem to suggest a competitive market for released capacity as a general 

matter, we did not make a finding, as suggested in the rehearing requests, that the entire 

secondary market is competitive. We recognize that on some portions of the pipeline 

grid, little effective competition may exist.16 As we emphasized on several occasions in 

Order No. 712, precisely because we did not make such a competitive market finding, we 

are “continuing to insist on the maintenance of the pipeline's recourse rate as protection 

against the exercise of market power.”17 As we explained, on parts of the pipeline grid 

15 The court in INGAA recognized the value of the recourse rate in protecting 

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

As to deliberate withholding of capacity, the Commission 

reasoned that this too was not within the power of capacity 

holders. 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. 

285 F.3d at 33. 

16 Williston Basin Interstate Pipeline Co., 519 F.3d 497, 502 (D.C. Cir. 2008) 

(where the pipeline’s largest customer is its affiliate, the competitive capacity resale 

market is “smaller than one would otherwise expect”); United Distribution Cos. v. FERC, 

88 F.3d 1105, 1156 (D.C. Cir. 1996) (“when the capacity available for sale on a particular 

pipeline is limited, holders of even relatively small capacity allotments can exercise 

market power”). 

17 Order No. 712 at P 61. 
Docket No. RM08-1-001 - 12 - 

 

where all firm capacity may be held by only a few or one firm shipper, the availability of 

the recourse rate prevents those shippers from withholding their capacity in order to 

charge a price above competitive levels. If a releasing shipper seeks to charge more than 

the maximum rate for capacity, and the pipeline segment is not constrained, the 

replacement shipper would have the option of turning down the deal and purchasing the 

capacity from the pipeline at the cost-based just and reasonable interruptible or short-term 

firm rate. 

18. Moreover, as we also explained in Order No. 712, the implications of removing 

the price ceiling for pipeline capacity are more serious than for capacity release. 

Pipelines, due in part to their economies of scale, can exercise market power over 

pipeline capacity, particularly with respect to the construction of long-term capacity.18 

As the Court of Appeals for the District of Columbia Circuit has stated: 

Federal regulation of the natural gas industry is thus designed 

to curb pipelines’ potential monopoly power over gas 

transportation. The enormous economies of scale involved in 

the construction of natural gas pipelines tend to make the 

transportation of gas a natural monopoly.19

19. Unlike releasing shippers, pipelines have a greater ability to exercise market 

power because of their control over the expansion of the pipeline itself. If a pipeline 

could on its own or as part of an oligopolistic market structure exercise market power in 

18Id. P 67, 85. 

19 United Distribution Cos. v. FERC, 88 F.3d 1105, 1122 (D.C. Cir. 1996). 
Docket No. RM08-1-001 - 13 - 

 

the short-term market, it would have an incentive not to construct additional needed 

capacity (withhold new capacity) because of the excess revenues it can garner in the 

short-term market. As the Commission explained in Order No. 637: 

Without rate regulation, pipelines would have the economic 

incentive to exercise market power by withholding capacity 

(including not building new capacity) in order to raise rates 

and earn greater revenue by creating scarcity. Because 

pipeline rates are regulated, however, there is little incentive 

for a pipeline to withhold capacity, because even if it creates 

scarcity, it cannot charge rates above those set by its cost-ofservice. Since pipelines cannot increase revenues by 

withholding capacity, rate regulation has the added benefit of 

providing pipelines with a financial incentive to build new 

capacity when demand exists.... Thus, annual rate regulation 

protects against the pipeline's exercise of market power by 

limiting the incentive of a monopolist to withhold capacity in 

order to increase price as well as creates a positive incentive 

for a pipeline to add capacity when needed by the market.20

20. Not only may there be segments of a pipeline or even an entire pipeline that is not 

competitive, as discussed above, but as we found in Order No. 712,21 and as the pipelines 

have conceded, perfect arbitrage does not exist between the capacity release market and 

20 Order No. 637 at 31,270. See Tennessee Gas Pipeline Co., 91 FERC ¶ 61,053, 

at 61,191 (2000) (“there is little reason for the pipeline to exercise market power by 

withholding new capacity because the maximum rates established by the Commission 

prevent it from charging rates above the just and reasonable rates based on its cost of 

service”), aff’d, Process Gas Consumers Group v. FERC, 292 F.3d 831, 834 (D.C. Cir. 

2002). 

21 Order No. 712 at P 107. 
Docket No. RM08-1-001 - 14 - 

the market for pipeline capacity.22 As a result, the pipelines will have the ability to 

exercise market power, which will create the very incentive our regulation is designed to 

prevent: an incentive to not construct capacity when it is needed and would ordinarily be 

profitable.23 In balancing the risks and benefits of removing the price ceiling for pipeline 

capacity, we chose in Order No. 712 to err on the side of providing greater protection 

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

retaining the recourse rate protection of regulated pipeline rates. 

21. We find that the arguments raised by the pipelines on rehearing are the same 

arguments addressed in Order No. 712, and as discussed below, we do not find these 

arguments sufficient to change our determination to retain the price ceiling for short-term 

pipeline services. 

a. Competitive Market Findings

22. INGAA, Williston, and Spectra all argue that the Commission’s finding that the 

capacity release market is “generally competitive” justifies removing the price ceiling for 

pipeline short-term services as well. They maintain that released capacity and pipeline 

 22 INGAA at 11. If perfect arbitrage did exist, no market for interruptible 

transportation would exist on fully subscribed pipelines because releasing shippers would 

capture the benefits of their unused capacity for themselves. 

23 C. McConnell, S. Brue, Microeconomics: Principles, Problems, and Policies, 

211 (McGraw-Hill, 2004) (“by making it illegal to charge more than the [competitive 

price] per unit, the regulatory agency has removed the monopolist’s incentive to restrict 

output to [the monopoly quantity] to obtain a higher price and greater profit”). 
Docket No. RM08-1-001 - 15 - 

 

capacity compete with each other and that by concluding that the presence of a “generally 

competitive” market justified the removal of the rate ceiling for short-term release 

capacity the Commission also justified the removal of the price ceiling for short term 

pipeline capacity. These parties argue that because the data does not distinguish between 

released capacity and pipeline capacity there is no reason to treat one class of capacity 

differently from the other.24

23. The Commission agrees that to a large extent released capacity and pipeline 

capacity compete against each other. But, as we discussed above, we did not make a 

finding that the entire secondary market is competitive. Rather, we found that the extent 

of competition in the market for capacity release in conjunction with the maintenance of 

the recourse rate for pipeline services was sufficient to remove the price ceiling for 

capacity release.25 As the Commission stated: 

the Commission is not relying only on a competitive market 

to ensure just and reasonable rates. The pipeline’s maximum 

24 See INGAA at 8, Spectra at 12 and Williston at 4 (“The Commission’s findings 

that the short term capacity release market is workably competitive was not based on data 

that distinguishes between the types of sellers of capacity.”). 

25 As the Commission stated: 

one of the principal reasons for removing the price ceiling on released 

capacity is the existence of the pipeline’s service as recourse in the event 

market power is exercised. Order No. 712 at P 101, citing, 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. RM08-1-001 - 16 - 

 

rates for short-term firm and interruptible services serve as 

recourse rate protection for negotiated rate transactions, 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.26

24. Relying on our finding in Order No. 637, we explained that maintenance of the 

recourse rate is necessary in factual circumstances in which even with capacity release, 

competition is limited: 

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 

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.27

25. In retaining the recourse rate as protection against the exercise of market power, 

we recognized that, on many parts of the pipeline grid, sufficient competition may not 

26 Order No. 712 at P 48. The reliance on the recourse rate as protection was 

repeated continuously throughout the order. Order No. 712 at P 31, 39, 61, 101. 

27 Order No. 637 at 31,282, aff’d, INGAA, at 32 (“[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”). 
Docket No. RM08-1-001 - 17 - 

 

exist to discipline pricing.28 This can occur on laterals, at the extreme ends of certain 

pipeline systems where only one or a small number of firm capacity holders are present, 

or in some cases on an entire small pipeline. For example, on the Williston Basin 

pipeline as of 2000, 93 percent of the capacity of the pipeline was held by an affiliate of 

the pipeline.29 We did not, and cannot, make a finding that such a market is sufficiently 

competitive to remove the protection afforded by the recourse rate.30 As we explained in 

Order No. 712, the recourse rate in this situation will serve to protect the replacement 

shipper because if Williston’s affiliate seeks to charge a price for released capacity above 

28 Order No. 712 at P 61 (the recourse rate provides protection “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 

above competitive levels”). 

29 Williston Basin Interstate Pipeline Co., 115 FERC ¶ 61081, at P24 n.29 (2006), 

remanded on other grounds, Williston Basin Interstate Pipeline Co. v. FERC, 519 F.3d 

497, 502 (D.C. Cir. 2008) (recognizing that where the pipeline’s largest customer is its 

affiliate, the competitive capacity resale market is “smaller than one would otherwise 

expect”). In the proceeding at issue in these opinions, Williston did not even agree to 

permit a small customer to convert to Part 284 service so that it would be able to release 

capacity in competition with Williston and its affiliate. 

30 Such competitive problems can occur on other pipelines as well. For example, 

in addition to the Williston pipeline, affiliates on Equitrans, L.P, National Fuel Gas 

Supply Corp., and Questar Pipeline have a very high proportion of transportation service 

(from 50 percent-70 percent, and Tuscarora Gas Transmission Company has a nonaffiliated shipper with 77 percent of its capacity. See Index of Customers, July 2008, 

FERC Form No. 549-B (http://www.ferc.gov/docs-filing/eforms/form-549b/data.asp). 

Considering the relevant information, we cannot make a finding that the secondary 

market is sufficiently competitive throughout the country that we can safely eliminate the 

recourse rate. 
Docket No. RM08-1-001 - 18 - 

 

the just and reasonable maximum rate that is unjustified by competitive conditions, “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.”31

26. Pipelines that believe their markets are competitive can file for market based rates 

under our Alternative Rate Design Policy Statement to show that their markets are 

competitive. We did not undertake such an analysis in this rulemaking, however, and 

therefore cannot find that removing the price ceiling from pipeline short-term services, 

and hence eliminating the recourse rate protection, assures just and reasonable rates. 

27. Even on pipelines with secondary markets more competitive than Williston’s, 

market power may exist on particular portions of the pipelines. Moreover, in Order No. 

712, the Commission pointed out that a variety of pipeline limitations on shippers’ 

release rights can limit the effectiveness of competition and arbitrage between the 

pipelines and releasing shippers. Pipelines’ ability to selectively discount32 can reduce 

the incentive of releasing shippers to compete with pipelines, as do negotiated rate 

agreements that contain provisions providing that the pipeline will share any revenues the 

31 Order No. 712 at P 61. 

32 Selective discounting refers to the ability of pipelines to limit discounts to 

specific points so that those discounts cannot be arbitraged to alternate points at which 

the pipelines have less competition. In cases where pipelines use selective discounting, 

shippers can release at alternate points only if they pay the pipeline’s maximum rate, thus 

eliminating or decreasing the profit the shipper can make on the release. 
Docket No. RM08-1-001 - 19 - 

 

shipper receives from a capacity release in excess of its discounted or negotiated rate.33 

Pipelines have indeed recognized that these provisions help insulate them from 

competition.34 But the pipelines cannot legitimately argue that they should be able to 

limit themselves from competition on the one hand, and then seek to remove the recourse 

rate which serves to protect customers from the effects of such insulation. Retaining the 

recourse rate helps protect against the exercise of market power on such segments.35

28. Williston, in its rehearing request, claims that the Commission failed to explain 

how pipelines’ ability to selectively discount relates to the retention of the maximum rate 

for pipeline short-term services. The ability of pipelines to selectively discount 

demonstrates that they have market power and are able to prevent arbitrage.36 As we 

33 See LSP Cottage Grove, L.P. v. Northern Natural Gas Co., 111 FERC ¶ 61,108, 

at P 58-59 (2005). 

34 See Williston Basin Interstate Pipeline Co. v. FERC, 358 F.3d 45, 50 (D.C. Cir. 

2004). 

35 Order No. 712 at P 88. 

36 As the U.S. Court of Appeals recognized in a case brought by Williston itself: 

A pipeline is unlikely to be able to increase throughput by 

selective discounting, however, if capacity at secondary 

points can be transferred readily among shippers through 

resale at the discounted rate. Indeed, 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. 

Williston Basin Interstate Pipeline Co. v. FERC, 358 F.3d 45, 50 (D.C. Cir. 

 (continued...) 
Docket No. RM08-1-001 - 20 - 

have explained above, limitations on the effectiveness of arbitrage could enable pipelines 

to exercise market power in some markets.37

b. Withholding Construction of Needed Pipeline 

Infrastructure

29. In Order No. 712, the Commission found that maintenance of the price ceiling on 

pipeline capacity was necessary to ensure that proper incentives to construct needed 

pipeline infrastructure were retained. On rehearing, the pipelines argue that because the 

pipeline capacity is identical to the released capacity, the Commission acted arbitrarily in 

lifting the capacity only on short-term released capacity and not on pipeline capacity. 

They argue that the Commission erred in asserting that they could exercise market power 

by withholding capacity, maintaining that capacity is either subscribed or not and that the 

Commission regulations require that all available capacity be sold. 

 

2004). See F.M. Scherer, Industrial Market Structure and Economic 

Performance, 253 (Rand McNally College Publishing Co. 1970) (in order 

to price discriminate “the seller must have some control over price – some 

market power”). 

37 Selective discounting decreases competition even when price exceeds the 

maximum rate. For example, assume that on a pipeline with a maximum rate of $1.00, a 

shipper has a discounted rate of $.75, and it values the capacity at $1.10, perhaps because 

it would cost $1.10 to use storage or a peak shaving device to replace the gas lost through 

the capacity release. If the shipper were required to pay the additional $.25 to the 

pipeline under the Commission’s selective discounting policy, the shipper would release 

its capacity only when the capacity price is $1.35 or greater. Without the selective 

discounting policy, the shipper would be willing to release whenever the capacity price is 

$1.10 or greater. 
Docket No. RM08-1-001 - 21 - 

 

30. First, as discussed above, the Commission has a sound basis for not removing the 

recourse rate from pipeline services, because the recourse rate acts as a check against 

both the market power of releasing shippers and the pipelines themselves in situations in 

which insufficient competition exists. Second, as we found in Order No. 712, and 

discussed above, ownership of the pipeline is not identical to shippers that lease the use 

of such capacity.38

31. Unlike shippers that cannot control the total amount of capacity, pipelines, 

because they control their own systems, can affect the total quantum of capacity by 

determining whether to construct additional capacity. The fundamental precept of our 

cost-of-service regulation of pipelines is based on ensuring that pipelines do not withhold 

existing capacity or future capacity.39 The Commission prevents the withholding of 

future capacity by ensuring that pipelines do not have an economic incentive to refrain 

from constructing additional capacity when demand suggests that such capacity is needed 

and would be profitable. A pipeline that possesses market power and could charge supracompetitive prices in the short-term market will have an economic incentive not to build 

new capacity to relieve the scarcity permitting it to charge higher prices. As we stated in 

Order No. 712, as long as cost-of-service rate ceilings apply, pipelines will have a greater 

38 Order No. 712 at P 84 (quoting, INGAA at 35). 

39 Order No. 637 at 31,270. 
Docket No. RM08-1-001 - 22 - 

 

incentive to build new capacity to serve all the demand for their service than to withhold 

capacity, because the only way the pipeline could increase current revenues and profits 

would be to invest in additional facilities to serve the increased demand.40

32. The pipelines assert, without evidentiary support, that their construction decisions 

would not be influenced by prices in the short-term market. INGAA, for example, 

contends that “rather than driving up prices, withholding unsubscribed firm capacity only 

results in lost sales.”41

33. Basic economic theory holds that firms with market power, like pipelines, will 

construct less capacity than competitive firms because doing so results in higher prices 

and profits. A company with market power will produce less of a product or service, and 

at a higher price, than if the company were in a competitive market. Unlike a competitive 

firm that produces where marginal cost42 intersects demand,43 a firm with market power 

produces where the revenue from producing one additional unit of output (marginal 

40 Order No. 712 at P 85. 

41 INGAA at 7 (citing, Comments of the Interstate Natural Gas Association of 

America, Docket No. RM08-1 (filed Jan. 25, 2008)). 

42 Marginal cost is the added cost of producing one more unit. 

43 At this price, the firm recovers in price the added cost of producing one more 

unit. If the firm produced more units, the extra cost of producing those units would be 

less than the price paid for them. 
Docket No. RM08-1-001 - 23 - 

 

revenue)44 is greater than the cost of producing that unit (marginal cost).45 With a typical 

downward sloping demand curve, the intersection of marginal cost and marginal revenue 

is at a smaller output and a higher price than would be produced by a competitive 

outcome.46 As the following graph demonstrates, a firm with market power will produce 

at Point QM with a price at PM, although the competitive quantity would be at Point QC 

and price at Point PC.47 

44 Marginal revenue is the extra revenue created by producing one more unit of 

output. 

45 As long as producing one more unit adds more to revenue than to cost, the firm 

with market power is better off (earns a profit) by producing that unit. Although 

producing one more unit would still be profitable even at a higher output (because the 

cost of producing that unit is less than the price) the firm with market power’s overall 

revenue would decline because it has to charge everyone the lower price in order to add 

that unit. See A. Mas-Colell, M.D. Whinston, J. Green Microeconomic Theory, 385 

(Oxford University Press US, 1995) (the reason the monopolist’s output is below the 

competitive level is “the monopolist’s recognition that a reduction in the quantity it sells 

allows it to increase the price on its remaining sales”). 

46 Jean Tirole, The Theory of Industrial Organization, 66 (MIT Press, 1988)(“The 

monopoly sells at a price greater than the socially optimal price, which is its marginal 

cost”). 

47 Deadweight loss refers to the loss to society resulting from the firm with market 

power withholding the production of product that consumers’ value at more than the cost 

of production. Transfer payments refer to the extra income that the firm with market 

power earns as compared to what it would earn in a competitive market. It represents the 

amount of money transferred from consumers to the producer. 
Docket No. RM08-1-001 - 24 - 

 

34. Although producing at the higher output (and lower price) of a competitive market 

would still be profitable even for the firm with market power, the firm with market power 

makes more money if it reduces output and increases price.48

48 In a competitive market, if a firm tried to price at Point PM, other firms would 

enter the market at that price, which would have the effect of increasing output and 

reducing the price for all firms to Point PC. R. Posner, Economic Analysis of the Law

198 (2d ed. Little, Brown, and Company, 1977). 
Docket No. RM08-1-001 - 25 - 

 

35. While current Commission regulations do not permit pipelines to withhold 

already-constructed capacity,49 pipelines can withhold capacity by not constructing as 

much capacity as a competitive market would dictate. Even though long-term rates 

would still be capped under the pipelines’ proposals, pipelines able to charge supracompetitive prices in the interruptible or short-term firm market would still have the same 

disincentive to build capacity to reach the competitive level, because such construction 

would result in less overall profit for the pipeline.50

36. INGAA argues that the Commission is acting inconsistently because the 

Commission found that lifting the price ceiling on released capacity gave an incentive to 

increase construction.51 But INGAA takes the quoted portion of Order No. 712 out of 

context. The Commission was pointing out that high capacity release prices would send 

pipelines a signal that capacity is scarce and additional capacity is needed to relieve the 

scarcity. This same principle does not apply to removing the price ceiling for pipeline 

49 See Tennessee Gas Pipeline Co., 91 FERC ¶ 61,053, at 61,191 (2000) (“there is 

little reason for the pipeline to exercise market power by withholding new capacity 

because the maximum rates established by the Commission prevent it from charging rates 

above the just and reasonable rates based on its cost of service”), aff’d, Process Gas 

Consumers Group v. FERC, 292 F.3d 831, 834 (D.C. Cir. 2002). 

50 For example, if a pipeline’s affiliate holds the bulk of transportation capacity of 

a pipeline, the affiliate (if the recourse rate protection were removed) presumably has 

sufficient market power to raise short-term prices in a constrained market. The 

construction of additional capacity to relieve that scarcity could then result in a 

diminishment of the overall profitability of the company. 

51 INGAA at 7 (citing, Order No. 712 at P 60). 
Docket No. RM08-1-001 - 26 - 

 

capacity. As pointed out above, if pipelines with market power find that maintaining 

scarce pipeline capacity increases their profits, then they will have much less incentive to 

construct long-term capacity because such capacity could result in lower profitability. 

The extent to which the pipelines’ incentives to construct will be reduced is dependent on 

the circumstances facing each pipeline. But because pipelines can still exercise market 

power (as discussed above), we cannot find sufficient justification for removing recourse 

rate protection based solely on the unsupported statements of pipelines that short-term 

rates will never be sufficient to reduce or eliminate the amount of long-term capacity they 

choose to construct. 

37. A recent example illustrates why the recourse rate is needed to ensure that 

pipelines retain the incentive to build needed pipeline infrastructure. After Order No. 712 

became effective, capacity release prices exceeded maximum rates principally from the 

Rocky Mountains to the northwest and to the east. This was attributed to an excess 

supply of gas to be transported from the Rocky Mountains in relation to pipeline 

capacity.52 Such scarcity should be a prime indicator to the pipelines of the need to 

52 See G. Lander, Capacity Center Releases Post Order 712 Capacity Trading Stats 

(September 2008) (contact CapacityCenter.com) as reported in Foster Natural Gas Report 

No. 2711 (September 12, 2008) (describing report issued by CapacityCenter.com on post 

Order No. 712 capacity release transactions showing higher than maximum rate releases 

out of the Rocky Mountains); Letter from Wyoming Governor Dave Freudenthal to 

Wyoming Legislature’s Joint Minerals, Business and Economic Development Interim 

Committee (August 21, 2008) (indicating need for additional pipeline infrastructure), 

 (continued...) 
Docket No. RM08-1-001 - 27 - 

expand capacity from the Rocky Mountains. Because shippers do not control expansion 

decisions, permitting the price to exceed the maximum rate helps to allocate scarce 

capacity efficiently to the highest valued user. However, if pipelines were able to capture 

the higher than maximum rate prices for such transactions, their incentives to expand 

would be blunted because any such expansion would reduce the scarcity revenues they 

would be receiving. The retention of the recourse rate for pipeline transactions ensures 

that pipelines have the proper incentive to build new capacity when capacity release 

prices show that construction of such capacity is needed and would be profitable. 

c. Pricing Flexibility

38. INGAA, Williston and Spectra all maintain that the Commission’s action in 

removing the price ceiling from short term capacity releases has given releasing shippers 

more flexibility in pricing their capacity than the pipelines have in pricing their capacity 

under the Commission’s programs.53 

39. In particular, they assert that negotiated rates are not as flexible as capacity 

releases. Williston asserts that negotiated rates must be submitted as a tariff filing, which 

requires a period of 30 days advance notice, before the rates can go into effect. 

 

http://governor.wy.gov/press-releases/state-of-wyoming-should-not-enter-into-thepipeline-business-governor-says.html. 

53 See Spectra at 30 (pipelines will face a competitive disadvantage); INGAA at 10 

(alternatives do not provide comparable rate flexibility) and Williston at 12 (Order No. 

712 provides releasing shippers with significantly greater pricing flexibility than is 

available to pipelines). 
Docket No. RM08-1-001 - 28 - 

Therefore, Williston argues that negotiated rate agreements are not useful in responding 

to a short-term price spike. Spectra argues that the requirement that the negotiated rate 

must be accompanied by a recourse rate alternative effectively means that pipelines are 

unable to sell short-term services above the maximum recourse rate. Spectra asserts that 

under either the net present value or first-come, first-served allocation methodologies, 

shippers have no reason to offer to pay more than the maximum rate for service even if 

the market would bear such a rate. Spectra maintains that as a result pipelines cannot 

recover their cost-of-service because they are required to discount capacity prices during 

off-peak periods, but cannot charge above maximum rates when such prices are justified, 

as shown in the following hypothetical graph included in Spectra’s rehearing request.54

 54 Spectra at 17. 
Docket No. RM08-1-001 - 29 - 

 

40. We recognize that negotiated rates and the capacity release program are not 

identical. For example, the capacity release program still requires bidding for deals of 

greater than one month (except for AMA transactions), while pipelines can negotiate 

rates without any bidding delay. On the other hand, negotiated rates do have to be filed 

with the Commission as Williston points out. 

41. But we do not agree that the differences between these programs are as significant 

as the pipelines suggest. For example, contrary to Williston’s argument, the Commission 

has waived the 30-day notice filing for negotiated rate deals, allowing such transactions 

to go into effect immediately: 

A pipeline may file the numbered tariff sheet implementing 

the negotiated rate at the time it intends the rate to go into 

effect. The Commission does not intend to suspend the 

effectiveness of the negotiated rate filings or impose a refund 

obligation for those rates. For these reasons, the Commission 

will readily grant requests to waive the 30 day notice 

requirement.55

42. Thus, negotiated rate transactions can occur as quickly as capacity release 

transactions. Moreover, there is no restriction on the use of negotiated rates even for 

short-term transactions. 

55 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, at 61,241-42. (1996). 
Docket No. RM08-1-001 - 30 - 

 

43. Spectra argues that shippers will not enter into negotiated rate contracts above the 

recourse rate. The principal use of negotiated rates is to enable pipelines and shippers to 

enter into transactions that reflect the value of capacity as measured by price indices. 

Indeed, one of the principal reasons for removing the rate ceiling on capacity releases is 

to extend similar flexibility to price releases on price indices even when such prices 

exceed the maximum rate.56 Spectra offers no reason why shippers would be any more 

reluctant to enter into negotiated rate contracts with the pipeline for short-terms using 

index prices than they would be to enter into such contracts with releasing shippers. 

44. We also disagree with Spectra’s contention that under the Commission’s 

determination, the pipeline will be unable to recover its cost-of-service. The graph 

included by Spectra is a typical graph of demand on a pipeline, where capacity is more 

valuable during the winter heating season than during the off-peak summer season. But 

that does not mean that the pipeline will be unable to recover its cost-of-service. As 

Spectra recognizes, shippers needing capacity in the winter cannot simply wait until they 

need capacity because capacity in the winter is scarce and under the pipeline’s allocation 

requirements, shippers are unlikely to obtain the amount of capacity they need if they 

wait. Therefore, shippers like local distribution companies (LDCs) that need capacity for 

56 See Standards for Business Practices for Interstate Natural Gas Pipelines, 

72 Fed. Reg. 38,757 (July 16, 2007), FERC Stats. & Regs. ¶ 31,251 at P 51 (2007), 

(industry requesting ability to use price indices for released capacity). 
Docket No. RM08-1-001 - 31 - 

 

the winter typically will sign a long-term contract (or at least a full year’s contract) at 

maximum rate to ensure that they will have the capacity they need during the peak winter 

season. 

45. Moreover, pipelines are not precluded from recovering their cost-of-service in any 

event. Under longstanding Commission policy,57 pipelines may adjust the volumes used 

to design their maximum recourse rates, so that they can recover their full cost-of-service, 

even though competition requires them to offer discounts including during off-peak 

periods. Also, as we pointed out in Order No. 712, pipelines have the option of applying 

for seasonal rates in such circumstances. 

46. Spectra is correct that in limited circumstances (where a pipeline has unsubscribed 

capacity and suddenly demand for that capacity exceeds the available supply), the 

recourse rate will prevent the pipeline from allocating capacity to the shipper placing the 

highest value on the capacity. But that is the very nature of the protection afforded by 

recourse rates, and as discussed above, we cannot relax the recourse rate protection given 

that the entirety of the market has not been shown to be sufficiently competitive. As we 

57 See e.g. Southern Natural Gas Co., 65 FERC ¶ 61,347, at 62,829-40 (1993), 

order on reh’g, 67 FERC ¶ 61,155, at 61,456 (1994); Williston Basin Interstate Pipeline 

Company, 67 FERC ¶ 61,137, at 61,377-383 (1994) (“Williston’s ceiling rates will be 

designed to give it the opportunity to recover its new cost-of-service if throughput is the 

same as during the base period despite the fact that it is reasonable to project a 

continuation of lower discounted rates for certain customers after the effective date of the 

subject rates.”); see also Williston Basin Interstate Pipeline Company, 107 FERC 

¶ 61,164, at P 79-80 (2004).. 
Docket No. RM08-1-001 - 32 - 

 

explained in Order No. 712, we need to balance the risks of removing the price ceiling 

and the benefits from such removal, and we have decided that ensuring sufficient 

protection against market power must take precedence over potential losses in 

efficiency.58

47. Williston, Spectra, and INGAA also maintain that the other pricing flexibility the 

Commission mentioned in Order No. 712, filing for market-based rates and the use of 

seasonal rates, are not as flexible as removal of the price ceiling for capacity release. We 

did not maintain that these programs were identical. We simply pointed to them as 

potential flexibility that is available to the pipelines, and as discussed above, the use of 

seasonal rates may be a solution for situations in which demand differs significantly 

between seasons. 

48. The pipelines specifically argue that market-based rate filings for pipeline 

transportation are difficult to make and that the Commission utilizes stringent criteria in 

evaluating such filings. But we find that, precisely because pipelines have such 

enormous economies of scale and enjoy market power, the application of economically 

correct standards is appropriate in reviewing an application to remove rate regulation 

entirely. 

58 Order No. 712 at P 108. Depending on the costs of arbitrage, Spectra’s example 

would not result in an inefficient allocation of capacity. As long as one shipper can 

release capacity to the other, the shipper placing the greatest value on the capacity would 

be able to obtain the capacity. 
Docket No. RM08-1-001 - 33 - 

49. INGAA and Williston maintain that because the alternatives proposed by the 

Commission for pipelines are not as flexible as capacity release, the Commission’s policy 

unjustifiably burdens and injures pipelines. Because the pipelines, even under their own 

proposals, would still be regulated under cost-of-service principles, any lack of flexibility 

would not result in losses to pipelines because cost-of-service ratemaking provides each 

pipeline with an opportunity to recover all of their reasonably incurred costs. If the 

Commission were to remove the recourse rate from the pipelines’ short-term services, 

pipelines still would need to account for any extra revenues derived from short-term 

services as part of their overall cost-of-service. Because, as discussed above, we have not 

found the short-term market to be fully competitive, and pipelines are able to recover 

their cost-of-service, we find that maintaining the recourse rate is necessary to ensure 

continued protection of customers and does not unduly harm pipelines. 

d. Bifurcated Markets

50. The pipelines again assert that the Commission has created a bifurcated market 

and that such a market will compromise allocative efficiency. INGAA asserts that 

because pipelines do not have market power there is no reason for the Commission to 

bifurcate the market to mitigate against pipeline market power and to rely on arbitrage, 

which the Commission admits is imperfect, to correct any market inefficiencies. Spectra 

argues that Order No. 712 regulates the short term capacity market on an asymmetric 

basis and that this will create a bifurcated market. It asserts that Order No. 712 regulated 
Docket No. RM08-1-001 - 34 - 

the short term capacity release market subject to light-handed, market-based regulation, 

but regulated pipeline participants in the same market continue under the more 

burdensome cost-of-service regime. Sempra also argues that the Commission’s examples 

of arbitrage in Order No. 712 apply only to interruptible service, but that pipelines may 

have firm service available and bifurcated markets can occur. 

51. As we explained in Order No. 712, we have attempted to reduce the costs of 

arbitrage so that we do not create a seriously bifurcated market. If arbitrage exists, then a 

bifurcated market will not be created regardless of whether the pipeline is selling 

interruptible or firm service. With respect to interruptible service, no shipper can rely on 

obtaining interruptible service at a lower than market price because it can lose the 

capacity to a replacement shipper obtaining a release, which has higher priority. Thus, if 

the market is constrained, those needing capacity will not be attempting to rely on their 

position in the interruptible queue but will be seeking firm released capacity. Similarly, 

bifurcated markets would not be created with respect to firm service because, as we 

discussed earlier, even if one shipper obtained capacity from the pipeline at a lower than 

market price, it could reallocate that capacity through the release market as long as 

arbitrage costs are not too high. 

52. But as we recognized in Order No. 712, arbitrage is not perfect, and so there may 

be situations in which a bifurcated market may occur. Indeed, the fact that arbitrage is 

not perfect may provide the pipelines with market power. 
Docket No. RM08-1-001 - 35 - 

53. Whatever amount of limited market bifurcation occurs, therefore, is a cost that 

must be incurred to maintain the protection against market power afforded by the 

recourse rate. INGAA provides no data supporting its contention that the markets are 

competitive, and, as discussed earlier, the Commission did not make such a finding, and 

in fact found that maintenance of the recourse rate is necessary precisely because various 

parts of the interstate grid may not be competitive. No amount of arbitrage will ensure a 

competitive market if a single shipper controls a large portion of the pipeline capacity 

either on the pipeline as a whole or in any individual market. 

e. Proposed Alternatives

54. On rehearing Spectra offers two alternatives that it suggests will potentially 

mitigate any harm from removing the price ceiling from pipeline services.59 It argues 

that the Commission could allow pipelines to post capacity, at the pipeline’s option, 

through the same process and requirements as short-term capacity releases. If the 

pipeline opted to post some of its capacity using this mechanism, the capacity would be 

awarded to the highest bidder, without a rate cap. Spectra argues that, if the Commission 

deems further safeguards necessary, it proposed in its initial comments that the 

Commission could remove the price cap on short-term firm services but retain it on short-

 59 Williston, in a single sentence without providing details, seems also to endorse a 

bidding approach. Williston at 10. 
Docket No. RM08-1-001 - 36 - 

 

term interruptible services. This approach, it asserts, would retain a recourse rate 

alternative for all firm customers. 

55. In the NOPR leading to Order No. 637, the Commission proposed an auction to 

provide recourse rate protection, similar to the one proposed by Spectra, in which 

pipelines would be able to participate by including their capacity along with that of 

released capacity. At that time most of the comments, including those of the pipelines, 

opposed such mandatory auctions, and the Commission did not adopt that proposal.60 

The Commission, however, did indicate in Order No. 637 that it would be open to a 

voluntary auction proposal from pipelines, such as the one suggested by Spectra, so long 

as such a proposal would protect against the exercise of market power by the pipeline: 

An auction also may be a means by which a pipeline could 

sell some or all of its capacity without a price cap if the 

auction is designed in such a way as to protect against the 

pipeline's ability to withhold capacity and exercise market 

power.... [T]he pipelines must design the auction in ways to 

prevent the withholding of capacity and the exercise of 

market power. Capacity can be withheld by a pipeline in two 

primary ways: the pipeline can withhold capacity directly by 

not putting it into the auction; or it can indirectly withhold 

capacity through the use of a reserve price. In a proposal for 

auctions without a rate cap, all capacity available at the time 

of the auction would have to be included in the auction. The 

auction proposal also needs to address the appropriate 

limitations that should be placed on the level at which the 

pipeline can establish reserve prices, particularly whether 

60 Regulation of Short-Term Natural Gas Transportation Services, Order No. 637, 

65 FR 10,156 (Feb. 25, 2000), FERC Stats. & Regs. ¶ 31,091, at 31,279 (Feb. 9, 2000). 
Docket No. RM08-1-001 - 37 - 

 

different reserve prices should be established for peak and 

off-peak capacity.61

56. The Commission also included specific guidance addressing basic principles for 

constructing such an auction to ensure that it would be transparent, verifiable, and nondiscriminatory.62 Despite the opportunity offered in Order No. 637, no pipeline has ever 

proposed to use an auction methodology to allocate capacity at prices exceeding the 

maximum recourse rate. Spectra does not claim that it proposed this auction proposal in 

its initial comments, and provides no details in its rehearing request about how it would 

structure such an auction to ensure that pipelines cannot exercise market power, ensure 

that sufficient arbitrage opportunities exist so that releasing shippers can compete 

equally, and ensure that the pipeline retains an incentive to construct long term capacity 

when it is needed.63 Other parties have not had an opportunity to comment on the details 

61 Order No. 637, FERC Stats. & Regs. ¶ 31,091 at 31,295. The Commission’s 

concern with reserve prices was to ensure that if a pipeline can benefit from competition 

by selling at above the maximum rate during peak periods, it also should be required to 

sell capacity at more competitive prices during off-peak periods. If pipelines were 

permitted to set the reserve price at the existing maximum rate during off-peak periods, 

they still would be able to exercise market power with respect to off-peak transactions, 

for example, by selectively discounting. Requiring the pipeline to set a lower reserve 

price during off-peak periods, therefore, would ensure more competitive pricing during 

all time periods. 

62 See Order No. 637, FERC Stats. & Regs. ¶ 31,091 at 31,296. 

63 In its initial comment and its rehearing request, Spectra also offers no details 

about how its proposal to allow pipelines to sell short-term firm capacity without a rate 

ceiling would work. For example, it does not explain how short-term firm capacity is to 

be differentiated from long-term firm capacity because available capacity on a pipeline 

 (continued...) 
Docket No. RM08-1-001 - 38 - 

of such a proposal, and we, therefore, do not have a sufficient record to rule on a generic 

basis on such a proposal in this rulemaking. But Spectra, and other pipelines, can still 

make such a proposal through an NGA section 4 filing on an individual case-by-case 

basis, as indicated in Order No. 637. 

C. Clarification Regarding Specific Issues

1. Consecutive Releases

a. Clarification Requests

57. Allegheny, the Marketer Petitioners and Reliant all note that under the 

Commission’s regulations, they would be permitted to post for bid at around the same 

time capacity to be released for multiple, consecutive short-term periods. Each of these 

parties requests that in order to provide clarity to the market, the Commission specifically 

clarify that such releases are permissible. 

58. Allegheny argues that the Commission erred by failing specifically to find that the 

offer by a capacity holder of simultaneous discrete sequential releases of its capacity, 

each for up to one year at prices above the pipeline’s current maximum tariff rates, is 

consistent with Order No. 712. Allegheny asserts that such a clarification would allow a 

capacity holder to auction all of its capacity rights in one-year blocks, and to award the 

 

would be available for any time period. Spectra also fails to explain how bidding on 

short-term and long-term capacity would be evaluated to ensure that the pipeline was not 

favoring a short-term bid over a long-term bid. Should Spectra choose to make a Natural 

Gas Act (NGA) section 4 filing with respect to its proposals, it would need to specify the 

details of its plan and how it would protect against market power. 
Docket No. RM08-1-001 - 39 - 

capacity to the replacement shippers offering the highest price for the capacity in future 

years without running afoul of the price cap. Each replacement shipper would lock into a 

contractual commitment for only one year. Allegheny asserts that each auction could 

produce a different price for the capacity, and thereby allow the market to reflect 

changing expectation about the congestion value of the capacity. 

59. The Marketer Petitioners also request clarification that it is permissible for a 

releasing shipper and a replacement shipper to engage in two (or more) consecutive 

short-term (one year or less) releases of the same capacity, at the same (or approximately 

the same) time, without subjecting the releases to the maximum rate cap.64 Reliant adds 

that permitting a firm shipper to post for bidding, at or near the same time, capacity for 

multiple successive short-term releases would work to achieve the Commission’s goal of 

ensuring that capacity be allocated to those who value it most. 

b. Commission Determination

60. The Commission will deny the requests for clarification as discussed below. In 

the Commission’s view, permitting a releasing shipper to simultaneously post for bid 

consecutive short-term contracts whose total term exceeds one year would be contrary to 

 64 Marketer Petitioners at 11. As an example, the Marketer Petitioners question 

whether, subject to applicable pipeline tariff provisions, a shipper may, on the same day, 

post for bidding without a maximum rate cap limitation (i) a release of a capacity 

package for the year 2009, (ii) a release of the same capacity package for the year 2010, 

and (iii) a release of the same capacity package for the year 2011. 
Docket No. RM08-1-001 - 40 - 

 

the Commission’s decision to lift the price ceiling only for releases of one year or less. In 

Order No. 712, the Commission explained that it removed the price ceiling for short-term 

capacity releases in order to allow the prices of short-term capacity release transactions to 

reflect short-term variations in the market value of that capacity. Specifically, the 

Commission stated that, “[b]ecause 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.”65 Moreover, in Order No. 712, the Commission also considered 

whether to extend the removal of the price cap to long-term releases, but reasoned that, 

“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 

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.”66 

61. When a shipper seeks to release its capacity for a period of more than one year, 

albeit in separate blocks of a year or less, the release cannot be considered to be for the 

65 Order No. 712 at P 34. 

66 Id. P 79. 
Docket No. RM08-1-001 - 41 - 

purpose of responding to short-term variations in the value of the capacity as 

contemplated by the Commission when it removed the price ceiling for short term 

capacity. Further, if the Commission were to permit releasing shippers to simultaneously 

post for bidding consecutive short-term releases at market rates extending for more than a 

year, such action would result in granting de facto permission to permit long-term 

releases at market rates, contrary to the Commission’s findings in Order No. 712. 

62. Therefore, the Commission will revise its regulations so that the lifting of the price 

cap for short-term releases will only apply to releases that take effect within one year of 

the date the pipeline is notified of the release. This will prevent shippers from releasing 

units of capacity in a manner designed to circumvent the price ceilings that the 

Commission has determined must remain in effect. 

2. Definition of Short-Term

63. Iroquois states that Order No. 712 defines a short term release as a release of 

capacity for “one year or less”; and defines a long term release as “more than one year.”67 

Iroquois argues that this definition is different from the Commission’s current definitions 

of short and long term as applied to the right of first refusal. Iroquois points out that in 

Order No. 636-A, the Commission determined that the regulation’s right of first refusal 

applies to firm long term contracts and that “[a] long-term transportation service is one 

 67 Iroquois at 2 (citing, proposed section 284.8 (b) of the Commission’s 

regulations and Order No. 712 at P 30). 
Docket No. RM08-1-001 - 42 - 

 

that is pursuant to a contract for a term of one year or more.” 68 Iroquois argues that 

modifying the determination of what is a short term or long term contract in the manner 

proposed by the Commission in Order No. 712 could reduce customer rights. Iroquois 

seeks clarification that Order No. 712 did not modify the definition of “short term” and 

“long term,” so that a long term contract will continue to be defined as a contract for a 

term that is one year or more and that the current definition of short term as being “less 

than one year” will remain in effect. 

64. We chose to define a release exempt from the price ceiling as being one year or 

more to enable releasing shippers to enter into reasonable commercial contracts for a 

standard duration, rather than for atypical periods, such as 364 days. However, we clarify 

that this definition has no application beyond defining those capacity releases exempt 

from the price ceiling. Specifically, we have not changed the definition of those contracts 

that qualify for the right of first refusal, as raised by Iroquois.69 Shippers will continue to 

68 Iroquois at 3 (citing, Order No. 636-A, Pipeline Service Obligations and 

Revisions to Regulations Governing Self-Implementing Transportation; and Regulation 

of Natural Gas Pipelines After Partial Wellhead Decontrol, FERC Stats. & Regs. 

¶ 30,950 at 30,627, order on reh’g, Order No. 636-B, 61 FERC ¶ 61,272 (1992), order on 

reh’g, 62 FERC ¶ 61,007 (1993), aff’d in part and remanded in part sub nom. United 

Distribution Cos. v. FERC, 88 F.3d 1105 (D.C. Cir. 1996), order on remand, Order No. 

636-C, 78 FERC ¶ 61,186 (1997). 

69 Order No. 712 did not modify 18 CFR § 284.221 (d)(2), which continues to 

provide a right of first refusal “if the individual transportation arrangement is for firm 

transportation under a contract with a term of one year or more” and satisfies certain 

other requirements. 
Docket No. RM08-1-001 - 43 - 

qualify for a right of first refusal by entering into contracts to purchase transportation or 

storage services directly from a pipeline of one year or more.70

3. Lump Sum Payments

65. Allegheny states that the Commission’s regulations, rules and precedents do not 

clearly specify how to determine whether a permanent release of a discounted rate 

contract exceeds the maximum tariff rate when the replacement shipper makes a lumpsum payment to the releasing shipper of the present value difference between the 

maximum rate and the discounted rate. Allegheny argues that the Commission’s 

regulations permit a capacity holder paying a discounted rate to release its capacity to a 

replacement shipper at the maximum rate and keep the difference, unless the service 

agreement with the pipeline specifically provides for a different arrangement.71 

Allegheny points out that the Commission has granted waivers of the long-tem release 

price cap in the context of shippers seeking to exit the natural gas business but it did not 

rule on the question of whether the lump sum payment exceeded the price cap on 

 70 The Commission chose to make the ROFR applicable to contracts of one year or 

more for the same reason we have chosen to apply the price cap exemption to contracts of 

one year or less: both definitions enable reasonable commercial contracts to qualify. We 

also clarify that capacity release contracts are not subject to a right of first refusal. 

71 Allegheny at 7((citing, Order No. 636-A at p. 30,557; Great Lakes Gas 

Transmission Limited Partnership, 64 FERC ¶ 61,017, at p. 61,170 (1993) (“As provided 

in Order No. 636-A, Great Lakes should clarify that a releasing shipper is credited with 

the total amount of the replacement shipper’s reservation charge, even if it exceeds the 

reservation charge paid by the releasing shipper to Great Lakes.”)); Southern Natural Gas 

Co., 62 FERC ¶ 61,136, at p. 61,960 (1993). 
Docket No. RM08-1-001 - 44 - 

 

capacity releases.72 Allegheny asserts that the Commission should resolve this 

uncertainty regarding the calculation of the maximum rate because it inhibits the 

negotiation of permanent capacity releases. 

66. We find no need to provide clarification with respect to lump sum payments for 

permanent releases because under our regulations permanent releases cannot involve 

lump sum payments. Allegheny is correct that under our capacity release program, 

shippers holding discount contracts are permitted to release capacity at a rate up to the 

maximum rate under the contract. Under such releases, the releasing shipper remains 

liable for the full amount of its reservation charges.73 But in such temporary releases no 

lump sum payment is made. Rather, because the releasing shipper is still obligated to the 

pipeline for its full reservation charge, the releasing shipper receives a credit or payment 

against its overall bill reflecting the replacement shipper’s payment. Therefore, a shipper 

releasing capacity on a temporary basis pays its full reservation charge to the pipeline and 

receives a payment representing the rate paid by the replacement shipper. 

67. Permanent releases, however, are different, because under a permanent release, the 

releasing shipper releases its capacity for the entire remaining term of its contract and the 

72 Allegheny at 8 (citing, Wasatch Energy, LLC, 118 FERC ¶ 61,173, at P 9 

(2007); Duke Energy Marketing America, LLC, 114 FERC ¶ 61,198, at P 13 (2006); 

Northwest Pipeline Corp., 109 FERC ¶ 61,044, at P 30 (2004)). 

73 18 CFR § 284.8(f) (“unless otherwise agreed by the pipeline, the contract of the 

shipper releasing capacity will remain in full force and effect”). 
Docket No. RM08-1-001 - 45 - 

pipeline and shipper agree to terminate the releasing shipper's contract, so that the 

releasing shipper no longer has any liability to the pipeline to pay for the capacity.74 

Under a permanent release, therefore, the releasing shipper receives no payment or credit 

(whether lump sum or otherwise); its contract simply is terminated.75

II. Asset Management Arrangements

A. Background

68. In Order No. 712, the Commission revised its capacity release regulations and 

policies in order to facilitate the use of AMAs. Based on the industry-wide support for 

the use of AMAs, the Commission found that AMAs are in the public interest because 

they are beneficial to numerous market participants and to the market in general. The 

Commission therefore made two basic changes in order to eliminate obstacles to the 

utilization and implementation of AMAs. First, we exempted capacity releases meant to 

 74 El Paso Natural Gas Co., 61 FERC ¶61,333, at 62,311-12 (1992); Rockies 

Express Pipeline LLC, 121 FERC ¶61, 130 (2007) (Rockies Express)(citing, Pacific Gas 

Transmission Co., 76 FERC ¶61,246, at 62,270 (1996), reh’g denied, 82 FERC ¶ 61,289, 

at 62,135 (1998) (stating that the Commission's general policy is that there are no credits 

to the releasing shipper after a permanent release, but approving a settlement provision 

allowing a particular shipper such credits for permanent releases in the unique 

circumstances of that case)). 

75 The cases cited by Allegheny on reverse auctions are inapposite because these 

were special requests for waivers for firms that were exiting the gas business, and the 

Commission made clear that the releasing shipper could not profit from the transaction by 

receiving more than the maximum rate for the capacity. Duke Energy Marketing 

America, LLC, 114 FERC ¶ 61,198, at P 29 (2006). Allegheny can apply for waivers if it 

can similarly justify its request based on exigent circumstances. 
Docket No. RM08-1-001 - 46 - 

 

implement AMAs from the prohibition on tying capacity releases to extraneous 

conditions. Second, the Commission amended its section 284.8 regulations to exempt 

capacity releases meant to implement AMAs from competitive bidding. 

69. In Order No. 712, the Commission noted that 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 intended purpose of the 

capacity release program under Order No. 636 was to permit shippers to “reallocate 

unneeded firm capacity” to those who do need it.76 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 

customers and, therefore, efficient use of pipeline capacity on a firm basis throughout the 

year.”77 The Commission thus developed its capacity release policies and regulations 

based on the assumption that shippers would handle their own gas purchase and 

76 Order No. 636, Pipeline Service Obligations and Revisions to Regulations 

Governing Self-Implementing Transportation; and Regulation of Natural Gas Pipelines 

After Partial Wellhead Decontrol, FERC Stats. & Regs. ¶ 30,939 at p. 30,418. 

77 Id.
Docket No. RM08-1-001 - 47 - 

transportation arrangements and release their capacity only when they were not using the 

capacity to serve their own needs. 

70. Based on industry comments, however, it became clear that this basic assumption 

underlying the capacity release program does not hold true in the context of AMAs. As 

the Commission found in Order No. 712, 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 capacity to a third party expert who will perform the 

functions the Commission expected releasing shippers would do for themselves – 

purchasing their own gas supplies and releasing capacity or making 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 in Order No. 712 was to make the capacity release 

program more efficient by bringing it in line with these developments in today’s 

secondary gas markets. 

71. In Order No. 712 the Commission agreed with the industry-wide view that AMAs 

provide significant benefits to a variety of participants in the natural gas and electric 
Docket No. RM08-1-001 - 48 - 

 

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 can lower gas supply costs for releasing 

shippers and provide for more efficient use of the pipeline grid. AMAs also 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 natural gas market by creating efficiencies as a 

result of more load-responsive gas supply, and an increased utilization of transportation 

capacity. AMAs also 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.78

72. As noted above, in light of these substantial benefits provided by AMAs, the 

Commission in Order No. 712 modified its capacity release regulations and policies to 

78 The Commission noted in Order No. 712 that these benefits have been 

recognized by state commissions and the National Regulatory Research Institute. Order 

No. 712 at P 126 and n. 122. 
Docket No. RM08-1-001 - 49 - 

exempt pre-arranged capacity releases meant to implement AMAs from the prohibition 

against tying and from the bidding requirements of section 284.8 of the Commission’s 

regulations. The decision to modify the Commission’s policies and regulations to 

facilitate the use of AMAs is widely supported and not challenged by those parties filing 

for clarification or rehearing or Order No. 712. In general, those parties seek minor 

modifications to the Commission’s method for implementing AMAs or seek to expand 

the flexibility and/or authority granted to parties desiring to enter into AMAs. 

B. Definition of AMAs

73. In Order No. 712 the Commission established a definition of AMAs that was 

intended to strike a balance between facilitating flexible and innovative AMAs and 

drawing a clear line between AMAs and standard capacity releases. The definition 

established in Order No. 712 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. 
Docket No. RM08-1-001 - 50 - 

74. The Commission imposed a delivery and/ or purchase obligation on the 

replacement shipper in order to distinguish between bona fide AMAs that would qualify 

for the exemptions provided to AMAs and standard capacity releases. Thus, as shown, 

the definition of AMA requires that to qualify a pre-arranged release must contain 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.”79 The 

Commission also explained that, by requiring that the asset manager’s delivery or 

purchase obligation in AMAs with terms less than a year apply for the lesser of five 

months or the term of the release, the definition effectively required that the 

delivery/purchase obligation for any AMA between five months and a year would be for 

five months of the release, and that the delivery/purchase obligation would apply to the 

entire term of any AMA of less than five months. 

75. The Commission reasoned that the definition of AMA established in Order No. 

712 would further its goal of delineating AMAs from standard capacity releases by 

placing a significant delivery/purchase obligation, applicable during at least five months 

 79 Order No. 712 at P 153. 
Docket No. RM08-1-001 - 51 - 

out of each 12 month period of the release, on the asset manager. The Commission 

further explained that under the definition 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. Thus the definition also furthers the 

Commission’s 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 it can utilize the 

capacity during non-peak periods. The definition adopted in Order No. 712 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. 

76. Numerous parties seek clarification and reconsideration of several aspects of the 

definition. First, Marketer Petitioners assert that the “five-month” delivery/purchase 

obligation is “out of proportion” in the context of releases of less than a year because it 

would require an asset manager to have a delivery purchase obligation almost every day 

during an AMA with a six month term. Marketer Petitioners claim such an obligation 

would substantially reduce the incentives for asset managers and may create market 
Docket No. RM08-1-001 - 52 - 

 

inefficiencies.80 They also note that it is unclear what the delivery purchase obligation 

would be for a 13-month term under Order No. 712. The NGSA agrees with the 

Marketer Petitioners that the five month delivery/purchase obligation is too stringent. 

Both parties thus request that the Commission adopt a “five-twelfths” rule for the 

delivery/purchase obligation for capacity releases to implement AMAs, whereby the 

obligation of the asset manager would be revised to five-twelfths of the days in the term 

of the AMA, regardless of the term of the agreement. Those parties also request that the 

Commission clarify that the five-month obligation does not require that the months (or 

days) be consecutive.81

77. The Commission will not adopt an outright “five-twelfths” rule to replace the five 

month delivery purchase obligation for AMAs. The Commission established the 

exemptions for AMAs as opposed to standard capacity releases on the premise that the 

capacity released to implement an AMA was not excess capacity of the releasing shipper 

but capacity that the releasing shipper needed to serve its own needs.82 In Order No. 712, 

the Commission determined that a delivery/purchase obligation of at least five months 

80 Marketer Petitioners at 4. 

81 Marketer Petitioners at 4, NGSA at 6. 

82 See e.g. Order No. 712 at P 121 (stating that the distinguishing factor between a 

bona fide AMA and a standard capacity release “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.”) 
Docket No. RM08-1-001 - 53 - 

out of each twelve month period of the release would appropriately distinguish bona fide

AMAs from standard capacity releases. The Commission arrived at the five month 

minimum requirement based on the fact that, at least in cold weather markets, the period 

of peak use is generally regarded as being the five months from November through 

March. Thus, a five-month delivery/purchase obligation in a twelve month release would 

roughly correspond to a releasing shipper’s need to call upon the capacity to serve its 

peak requirements, while giving the asset manager assurance it can utilize the capacity 

during non-peak periods. 

78. However, AMAs may also be for a term of less than a year. In these 

circumstances, the release is less likely to encompass any seasonal variations in the 

releasing shipper’s need for the capacity to be used on its behalf. Therefore, the shorter 

the term of the release, the less reason there is to exempt some portion of the release term 

from the AMA delivery/purchase obligation. Thus, the Commission concludes that, in 

order to assure that releases of less than a year are part of a bona fide AMA in which the 

capacity will be used on behalf of the releasing shipper, the asset manager’s 

delivery/purchase obligation should be increasingly stringent the shorter the term of the 

release. The AMA definition adopted by Order No. 712 accomplishes this by requiring 

that the asset manager’s delivery/purchase obligation apply to the entire term of any 

AMA of less than five months and apply to at least five months of any release of between 
Docket No. RM08-1-001 - 54 - 

 

five and twelve months. Accordingly, the Commission will retain the current minimum 

five month obligation for AMAs of one year or less. 

79. The Commission recognizes, however, that the asset manager’s obligation under 

the “five month” rule may be unclear for a release that is more than one year and not an 

exact number of years, for example a 13-month term, as pointed out by the Marketer 

Petitioners. Thus, the Commission is revising the definition of AMA established in 

Order No. 712 to provide that the delivery/purchase obligation for a release of more than 

one year will be five months (or 155 days) of each 12 month period of the release and 

five-twelfths of the days of any additional period of the release not equal to 12 months.83 

The delivery/purchase obligation for a 13 month AMA therefore, would be a minimum of 

five months out of the first 12 month period and five-twelfths of the thirteenth month of 

the agreement. The concerns discussed above about the need for a more stringent 

purchase/delivery obligation in short term releases of less than a year do not apply to 

releases with terms of more than a year, because such releases will encompass any 

seasonal variations in the releasing shipper’s need for the capacity to be used for its own 

purposes. The Commission accordingly concludes that the revised definition will balance 

its goals of ensuring that there is a significant obligation on the asset manager to 

83 The Commission is making conforming changes to section 284.8 of its 

regulations. 
Docket No. RM08-1-001 - 55 - 

 

distinguish AMAs from standard capacity releases while also allowing sufficient 

flexibility for parties to negotiate beneficial AMAs. 

80. Parties also seek clarification that the five month delivery purchase obligation, or a 

daily obligation if accepted by the Commission, does not require the obligation to be for a 

single consecutive period. Marketer Petitioners for example, request that the 

Commission clarify that the “delivery/purchase obligation of section 284.8(h)(3) does not 

require the months to be consecutive” and would be satisfied by the use of any five 

months.84 The NGSA contends that the Commission should clarify that the five month 

obligation need not be on consecutive days but can be “satisfied by an AMA that imposes 

a delivery obligation on nonconsecutive days as long as those nonconsecutive days 

amount to a total of five twelfths of the term of the AMA.”85

81. The Commission grants clarification that the delivery purchase obligation for an 

AMA need not be for a single consecutive period. The Commission did not intend by the 

definition established in Order No. 712, and the definition as written does not require, 

that the obligation must be for five consecutive months. To provide flexibility in 

fashioning AMAs the Commission is aware that parties may want to divide the 

delivery/purchase obligation in a manner that corresponds to whatever variations exist in 

84 Marketer Petitioners at 5. 

85 NGSA at 5. 
Docket No. RM08-1-001 - 56 - 

the releasing shipper’s need to use the capacity over the course of a year. Thus, under the 

revised rule established in this order, the minimum delivery/purchase obligation may be 

satisfied by use of any combination of months and/or days during the term of the release 

that equals the requisite obligation for that release. In this regard, the parties need not use 

calendar months for purposes of complying with the requirement that the 

delivery/purchase obligation equal at least five months out of each twelve month period 

of the release. The parties may spread the obligation over days, rather than months, so 

long as the total obligation equals five months, treating 31 days as equal to one month. 

82. The AGA, Marketer Petitioners and Scana request that the Commission provide 

clarification and consistency in the regulatory language to describe the delivery/purchase 

obligation in the transportation capacity and storage injection and withdrawal context. 

They note that Order No. 712 adopted a standard for the replacement shipper in an AMA 

to deliver and/or purchase “up to one-hundred percent of the daily contract demand of the 

released transportation capacity” but that the standard for releases of storage capacity is 

for “one-hundred percent of the daily contract demand under the release for storage 

injection and withdrawals.” The parties contend that the same “up to” language should 

apply to releases of both storage and transportation capacity meant to implement an 

AMA and that the Commission did not intend in Order No. 712 to impose different 

obligations on asset managers depending on type of capacity released. 
Docket No. RM08-1-001 - 57 - 

83. The Commission agrees. The Commission intended in Order No. 712 to establish 

the same obligation on releasers of transportation and storage capacity, i.e., that they need 

to be obligated to deliver and/or purchase up to 100 percent of the daily contract demand 

of the applicable agreement. The Commission is therefore revising section 284.8 of its 

regulations accordingly. 

84. The AGA, the Marketer Petitioners and Scana state that often pipeline tariffs 

contain ratchet provisions that limit the ability of a storage customer to make injections 

and withdrawals from storage at maximum contract levels. Consequently, the maximum 

amount of gas a storage customer may be able to withdraw may fluctuate. These parties 

seek clarification that the delivery/purchase obligation under a storage AMA incorporates 

or is intended to reflect any limitations on the customers’ injection or withdrawal rights 

contained in the service provider’s tariff. 

85. The Commission grants the requested clarification. The Commission’s goal in 

Order No. 712 was to facilitate efficient and beneficial AMAs. This goal would not be 

advanced by disqualifying an AMA because of an operational limit imposed by the 

service provider’s tariff on a customer’s injection or withdrawal rights. All AMA 

agreements are subject to the tariff provisions of the service provider. Storage ratchet 

provisions limit the customer’s contractual right to demand service. The 

delivery/purchase obligation under a storage AMA was intended to reflect such limits on 

the customer’s contract demand and thus is satisfied if the releasing shipper has the right 
Docket No. RM08-1-001 - 58 - 

 

to call upon the asset manager to deliver or purchase gas consistent with the withdrawal 

or injection rights available under the tariff to the asset manager at the time the releasing 

shipper requires performance. 

86. Scana requests clarification that in a situation where parties include released 

capacity on both an upstream and downstream pipeline in an AMA, the delivery 

obligation only applies to the capacity released on the downstream pipeline that directly 

connects to the releasing shipper’s delivery point.86 Scana contends that when a shipper 

acquires capacity on several interconnected pipelines to create a seamless transportation 

path from a supply access point to the shipper’s delivery point, the capacity released on 

each pipeline will not be the same because the shipper typically needs more capacity on 

the upstream pipeline in order to account for additional fuel retention. Scana points to an 

example in the Commission’s November 15, 2007 Notice Of Proposed Rulemaking, 

showing that an asset manger’s delivery obligation is not cumulative where an AMA 

involves separate releases, as support for its request that the Commission clarify that the 

delivery obligation for a multi-pipeline AMA need only be satisfied on the downstream 

pipeline connected to the delivery point.87

86 Scana at 5. 

87 Scana at 5 and n. 5 (citing Promotion of a More Efficient Capacity Release 

Market, Notice of Proposed Rulemaking, 72 Fed. Reg. 65,916 (November 27, 2007), 

FERC Stats. & Reg. ¶ 32,625 at P 9 and n.92 (2007)). 
Docket No. RM08-1-001 - 59 - 

87. The Commission denies Scana’s request. Scana states that in an AMA where 

capacity is released on an upstream and a downstream pipeline, the amount of capacity 

released will be greater on the upstream pipeline. It provides no reasons, however, as to 

why the delivery/purchase obligation under such an AMA should be limited to the 

furthermost downstream pipeline that is connected to the delivery point. As discussed 

previously, the purpose of the minimum delivery/purchase obligation is to ensure that 

each release to an asset manager is part of a bona fide AMA, i.e., that the capacity 

included in the release is not simply unneeded capacity, but is capacity which the 

releasing shipper has a continuing need to use for its own business purposes. However, if 

the delivery/purchase obligation in Scana’s example did not apply to the full amount of 

the upstream released capacity, the releasing shipper could include in the upstream 

capacity release capacity that it does not need for its own legitimate business purposes 

during the term of the release. It is the Commission’s position that the asset manager’s 

delivery/purchase obligation must apply to the full contract demand under each capacity 

release in the transportation chain. Thus, while Scana is correct that the 

delivery/purchase obligation is not cumulative of the capacity in a released chain of 

contracts that constitute a single capacity path, there is still a delivery/purchase obligation 

up to the contract demand of each specific contract. 

88. Scana and BP also seek clarification that where both storage capacity and 

transportation capacity are combined in an AMA that the storage and transportation 
Docket No. RM08-1-001 - 60 - 

obligations are not cumulative. As with upstream and downstream transportation 

capacity on several pipelines, the delivery obligation of the AMA is not cumulative of the 

storage capacity and the transportation capacity used to transport the gas to or from 

storage, but to qualify for the exemptions the asset manager must meet the necessary 

obligation under each separate agreement. 

C. Exemption from Bidding for AMAs

89. In Order No.712, the Commission exempted pre-arranged releases to implement 

AMAs from the bidding requirements of section 284.8 of its regulations. 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 noted that all capacity releases made to implement AMAs are prearranged because it is important that a releasing shipper be able to use the asset manager 

of its choice to effectuate the components of the agreement. Unlike a normal capacity 

release where the releasing shipper is often shedding excess capacity and has no intention 

of an ongoing relationship with the replacement shipper, in the AMA context the identity 

of the replacement shipper is often critical because it will manage the releasing shipper’s 

portfolio for some time into the future. The Commission determined 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 
Docket No. RM08-1-001 - 61 - 

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 thus 

concluded that the benefits of facilitating AMAs outweigh any disadvantages in 

exempting such releases from bidding. 

90. The final rule provided that the exemption from bidding 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. The rule also 

provided that the exemption from bidding for AMAs applies to all releases to an asset 

manager, including those made for the purpose of extending a short-term AMA. The 

Commission determined that the rationale for exempting releases to an asset 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. The Commission concluded that 

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 
Docket No. RM08-1-001 - 62 - 

of beneficial AMAs by potentially preventing such releases to be made to the releasing 

shipper’s chosen asset manager. The final rule also extended the blanket exemption from 

bidding granted to AMAs to capacity releases made to a marketer participating in a state 

approved retail access program. 

91. No party requests rehearing of the Commission’s decision to exempt all releases to 

asset managers or marketers participating in retail unbundling programs from bidding. 

However, several parties filed requests for rehearing/clarification of the revised 

regulations the Commission adopted in order to implement that decision. Under Order 

No. 712, section 284.8(h)(1) exempts from the notification and bidding requirements in 

paragraphs 284.8(c) through (e): “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.” Section (h)(2) provides that “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) though 

(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.” 
Docket No. RM08-1-001 - 63 - 

 

92. The AGA, INGAA and Spectra request that the Commission clarify that the 

prohibition contained in section 284.8(h)(2) of the regulations against rollovers and rereleases without bidding to the same party within 28 days does not apply to AMAs or to 

releases pursuant to state mandated retail access programs.88 They contend that while the 

rule generally exempts releases to implement AMAs and releases for retail choice 

marketers from bidding under section 284.8(h)(1), it is unclear whether the prohibition on 

rollovers in section 284.8(h)(2) applies to such releases that are for a term of 31 days or 

less. AGA notes that AMAs or retail choice releases may in many instances be for 31 

days or less, and that to require competitive bidding to extend such releases would 

frustrate the final rule’s goal of fostering such arrangements. 

93. The Commission clarifies that the prohibition in section 284.8(h)(2) on rolling 

over a 31 day or less release to the same replacement shipper without bidding does not 

apply to AMAs or to releases pursuant to a state approved retail access program.89 As 

stated in the rule, the regulatory language of section 284.8(h)(2) was designed so that the 

prohibition on extending exempt releases without bidding only applied to the first 

category of releases exempted from bidding by section 284.8(h)(1), namely releases of 31 

88 AGA at 6, INGAA request for clarification at 1. 

89 Indeed the Commission expressed this intention for AMAs in the rule itself, 

when it stated that the exemption from bidding for AMAs applies to all releases to an 

asset manager, “including those made for the purpose of extending a short-term AMA.” 

Order No. 712 at P 135. 
Docket No. RM08-1-001 - 64 - 

days or less. The Commission intended by this language that releases pursuant to the 

other categories in section 284.8(h)(1), i.e., releases for more than a year at maximum 

rate, releases to implement AMAs and releases to marketers participating in state retail 

access programs, would not be subject to the prohibition on extensions without bidding. 

The Commission’s goal in the rule was to facilitate AMAs and state unbundling 

programs that would give retail end-users a greater choice of suppliers by generally 

exempting certain releases from its bidding requirements. The Commission did not 

intend to require bidding to extend such releases that are for 31 days or less. Accordingly 

the Commission clarifies that AMAs and releases pursuant to state approved retail access 

programs are not subject to the section 284.8(h)(2) prohibitions on extending releases 

without bidding. 

94. The Commission is also revising the regulatory text of sections 284.8(h)(1) and (2) 

so as to more clearly limit the section 284.8(h)(2) prohibition on rollovers, extensions and 

re-releases to the same shipper without bidding to release transactions that were exempt 

from bidding solely by virtue of the fact they were for a term of 31 days or less. As 

revised, section 284.8(h)(1) separately sets forth each category of release that qualifies 

for an exemption from bidding as follows: 

(h)(1) The following releases need not comply with the 

bidding requirements of paragraphs (c) through (e) of this 

section: 

(i) A release of capacity to an asset manager as defined in 

paragraph (h)(4) of this section; 
Docket No. RM08-1-001 - 65 - 

(ii) A release of capacity to a marketer participating in a stateregulated retail access program as defined in paragraph (h)(5) 

of this section; 

(iii) A release for more than one year at the maximum tariff 

rate; and 

(iv) A release for any period of 31 days or less. 

As revised, the section 284.8(h)(2) prohibition on re-releases to the same shipper 

without bidding will only apply: “When a release of capacity is exempt from 

bidding under paragraph (h)(1)(iv) of this section.” (i.e. is for 31 days or less). 

95. Several parties also seek two clarifications with regard to section 284.8(h)(2) as it 

applies to releases of 31 days or less that do not qualify for the AMA or retail unbundling 

exemptions from bidding.90 Their concerns focus on the language in section 284.8(h)(2) 

prohibiting re-releases “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.” First, BP 

seeks clarification that this language does not prevent a releasing shipper from releasing 

the same capacity to the same replacement shipper for another consecutive period of 31 

days or less if the releasing shipper subjects that capacity to the Commission’s posting 

and bidding requirements. 

96. The Commission grants this clarification. Order No. 712 did not change the 

language of section 284.8(h)(2) concerning the prohibition on re-releases to the same 

 90 See e.g., INGAA clarification request at 2, Spectra at 37, NGSA and EPSA at 

10, and BP at 8. 
Docket No. RM08-1-001 - 66 - 

 

replacement shipper, which was originally adopted in Order No. 636-A. By its terms, 

that prohibition only applies to re-releases “under this paragraph,” namely to re-releases 

pursuant to the exemption from bidding for 31-day or less releases contained in 

paragraph (h) of section 284.8. Therefore, the prohibition on re-releases to the same 

replacement shipper does not apply to re-releases made pursuant to the notice and 

bidding requirements in paragraphs (c) through (e) of section 284.8. As Order No. 636-B 

explained, the purpose of the prohibition on re-releases to the same shipper until 28 days 

after the first release was “to protect the integrity and allocative efficiency of the capacity 

release mechanism by preventing parties from avoiding the bidding requirement by 

extending short-term releases.”91 That purpose is satisfied so long as the re-release to the 

same replacement shipper is subject to bidding. 

97. Second, INGAA, Spectra, Williston, NGSA and EPSA note that Order No. 712 

retained the existing language of section 284.8(h)(2) that limits the 28-day prohibition on 

re-releases to the same shipper without bidding to re-releases “at less than the maximum 

tariff rate.” Those seeking clarification assert that the retention of this language is 

potentially inconsistent with the Commission’s decision to remove the price ceiling on 

short term capacity releases of a year or less. They state that the language limiting the 

28-day prohibition on rolling over releases of 31 days or less without bidding to re91 Order No. 636-B, 61 FERC ¶ 61,272 at 61,995. 
Docket No. RM08-1-001 - 67 - 

releases “at less than the maximum tariff rate” could be read to permit re-releases to the 

same replacement shipper without bidding for periods of a year or less if the release rate 

is at or higher than the pipeline’s maximum recourse rate. Therefore, they seek 

clarification that all re-releases for a period of a year or less, which are no longer subject 

to a maximum ceiling rate, must be subject to bidding, regardless of the release rate. 

INGAA and Spectra also seek clarification that the “at less than maximum tariff rate” 

language now applies only in the context of re-releases for more than one year to which 

the maximum rate ceiling still applies. 

98. The Commission grants clarification. Because Order No. 712 removed the 

maximum rate ceiling for all releases of one year or less, all such releases must be subject 

to bidding, unless they qualify for exemptions from bidding for: (1) releases of 31 days or 

less, (2) releases to asset managers, or (3) releases to marketers participating in a state 

regulated retail access program. The exemption from bidding for releases at the 

maximum tariff rate is only applicable to releases of more than a year, because only those 

releases are subject to a maximum tariff rate. Therefore, a capacity release that was not 

subject to bidding pursuant to the exemption for releases of 31 days or less may not be 

rolled over to the same replacement shipper without bidding until 28 days after the end of 

the first release period, unless the re-release is for more than a year at the maximum rate 

and thus qualifies for the exemption from bidding for maximum rate releases. 
Docket No. RM08-1-001 - 68 - 

 

99. Consistent with the revisions to section 284.8(h)(1) set forth above, and the 

various clarifications discussed above, the Commission has determined to modify section 

284.8(h)(2) so as to more clearly state its intent. As revised, section 284.8(h)(2) reads as 

follows: 

(h)(2) When a release of capacity is exempt from bidding 

under paragraph (h)(1)(iv) of this section, a firm shipper may 

not roll over, extend or in any way continue the release to the 

same replacement shipper using the 31 days or less bidding 

exemption until 28 days after the first release period has 

ended. The 28-day hiatus does not apply to any re-release to 

the same replacement shipper that is posted for bidding or 

that qualifies for any of the other exemptions from bidding in 

paragraph (h)(1). 

100. This revised language ensures that a release of 31 days or less, which was exempt 

from bidding solely pursuant to the exemption for short term transactions, may not be 

rolled over to the same replacement shipper until at least 28 days after the first release 

period has ended, unless (1) the releasing shipper posts the new release for bidding or (2) 

the new release qualifies for one of the three other exemptions from bidding. In order to 

qualify for the maximum rate exemption from bidding, the re-release must be for a term 

of more than a year. The releasing shipper could release the capacity to another shipper 

under the bidding exemption for releases of 31 days or less, as stated in Order No. 636-

B.92 

92 Order No. 636-B, 61 FERC at 61,995. 
Docket No. RM08-1-001 - 69 - 

D. Posting and Reporting Requirements

101. In Order No. 712, the Commission revised its regulations to include new posting 

requirements for capacity releases to implement AMAs. Specifically, the Commission 

determined 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. The Commission reasoned that the requirement of an 

asset manager to 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. Accordingly the 

Commission revised section 284.13(b)(1) of its regulations to add a new subsection (x) 

specifying that a posting of any capacity release meant to implement an AMA must 

specify the volumetric level of the replacement shipper’s delivery or purchase obligation 

and the time periods during which that obligation is in effect. The Commission also 

added new subsection (xi) requiring that a release to a marketer participating in a state 

regulated retail access program must be so identified in the posting. The Commission 

noted that existing regulations required parties to identify asset managers and agents in 

the index of customers. The Commission further stated that parties are not required to 
Docket No. RM08-1-001 - 70 - 

include commercially sensitive aspects of AMAs. Certain parties seek rehearing and/or 

clarification of these parts of Order No. 712. 

1. Posting requirements

102. Marketer Petitioners request reconsideration concerning the information required 

to be posted in connection with a release of capacity associated with an AMA under 

Order No. 712.93 Marketer Petitioners submit that the specific days/months during which 

an AMA manager’s delivery/purchase obligation is in effect should not have to be posted 

in the release. Instead, they assert that the fact the release is associated with an AMA, the 

identity of the asset manager, and the fact that the asset manager’s delivery/purchase 

obligation is for the requisite quantity and time period should be adequate to demonstrate 

that the release is associated with a bona fide AMA. Marketer Petitioners argue that 

posting the specifics of the delivery/purchase obligation may result in disclosure of 

competitive and commercially sensitive information that will reduce the flexibility of 

parties in structuring AMAs. 

103. The Commission denies the reconsideration request. As noted above, the 

Commission in Order No. 712 found that the delivery/purchase obligation is the 

foundation for differentiating AMAs from standard capacity releases, and that the 

Commission needed a way to accurately monitor this component of an AMA. Thus the 

 93 Marketer Petitioners at 8-9. 
Docket No. RM08-1-001 - 71 - 

Commission revised its regulations to include the specifics of what it deemed necessary 

to execute this monitoring function. Marketer Petitioners assert that it is adequate to 

include the fact that the manager’s delivery/purchase obligation is for the requisite 

quantity and time period to demonstrate the validity of the AMA, but they do not state 

how those facts can be discerned without information regarding the volumetric level of 

the obligation and the time periods that it will be in effect. Further, Marketer Petitioners 

claim that posting of specific dates will potentially result in disclosure of commercially 

sensitive information but provide no details as to how such information is commercially 

sensitive. The Commission finds that it is important for determining the validity of bona

fide AMAs that it and the public can see and review the details of how the release 

qualifies as an AMA under the definition. The Marketer Petitioners’ request is thus 

denied. 

2. Index of Customers

104. Several parties seek clarification that the Commission did not intend to amend its 

regulations pertaining to the Index of Customers.94 They note that in Order No. 712 the 

Commission revised certain of its regulations concerning the posting and reporting 

requirements for AMAs under the new rule. In that discussion the Commission stated 

that “sections 284.13(c)(2)(viii) and (ix) require that the pipeline’s index of customers 

 94 See, INGAA at 3, Iroquois at 7, Spectra at 38, Williston at 18. 
Docket No. RM08-1-001 - 72 - 

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.”95 

The parties point out that the actual language in the referenced regulation relating to 

affiliate relationships requires the reporting on the index of customers of any “affiliate 

relationship between the pipeline and a shipper’s asset manager or agent.” 18 CFR 

§284.139(c)(2)(ix) (emphasis added). They seek clarification that the discussion in the 

preamble is not intended to modify the language of section 284.13(c)(2)(ix) concerning 

the Index of Customers. 

105. The Commission clarifies that the discussion in Order No. 712 inadvertently 

misstated the regulation and that the Commission did not intend to change the language 

or impact of section 284.13(c)(2)(ix), nor as the parties note, did the Commission make 

any revisions to that section in Order No. 712. Therefore, pipelines will not be required 

to state in their Index of Customers whether there is an affiliate relationship between the 

releasing shipper and its asset manager. However, the Commission notes that existing 

section 284.13(b)(ix) requires that the pipeline’s posting of capacity release transactions 

include a statement “whether there is an affiliate relationship between . . . the releasing 

and replacement shipper.” Therefore, the pipeline’s transactional reports will indicate 

whether the releasing shipper and any asset manager to which it releases capacity are 

 95 Order No. 712 at P 172. 
Docket No. RM08-1-001 - 73 - 

affiliated. The Commission also notes that section 284.13(c)(2)(viii) does require that the 

index of customers include the name of any agent or asset manager managing a shipper’s 

transportation service.96

106. INGAA seeks clarification that the posting requirements for capacity releases 

under AMAs apply only to capacity releases initiated and reported to the pipeline after 

the effective date of Order No. 712. The Commission so clarifies. Nothing in Order No. 

712 indicates that any provision would take effect retroactively. Further, no capacity 

releases to implement AMAs under Order No. 712 are valid until the effective date of the 

rule. Accordingly, pipelines need only report capacity releases that are meant to 

implement AMAs under Order No. 712 after the effective date of the rule. 

E. Miscellaneous AMA Issues

107. The NGSA requests that the Commission clarify that on days when the releasing 

shipper has a right to call upon the asset manager to deliver or purchase gas under an 

AMA, the parties may specify a nomination deadline no earlier than the 8:00 AM on the 

 96 Spectra also requests clarification that the Commission’s statement in P 136 of 

Order No. 712, stating that the existing requirements referenced in section 

284.13(c)(2)(viii) (Index of Customers) of the regulations still apply with regard to 

identifying asset managers, which was followed by a statement that the Commission was 

adding a requirement to post the asset manager’s delivery obligation to the releasing 

shipper, did not intend to add any requirements to the index of customers. The 

Commission so clarifies. The Commission clearly stated in that paragraph that the new 

reporting requirements were “in addition” to the existing requirements under the index of 

customers. 
Docket No. RM08-1-001 - 74 - 

 

weekday morning before gas flows, after which the asset manager may release any 

capacity not wanted by the releasing shipper without recall in order to maximize the 

value of the capacity.97 The NGSA asserts that as written, Order No. 712 requires the 

asset manager to provide the releasing shipper an absolute call on the full contract 

volume of the released capacity on every day of the five month minimum period. 

According to the NGSA, a strict reading of the shipper’s right would require an asset 

manager to re-release the capacity subject to recall during each day of the 

delivery/purchase obligation period, thereby limiting the value of the capacity and the 

AMA. 

108. The NGSA submits that one way to address this issue is for the Commission to 

allow the parties to an AMA to agree to a specific nomination deadline after which the 

asset manager would be free to market the capacity without any recall rights. NGSA 

asserts that nomination deadlines are regular features of AMAs and may be fixed at 

various times depending on the needs of the parties and pipeline specifications, and that 

8:00 am on the weekday before gas flows is a commonly used deadline. Under such a 

scenario, the releasing shipper may call upon the replacement shipper for the full contract 

volume until the nomination deadline. In the event that the releasing shipper knows the 

day before, however, that it does not need all or some portion of the capacity at the 

97 NGSA at 6. 
Docket No. RM08-1-001 - 75 - 

 

nomination deadline, the asset manager would be free to release the unwanted capacity 

without any recall rights, thus maximizing the value of the capacity to the mutual benefit 

of both the releasing shipper and the asset manager. 

109. The Commission grants NGSA’s clarification request to allow the parties to an 

AMA to specify a deadline in their AMA agreement after which the asset manager may 

re-release the capacity without attaching a recall provision. This deadline may be no 

earlier than 8:00 AM on the weekday before gas flows. As noted by NGSA, allowing the 

parties to establish a deadline after which the releasing shipper can no longer exercise its 

recall right is consistent with the Commission’s goal of maximizing the value of capacity 

released pursuant to an AMA. The Commission finds limiting the ability to determine a 

deadline to no earlier than 8:00 AM on the weekday prior to gas flow is reasonable as a 

means of providing this flexibility while ensuring that parties do not utilize the deadline 

as a means of essentially vitiating the delivery purchase obligation of the AMA.98 

110. BP requests clarification that a releasing shipper may include more capacity in its 

AMA than it has previously used to supply its natural gas needs.99 BP notes that in Order 

No. 712 the Commission supported the delivery/purchase obligation for AMAs by 

98 The Commission notes that 8:00 AM on the day before gas flows is consistent 

with the current North American Energy Standards Board (NAESB) standard for 

notification by the releasing shipper of a recall of capacity. See NAESB Standard 5.3.44. 

99 BP at 3. 
Docket No. RM08-1-001 - 76 - 

 

referring to the fact that an asset manager should be able to reasonably forecast a 

releasing shipper’s needs based on historical usage. BP contends that because in nearly 

all cases shippers acquire capacity for use as a mechanism for gas supply, a releasing 

shipper should be able to include its portfolio of assets making up an AMA transportation 

capacity that it owns, not only that capacity historically used to meet past peak day 

demands or to transport supply. It asserts that entities on both the supply and demand 

side typically purchase and hold capacity in excess of its historic gas needs. 

111. The Commission grants the requested clarification. In referring to an asset 

manager’s ability to make reasonable judgments about the releasing shipper’s demand or 

supply requirements the Commission did not in any way limit the capacity that could be 

included in an AMA to that reflected by historical usage. A releasing shipper may 

include more capacity in an AMA than it has previously used to meet its needs, provided 

that the releasing shipper owns that capacity and that the delivery/purchase obligation in 

the AMA applies to all the capacity included in the AMA. 

112. Marketer Petitioners seek clarification that a release of AMA capacity by an asset 

manager to another asset manager is eligible for the exemptions under section 284.8(h)(3) 

of the regulations.100 They point out that different asset managers have expertise in 

different markets, and thus may desire to work cooperatively with other asset managers to 

100 Marketer Petitioners at 12. 
Docket No. RM08-1-001 - 77 - 

maximize the value of the capacity. One way for this to occur is for one asset manager to 

re-release capacity received from the original releasing shipper to a second asset 

manager. 

113. The Commission clarifies that an asset manager may release capacity it obtained 

as part of an AMA to another asset manager. Provided each release is made to 

implement an AMA and satisfies the delivery/purchase obligation and other criteria in the 

definition of AMA, such releases would qualify for the exemptions granted by Order No. 

712 to AMAs. 

114. BP seeks clarification that any entity holding interstate transportation capacity 

may enter into an AMA as a releasing shipper, including wholesale marketers. BP cites 

to Order No. 712 and the Commission’s statement that the definition adopted in the rule 

was meant to be flexible enough so that it “does not limit the type of party that can enter 

into an AMA.” The Commission grants clarification. As BP itself points out, the 

definition was meant to be flexible enough so as to not limit the type of entities that could 

take advantage of AMAs so long as the criteria in the definition are satisfied. 

III. State Mandated Retail Unbundling

115. In Order No. 712, the Commission determined 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. The Commission found that state retail unbundling 
Docket No. RM08-1-001 - 78 - 

 

programs that give retail end-users a greater choice of suppliers from whom to purchase 

their gas provide benefits similar to AMAs. Accordingly, the Commission clarified in 

Order No. 712 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 Commission also amended section 284.8(h) in order to 

provide an exemption from bidding for such releases. Under Order No. 712, 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 Commission also stated that the 

exemption does not apply to re-releases made by marketers participating in the retail 

access program. 

116. The AGA seeks clarification that consecutive short-term releases to a marketer 

participating in a state-regulated retail access program will not be considered a long-term 

release subject to the maximum rate ceiling.101 The AGA states that pursuant to the state 

approved programs local distribution companies typically release capacity to the same 

retail marketers on a monthly or other regular basis. AGA contends that consecutive 

short term releases to a retail marketer under a state approved program are different than 

101 AGA at 9. 
Docket No. RM08-1-001 - 79 - 

 

long-term transactions because a retail marketer is generally only eligible to contract for 

released capacity to the extent of its market share and the short term releases often vary 

with each separate transaction based on changes to the marketer’s share of the retail 

market or the source of the released capacity. 

117. The Commission grants clarification. In the circumstances described by AGA, 

consecutive short-term releases to the same marketer are appropriately treated as separate 

short-term releases not subject to the maximum rate ceiling. Marketers taking these 

releases have no continuing right to any particular capacity from one release to the next. 

Rather, the amount of capacity released to each marketer is dependent upon their 

continuing participation in the retail access program and varies with their market share. 

There is nothing in the Commission’s current regulations or the revisions in this order 

that would lead the Commission to deem such a series of short term releases under a state 

program to be a single long-term release. 

118. Marketer Petitioners request that the Commission clarify that a marketer 

participating in a state approved retail access program can re-release its capacity to an 

asset manager that will fulfill the marketer’s obligations under the state approved 

program.102 The Commission grants clarification. The statement in Order No. 712 that 

the exemptions afforded to marketers participating in state approved retail access 

102 Id. See also BP at 8-9. 
Docket No. RM08-1-001 - 80 - 

programs did not apply to re-releases made by such marketers was referring to a rerelease that was a standard capacity release, not a re-release to an asset manager. As 

clarified above, an asset manager may re-release to a second asset manager and if the 

release satisfies the criteria of the AMA definition, the exemptions will apply. Likewise, 

a marketer participating in a state regulated retail access program may re-release to an 

asset manager and the second release will qualify for the exemptions afforded AMAs as 

long as it meets the necessary requirements. 

119. BP seeks clarification that a marketer participating in a retail unbundling program 

can use its released capacity to serve customers who are not subject to the retail access 

program during periods when the capacity is not needed to serve retail access customers. 

BP contends that such use of excess capacity would facilitate the efficient use of capacity 

and put retail access providers in a position comparable to that of asset managers. 

120. The Commission grants clarification. In establishing the exemptions for AMAs 

the Commission found in part that AMAs were beneficial because they would encourage 

maximum use of capacity during periods when it was not needed by the releasing 

shipper. Similarly, alternative use of capacity by a marketer participating in a retail 

access program during periods when that capacity is not needed to serve the retail access 

customers’ needs promotes the efficient use of capacity. 

121. BP also seeks clarification that a wholesale supplier who obtains capacity directly 

from an LDC as part of an unbundling program but who is not a marketer under the 
Docket No. RM08-1-001 - 81 - 

 

program nevertheless qualifies for the tying and bidding exemptions.103 As the 

Commission understands this request by BP, it seeks the exemptions afforded to retail 

access marketers for a release of capacity to a wholesale supplier, who will in turn sell 

gas to the retail access marketer. In other words, BP seeks the exemption for an entity 

that is one-step removed from the situation under which Order No. 712 grants exemptions 

from tying and bidding. 

122. The Commission declines to grant BP’s request in this generic rulemaking 

proceeding. As noted, BP requests the Commission to approve a specific deal structure 

that does not meet the criteria under which the rule generally grants exemptions. BP is 

free to file separately on a case-by-case basis for approval of individual arrangements that 

it believes may merit a waiver of the Commission’s bidding and tying strictures. 

123. Lake Apopka Natural Gas District, Florida (Lake Apopka) filed a late request for 

clarification, or reconsideration, requesting the Commission clarify that the blanket 

exemptions from tying and bidding granted for releases made as part of a state approved 

retail access program apply equally to self-regulated municipals. Lake Apopka states that 

it is a special district created by the state of Florida and authorized to transport and 

distribute natural gas to its member municipalities and to other municipalities. Lake 

Apopka states that its rates and terms of service are not subject to regulation by the 

103 BP at 9. 
Docket No. RM08-1-001 - 82 - 

Florida Public Service Commission. Lake Apopka currently does not have a retail access 

program and provided no information in its pleading as to the way in which such a 

program would be structured and whether it would have protections comparable to state 

governmental review. 

124. The Commission denies Lake Apopka’s request. As noted, the Commission’s 

bidding requirements and its prohibition against tying are meant to ensure a transparent, 

liquid, and non-discriminatory wholesale energy market. In cases where retail access 

programs have been reviewed and approved by state regulators, there is a sound basis to 

believe that retail access and wholesale access programs are working toward common 

goals of promoting customer choice and competition, subject to state supervision and 

oversight. State regulators can review a proposed program and establish essential 

conditions to ensure that a local utility monopoly does not create a retail access program 

that transfers its market power to an unregulated affiliate at the expense of local retail 

ratepayers and nearby wholesale market competitors. 

125. From the information provided, it appears that these protections are lacking in the 

situation described by Lake Apopka. The Commission’s determination in Order No. 712 

was not intended to apply to such wholly unregulated entities and the Commission 

declines to revise its regulations to grant a blanket exemption in this rulemaking 

proceeding. The Commission is open to considering waiver requests on this issue on a 

case-by-case basis if presented to us in a fully justified proposal. 
Docket No. RM08-1-001 - 83 - 

 

126. Vector Pipeline LP (Vector) filed a request for clarification or in the alternative 

rehearing asking that the Commission clarify that Canadian provincial retail unbundling 

programs will be treated the same as state unbundling programs under Order No. 712. 

Vector notes that Order No. 712’s exemption from bidding for state-regulated open 

access programs defines a state retail unbundling program as one “approved by the state 

agency with jurisdiction over the local distribution company that provides delivery 

service to such retail customers.”104 Vector states that it does not oppose the exemption 

but contends that the Commission should clarify that it also applies to programs 

authorized by a province in Canada. Vector states that it has firm shippers on its system 

that have participated in a retail unbundling program authorized by the Province of 

Ontario and that the Commission has previously treated such Canadian programs 

identical to state retail unbundling programs.105

127. The Commission grants clarification. As noted by Vector, during the period when 

the price cap on short-term releases was removed pursuant to Order No. 637, the 

Commission granted Union Gas, a firm shipper on Vector’s system, a waiver of the 

Commission’s posting and bidding requirements to further its efforts to participate in a 

provincial retail unbundling program similar to waivers the Commission issued for 

104 Vector at 1. 

105 Id., (citing, Union Gas Ltd., 93 FERC ¶61,074 (2000)). 
Docket No. RM08-1-001 - 84 - 

domestic LDCs to participate in state approved retail unbundling programs during the 

same period. The Commission finds that its rationale in equating Canadian provincial 

retail unbundling programs with state approved retail access programs for the purposes of 

Order No. 637 applies equally to Order No. 712’s bidding exemption for such programs. 

Accordingly, the Commission clarifies that Canadian provincial retail unbundling 

programs will be treated the same as state unbundling programs for purposes of the 

bidding exemption for state-regulated retail unbundling programs under Order No. 712. 

IV. Tying of Storage Capacity and Inventory 

128. In Order No. 712, the Commission granted an exception to 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 outside the AMA context. The Commission 

reasoned that in the storage context, storage capacity is inextricably attached to the gas in 

storage, and that by allowing releasing shippers to condition the release of storage 

capacity on the 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 would 

enhance the efficient use of storage capacity while at the same time ensuring that the 

releasing shipper would have gas in storage for the winter. 

129. The AGA requests clarification that the exemption from the tying prohibition 

applies to other terms and conditions related to the purchase and sale of storage gas in 
Docket No. RM08-1-001 - 85 - 

 

inventory.106 It argues that such an exemption is akin to the clarification for AMAs that 

the tying exemption applies to all other agreements necessary to implement the 

agreement.107 AGA notes as an example that credit requirements may be necessary to 

address the risks associated with transferring substantial amounts of commodities, 

particularly storage gas. AGA states that given the large quantities of gas in storage 

sought to be transferred and the high commodity prices in today’s marketplace, a bidder 

that is creditworthy for purposes of pipeline transportation service may not be sufficiently 

creditworthy to provide security for commodity transfers. AGA suggests that the current 

creditworthy provisions contained in pipeline tariffs only cover the risks associated with 

failure of shipper to pay for capacity and are likely inadequate to address commodity 

transfer risks. 

130. The Commission agrees that in the situation where a release of pipeline capacity is 

tied to storage inventory, existing pipeline creditworthy provisions may not be adequate 

to cover the risks associated with the transfer of large amounts of storage gas. As the 

AGA points out, given the relatively high prices of commodities in today’s natural gas 

marketplace, a bidder that is creditworthy relative to the risks associated with pipeline 

106 The Commission in Order No. 712 clarified that if an AMA meets the essential 

elements of the definition of AMAs, then the tying exemption applies to all other 

agreements necessary to implement the AMA. Order No. 712 at P 171. 

107 AGA at 9. 
Docket No. RM08-1-001 - 86 - 

 

services may not be creditworthy in terms of being able to secure large quantities of 

storage gas. The Commission has recognized elsewhere the difference between the 

potential values of pipeline services as opposed to the value of the commodity.108 

Accordingly, the Commission clarifies that with regard to a storage release that includes a 

condition regarding the sale and/or repurchase of gas outside the AMA context as 

authorized by Order No. 712, the parties may negotiate further terms and conditions 

related to the commodity portion of the transaction, and such agreements shall not be 

subject to the prohibition against tying of extraneous conditions. 

131. BP seeks clarification on several aspects of the storage tying exception. First, BP 

seeks clarification that the Commission’s statement that it would allow the releasing 

shipper to require the replacement shipper to take title to the gas in storage does not 

require that the replacement shipper actually pay the releasing shipper for gas in storage 

in situations where the replacement shipper will return the capacity to the releasing 

shipper with an equivalent amount of gas in storage. According to BP parties may make 

arrangements where the payment of consideration is deferred until no later than when the 

storage capacity is returned to the releasing shipper. 

108 See e.g., Gulf South Pipeline Co., LP, 103 FERC ¶ 61,129, at 61,422 (2003). 
Docket No. RM08-1-001 - 87 - 

132. The Commission grants clarification. Order No. 712 is intended to permit parties 

flexibility in structuring storage release arrangements. It is reasonable that these 

arrangements may at times involve in-kind transfers of gas in lieu of monetary payments. 

133. BP also requests clarification that when the Commission stated that it was 

providing an exception from the tying prohibition 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, that it did not mean to limit the allowed ties to the 

examples provided, i.e., transfer of title to gas in storage and return of a specified amount 

of gas. BP asserts that those are only two of the potential ties between storage capacity 

and inventory and that others extraneous conditions exist that contain the same 

inextricable link between storage capacity and gas in storage, such as a call option on gas 

in storage.109 BP asserts that the Commission should allow ties other than those specified 

in the rule. 

134. The Commission acknowledges that there may be different means by which 

parties may effectuate a transfer of title to the gas in storage, or that parties may desire, as 

BP suggests, to allow for an option for the releasing shipper to require the replacement 

shipper to sell the gas in storage back to the releasing shipper if it needs to use the storage 

gas. The Commission thus clarifies that parties may utilize different methods to transfer 

 109 BP at 7 and n.14. 
Docket No. RM08-1-001 - 88 - 

the title to the gas and may include such a method as a condition in a combined storage 

capacity and inventory release. The Commission’s clarification, however, is limited to 

ties related to the gas in storage. If parties desire to condition storage releases on noncommodity related items, then such parties should file separately with the Commission 

for approval of those transactions. 

135. BP also seeks clarification for the following three scenarios regarding how storage 

releases that include conditions concerning storage inventory should be posted for 

bidding: 

(i) if no pre-arranged replacement shipper exists but the 

releasing shipper has established a purchase price for the gas, 

the posting for the capacity must include the purchase price 

and all bids will be based on an equivalent purchase price so 

that the winning replacement shipper will be decided solely 

upon the competing bids for the capacity itself; 

(ii) if a pre-arranged shipper exists, the posting will include 

the purchase price for the gas offered by the pre-arranged 

shipper, and any competing bids must be based on an 

equivalent purchase price so that the winning replacement 

shipper will be decided solely upon the competing bids for 

the capacity itself; or 

(iii) if no purchase price has been established by the releasing 

shipper and/or offered by a pre-arranged shipper, the posting 

will indicate that the winning bid will be based solely upon 

the offers made on the capacity itself, along with a condition 

subsequent providing that the parties will mutually agree on a 

purchase price for the gas after the award. 
Docket No. RM08-1-001 - 89 - 

 

136. BP states that in situation (iii), if the parties are unable to mutually agree upon a 

price, the award will be voided and the capacity may be re-posted by the releasing 

shipper.110

137. BP asserts that if the condition on the replacement shipper is the purchase of 

remaining gas in storage, then the consideration to be paid for the capacity and the price 

of the gas both become economic factors for the transaction. BP states that the intent of 

its request for clarification of the examples is to make the capacity the only economic 

factor to be evaluated for purposes of competitive bidding.

138. The Commission agrees with BP that the only factor that should be considered for 

competitive bidding purposes in the context where storage capacity is tied to storage 

inventory is the capacity. This is because the bidding requirements in the Commission’s 

regulations only apply to capacity releases and must result in a rate that the replacement 

shipper will pay to the pipeline for services using the released capacity. With regard to 

how releases with conditions concerning storage inventory may be posted, Commission 

policy allows releasing shippers to include in capacity release postings reasonable and 

non-discriminatory terms and conditions, provided that all such terms and conditions are 

posted on the pipeline's EBB, are objectively stated, are applicable to all potential 

110 BP at 5-6 
Docket No. RM08-1-001 - 90 - 

bidders, and relate solely to the details of acquiring capacity on interstate pipelines.111

BP’s first two suggestions for posting scenarios appear consistent with these 

requirements. The third, however, could be problematic in light of the fact that the 

commodity price would not be posted or objectively stated. 

V. Liquefied Natural Gas

139. In Order No. 712, the Commission rejected a request that parties be allowed 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, akin to the exemption for AMAs that allows the tying 

of released capacity to gas sales agreements. Several parties112 had argued 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. The requesting parties suggested 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. 

140. The Commission declined to grant the LNG importers’ request in Order No. 712. 

The Commission noted that Order No. 712 permitted the use of supply side AMAs and 

 111 Order No. 636-B at 61,996 (citing Order No. 636-A at 30,557). 

112 Statoil and Shell LNG. 
Docket No. RM08-1-001 - 91 - 

 

that LNG importers holding firm capacity on interstate pipelines connected to an LNG 

terminal were free to use a supply AMA. The Commission also found that the requesters 

had not provided adequate detail on the types of transactions for which they were 

requesting the exemptions to explain why a further exemption beyond that provided for 

supply AMAs is required for LNG facilities, and that it was unclear from their comments 

how far downstream they sought to have the exemption apply. The Commission also 

found that the record was insufficient to evaluate the possible benefits of the requested 

exemption or the effect on open access competition that such an exemption might have. 

The Commission stated that it was open to considering waiver requests on the issue on a 

case-by-case basis if presented to it in a fully justified proposal. 

141. Several parties seek rehearing of the Commission’s decision. The LNG 

Petitioners argue that the Commission erred in declining to grant the requested 

clarification that it would be a permissible tie for permit holders of capacity at an LNG 

terminal to link throughput agreements and/or sales of gas at the outlet of an LNG 

terminal with a pre-arranged capacity release on an interstate pipeline directly connected 

to the LNG terminal, or alternatively to provide an exemption for such transactions.113 

They also contend that the Commission erred by not granting an exemption from bidding 

113 In earlier comments the LNG Petitioners had requested only an exemption from 

the prohibition against tying. In their rehearing request, they now also seek an exemption 

from bidding because Order No. 712 removed the rate ceiling for short term releases. 

LNG Petitioners at 7, n. 20. 
Docket No. RM08-1-001 - 92 - 

 

for capacity releases included in such transaction. They assert the Commission erred 

further by concluding that LNG and pipeline capacity holders could instead use supply 

side AMAs, and that it was unreasonable for the Commission to grant tying and bidding 

exemptions for releases to implement AMAs and retail state unbundling programs but not 

for LNG capacity holders. Shell LNG makes similar arguments and the NGSA states that 

the exemption should be granted. 

142. The LNG Petitioners state that they have contracts with the owners of U.S. LNG 

terminals to use the capacity of those terminals to receive, store and regasify LNG. The 

LNG Petitioners also hold transportation capacity on open access interstate pipelines 

directly connected to the LNG terminal. Some of the terminals provide open access 

service pursuant to part 284 of the Commission’s regulations. Other terminals are not 

open access, as permitted by the Commission’s Hackberry policy.114 

143. The LNG Petitioners explain that they have been unable to enter into long-term 

contracts to purchase enough LNG from LNG suppliers, so that the LNG Petitioners can 

use their terminal and pipeline capacity for their own LNG. However, they assert that 

some LNG suppliers, including state-owned gas and oil companies and European and 

Asian utilities with significant natural gas reserves, are willing to negotiate arrangements 

under which the LNG Petitioners would, in essence, release both their terminal and 

114 Hackberry LNG Terminal, L.L.C., 101 FERC ¶ 61,294 (2002) (Hackberry). 
Docket No. RM08-1-001 - 93 - 

 

interstate pipeline capacity to the LNG suppliers. The LNG suppliers would then use that 

capacity to import their own LNG into the United States, and they or their marketing 

affiliates would resell the regasified LNG in the downstream U.S. natural gas market. 

The LNG suppliers’ use of the capacity would be sporadic, because it would depend on 

whether spot market gas prices and demand in competing markets justifies importing a 

particular LNG cargo into the U.S. The LNG Petitioners do not state what the term of 

these arrangements is likely to be, but it would appear that at least some of these 

arrangements would be for terms of between 31 days and one year, and thus would not 

qualify for the exemptions from bidding for either short term releases of 31 days or less 

or the exemption for maximum rate releases of more than a year.115

144. The LNG Petitioners and others contend that the above described transactions 

generally cannot be structured as supply side AMAs. They state that the traditional AMA 

model, where the releasing shipper is releasing capacity to an expert that will help to 

manage capacity that the releasing shipper still needs to serve its own supply function, 

does not fit their situation. In the context of the tying and bidding exemptions requested 

for LNG the terminal capacity holder is not seeking to have a third party manage or 

market that capacity. Rather, the capacity holder is attempting to demonstrate to the 

115 The removal of the price cap for all releases of one year or less means that all 

releases of more than 31 days and less than a year must be posted for bidding, unless they 

are made as part of an AMA or retail access program. 
Docket No. RM08-1-001 - 94 - 

 

LNG supplier firm takeaway capacity from the LNG terminal so that the supplier will not 

strand its gas in the terminal. Therefore, they assert that the Commission’s amendment of 

its regulations to permit supply side AMAs is not an adequate substitute for the 

exemptions they seek. 

145. The Commission clarifies that with respect to LNG terminals providing open 

access service, where both the LNG terminal and the directly connected interstate 

pipeline are facilities subject to the Commission’s Part 284 open access regulations, a 

holder of capacity in the LNG terminal has the right to release both its terminal capacity 

and its capacity on the downstream pipeline pursuant to the Commission’s capacity 

release program. As the Commission stated in Order No. 712, existing Commission 

policy permits releasing shippers to tie releases of upstream and downstream capacity, 

and requires the replacement shipper to take a release of the aggregated contracts on both 

pipelines.116 Thus, existing policy permits the holder of capacity in an open access LNG 

terminal to require a replacement shipper to take a release of both its terminal capacity 

and its pipeline capacity. In addition, even if the releases were not made as part of an 

AMA, the tied releases would be exempt from bidding if they qualified for either of the 

standard bidding exemptions of section 284.8(h) for releases of 31 days or less or 

prearranged releases to an LNG supplier for more than a year at the maximum rate. 

116 Order No. 712 at P 127 n.123 (citing, Order No. 636-A at 30,558 and n. 144). 
Docket No. RM08-1-001 - 95 - 

However, if the release were for a term of between 31 days and a year, the LNG capacity 

holder would have to post for third party bids any prearranged tied release with an LNG 

supplier. That is necessary to ensure that the tied release is made to the person placing 

the highest value on the subject capacity. 

146. The Commission denies rehearing, however, with respect to non-open access LNG 

terminals. Such terminals are not subject to the Commission’s open access policy, and 

any releases or assignments of terminal capacity would not be made pursuant to the 

Commission’s capacity release program. Thus, there is no Commission process to ensure 

that a release of terminal capacity would be non-discriminatory and transparent. As 

noted by the LNG Petitioners, transfers of terminal capacity may be accomplished in a 

myriad of ways depending on the specifics of the agreements between the terminal 

owners and the capacity holders, including through a buy/sell arrangement. Thus, the 

Commission continues to lack sufficient knowledge about how the arrangements for use 

of a non-open access terminal may be structured to permit a generic decision in this 

rulemaking proceeding. 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 may have. Accordingly, the Commission does not find it reasonable to 

grant the requested blanket exemptions from tying and bidding in this rulemaking 

proceeding in the context of a non-open access LNG terminal. As stated in Order No. 
Docket No. RM08-1-001 - 96 - 

712, the Commission is open to considering waiver requests for such transactions on a 

case-by-case basis if presented to it in a fully justified proposal. 

VI. Information Collection Statement

147. Order No. 712 contains information collection requirements for which the 

Commission obtained approval from the Office of Management and Budget (OMB). The 

OMB Control Number for this collection of information is 1902-0169. This order 

generally denies requests for rehearing and clarifies certain provisions of Order No. 712. 

This order does not make substantive modifications to the Commission’s information 

collection requirements and, accordingly, OMB approval for this order is not necessary. 

However, the Commission will send a copy of this order to OMB for informational 

purposes.

VII. Document Availability

148. 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, NE, Room 2A, 

Washington DC 20426. 

149. 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 
Docket No. RM08-1-001 - 97 - 

Word format for viewing, printing, and/or downloading. To access this document in 

eLibrary, type the docket number excluding the last three digits of this document in the 

docket number field. 

150. 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. 

VIII. Effective Date and Congressional Notification

151. These regulations will become effective [insert date 30 days from publication in 

Federal Register]. 

List of subjects in 18 CFR Part 284 

Continental shelf, Natural Gas, and Reporting and recordkeeping requirements. 

By the Commission. 

( S E A L ) 

Nathaniel J. Davis, Sr., 

Deputy Secretary. 
Docket No. RM08-1-001 - 98 - 

In consideration of the foregoing, the Commission amends 

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. Paragraphs (b) and (h) are revised to read as follows: 

§ 284.8 Release of firm capacity on interstate pipelines. 

* * * * * 

(b)(1) Firm shippers must be permitted to release their capacity, in whole or in part, on 

a permanent or short-term basis, without restriction on the terms or conditions of the 

release. A firm shipper may arrange for a replacement shipper to obtain its released 

capacity from the pipeline. A replacement shipper is any shipper that obtains released 

capacity. 

(2) The rate charged the replacement shipper for a release of capacity may not 

exceed the applicable maximum rate, except that no rate limitation applies to the release 

of capacity for a period of one year or less if the release is to take effect on or before one 
Docket No. RM08-1-001 - 99 - 

year from the date on which the pipeline is notified of the release. Payments or other 

consideration exchanged between the releasing and replacement shippers in a release to 

an asset manager as defined in paragraph (h)(3) of this section are not subject to the 

maximum rate. 

* * * * * 

(h)(1) The following releases need not comply with the bidding requirements of 

paragraphs (c) through (e) of this section: 

(i) A release of capacity to an asset manager as defined in paragraph (h)(4) of this 

section; 

(ii) A release of capacity to a marketer participating in a state-regulated retail access 

program as defined in paragraph (h)(5) of this section; 

(iii) A release for more than one year at the maximum tariff rate; and 

(iv) A release for any period of 31 days or less. 

(v) If a release is exempt from bidding under paragraph (h)(1) of this section, notice 

of the release must be provided on the pipeline’s Internet web site as soon as possible, but 

not later than the first nomination, after the release transaction commences. 

(2) When a release of capacity is exempt from bidding under paragraph (h)(1)(iv) of 

this section, a firm shipper may not roll over, extend or in any way continue the release to 

the same replacement shipper using the 31 days or less bidding exemption until 28 days 

after the first release period has ended. The 28-day hiatus does not apply to any re-
Docket No. RM08-1-001 - 100 - 

release to the same replacement shipper that is posted for bidding or that qualifies for any 

of the other exemptions from bidding in paragraph (h)(1) of this section. 

(3) A release to an asset manager exempt from bidding requirements under paragraph 

(h)(1)(i) of this section is any pre-arranged release that contains a condition that the 

releasing shipper may call upon the replacement shipper to deliver to, or purchase from, 

the releasing shipper a volume of gas up to 100 percent of the daily contract demand of 

the released transportation or storage capacity, as provided in paragraphs (h)(3)(i) 

through (h)(3)(iii) of this paragraph. 

(i) If the capacity release is for a period of one year or less, the asset manager’s 

delivery or purchase obligation must apply on any day during a minimum period of the 

lesser of five months (or 155 days) or the term of the release. 

(ii) If the capacity release is for a period of more than one year, the asset manager’s 

delivery or purchase obligation must apply on any day during a minimum period of five 

months (or 155 days) of each twelve-month period of the release, and on five-twelfths of 

the days of any additional period of the release not equal to twelve months. 

(iii) If the capacity release is a release of storage capacity, the asset manager’s delivery 

or purchase obligation need only be up to 100 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)(ii) of this section is any 
Docket No. RM08-1-001 - 101 - 

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.