[Federal Register Volume 75, Number 207 (Wednesday, October 27, 2010)]
[Proposed Rules]
[Pages 66046-66050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27156]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 284

[Docket No. RM11-1-000]


Capacity Transfers on Intrastate Natural Gas Pipelines

October 21, 2010.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of inquiry.

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SUMMARY: The Federal Energy Regulatory Commission is seeking comments 
on whether and how holders of firm capacity on intrastate natural gas 
pipelines providing interstate transportation and storage services 
under section 311 of the Natural Gas Policy Act of 1978 and Hinshaw 
pipelines providing such services pursuant to blanket certificates 
issued under Sec.  284.224 of the Commission's regulations should be 
permitted to allow others to make use of their firm interstate 
capacity.

DATES: Comments are due December 27, 2010.

FOR FURTHER INFORMATION CONTACT:  James Sarikas (Technical 
Information), Office of Energy Market Regulation, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 502-6831, <a href="/cdn-cgi/l/email-protection#a5efc4c8c0d68bf6c4d7cccec4d6e5c3c0d7c68bc2cad3"><span class="__cf_email__" data-cfemail="357f545850461b6654475c5e544675535047561b525a43">[email protected]</span></a>; Anna Fernandez (Legal 
Information), Office of the General Counsel, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6682, <a href="/cdn-cgi/l/email-protection#04456a6a652a4261766a656a60617e44626176672a636b72"><span class="__cf_email__" data-cfemail="3d7c53535c137b584f535c535958477d5b584f5e135a524b">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

Notice of Inquiry

    1. Recently, the Commission issued an order finding that the 
Commission's policy prohibiting buy/sell transactions applies to 
interstate open-access transportation services provided by (1) 
intrastate natural gas pipelines pursuant to section 311 of the Natural 
Gas Policy Act of 1978 (NGPA) \1\ and (2) Hinshaw pipelines \2\ 
pursuant to blanket certificates issued under section 284.224 of the 
Commission's regulations.\3\ In this Notice of Inquiry (NOI), the 
Commission is seeking comments on whether and how holders of firm 
interstate capacity on section 311 and Hinshaw pipelines should be 
permitted to allow others to make use of their firm interstate 
capacity, including to what extent buy/sell transactions should be 
permitted.\4\
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    \1\ 15 U.S.C. 3371(a)(2).
    \2\ Section 1(c) of the Natural Gas Act (NGA) exempts from the 
Commission's NGA jurisdiction those pipelines which transport gas in 
interstate commerce if (1) They receive natural gas at or within the 
boundary of a state, (2) all the gas is consumed within that state 
and (3) the pipeline is regulated by a state Commission. This 
exemption is referred to as the Hinshaw exemption after the 
Congressman who introduced the bill amending the NGA to include 
section 1(c). See ANR Pipeline Co. v. Federal Energy Regulatory 
Comm'n, 71 F.3d 897, 898 (1995) (ANR) (briefly summarizing the 
history of the Hinshaw exemption).
    \3\ Arizona Public Service Co. and Sequent Energy Management, 
L.P., 132 FERC ] 61,064 (2010) (APS/Sequent).
    \4\ This NOI relates to firm capacity on section 311 and Hinshaw 
pipelines used for interstate service subject to our jurisdiction 
under the NGPA or NGA and does not extend to non-jurisdictional 
capacity used for purely intrastate service.
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I. Current Commission Policy

    2. NGPA section 311 authorizes the Commission to allow intrastate 
natural gas pipelines to transport natural gas ``on behalf of'' 
interstate pipelines or local distribution companies served by 
interstate pipelines ``under such terms and conditions as the 
Commission may prescribe.'' \5\ NGPA section 601(a)(2) exempts 
transportation service authorized under NGPA section 311 from the 
Commission's NGA jurisdiction. Congress adopted these provisions in 
order to eliminate the regulatory barriers between the intrastate and 
interstate markets and to promote the entry of intrastate pipelines 
into the interstate market. Such entry eliminates the need for 
duplication of facilities between interstate and intrastate 
pipelines.\6\ Subpart C of the Commission's Part 284 open access 
regulations (18 CFR Sec.  2841.121-126) implements the provisions of 
NGPA section 311 concerning transportation by intrastate pipelines.\7\
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    \5\ 15 U.S.C. 3371(c).
    \6\ EPGT Texas Pipeline, 99 FERC ] 61,295, at 62,252 (2002) 
(EPGT).
    \7\ 18 CFR 284.121-126 (2010).
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    3. Shortly after the adoption of the NGPA, the Commission 
authorized Hinshaw pipelines to apply for NGA section 7 certificates, 
authorizing them to transport natural gas in interstate commerce in the 
same manner as intrastate pipelines may do under NGPA section 311.\8\ 
Specifically, section 284.224 of the Commission's regulations provides 
for the issuance of blanket certificates to Hinshaw pipelines to 
provide open access transportation service ``to the same extent that, 
and in the same manner'' as intrastate pipelines are authorized to 
perform such service by subpart C.
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    \8\ Certain Transportation, Sales, and Assignments by Pipeline 
Companies not Subject to Commission Jurisdiction Under Section 1(c) 
of the Natural Gas Act, Order No. 63, FERC Stats. & Regs. ] 30,118, 
at 30,824-25 (1980).
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    4. The Part 284, subpart C, regulations require that intrastate 
pipelines performing interstate service under NGPA section 311 must do 
so on an open-access basis.\9\ However, consistent with the NGPA's goal 
of encouraging intrastate pipelines to provide interstate service, the 
Commission has not imposed on intrastate pipelines all of the Part 284 
requirements imposed on interstate pipelines. For example, when the 
Commission first adopted the Part 284 open access regulations in Order 
No. 436, the Commission exempted intrastate pipelines from the 
requirement that they offer open access service on a firm basis.\10\ 
The Commission found that requiring intrastate pipelines to offer firm 
service to out-of-state shippers could discourage them from providing 
any interstate service, because such a requirement could progressively 
turn the intrastate pipeline into an interstate pipeline against its 
will and against the will of the responsible state authorities. For the 
same reasons, when the Commission adopted Order No. 636 \11\ 
restructuring

[[Page 66047]]

the services provided by interstate pipelines, the Commission exempted 
intrastate pipelines from the requirements of Order No. 636, including 
capacity release, electronic bulletin boards (now Internet Web sites) 
and flexible receipt and delivery points.\12\
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    \9\ 18 CFR 284.7(b), 284.9(b) and 284.122 (2010).
    \10\ Regulation of Natural Gas Pipelines After Partial Wellhead 
Decontrol, Order No. 436, FERC Stats. & Regs. ] 30,665, at 31,502 
(1985).
    \11\ See Pipeline Service Obligations and Revisions to 
Regulations Governing Self-Implementing Transportation and 
Regulation of Natural Gas Pipeline After Partial Wellhead Decontrol, 
Order No. 636, FERC Stats. & Regs. ] 30,939, order on reh'g, Order 
No. 636-A, FERC Stats. & Regs. ] 30,950, 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), order on reh'g, 
Order No. 636-D, 83 FERC ] 61,210 (1998).
    \12\ Order No. 636-B, 61 FERC at 61,992 n.26.
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    5. Order No. 636 adopted the capacity release program in order to 
permit holders of firm capacity on interstate pipelines to ``reallocate 
unneeded firm capacity'' to the person who values it the most.\13\ The 
Commission reasoned that the capacity release program would promote 
efficient load management by the pipeline and its customers and would, 
therefore, result in the efficient use of firm interstate pipeline 
capacity throughout the year. It further concluded that, ``because more 
buyers will be able to reach more sellers through firm transportation 
capacity, capacity reallocation comports with the goal of improving 
nondiscriminatory, open access transportation to maximize the benefits 
of the decontrol of natural gas at the wellhead and in the field.'' 
\14\
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    \13\ Order No. 636, FERC Stats. & Regs. ] 30,939 at 30,418.
    \14\ Id.
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    6. Prior to Order No. 636, the Commission had permitted interstate 
pipelines to obtain certificates for capacity brokering programs that 
would allow customers to assign their capacity directly to other 
customers on a first-come, first-served basis, without any requirement 
that the brokering shipper post the availability of its capacity or 
allocate it to the highest bidder.\15\ In Order No. 636, however, the 
Commission decided that it could not monitor those certificated 
capacity brokering programs adequately to ensure against undue 
discrimination in the allocation of capacity.\16\ When transactions 
occurred directly and privately between shippers, there was no way to 
verify that certain purchasers were not being favored unreasonably over 
others.\17\ The Commission explained that ``there are simply too many 
potential assignors of capacity and too many different programs for the 
Commission to oversee.'' \18\
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    \15\ See Algonquin Gas Transmission Corp., 59 FERC ] 61,032 
(1992) (Algonquin).
    \16\ Order No. 636, FERC Stats. & Regs. ] 30,939 at 30,416.
    \17\ United Distributions Co. v. FERC, 88 F.3d at 1149-50 
(quoting Order No. 636 at 30,416).
    \18\ Id.
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    7. The capacity release program addressed those concerns by, among 
other things, requiring that all reassignments be transparent. Order 
No. 636 prohibited private transfers of capacity between shippers and, 
instead, required that all release transactions be conducted through 
the pipeline. Therefore, when a releasing shipper releases its 
capacity, the replacement shipper must enter into a contract directly 
with the pipeline, and section 284.13(b) of the Commission's 
regulations requires the pipeline to post information about the 
replacement shipper's contract including any special terms and 
conditions.\19\ In addition, the capacity release program requires 
certain categories of releases to be posted for bidding.\20\
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    \19\ As Order No. 636 emphasized:
    The main difference between capacity brokering as it now exists 
and the new capacity release program is that under capacity 
brokering, the brokering customer could enter into and execute its 
own deals without involving the pipeline. Under capacity releasing, 
all offers must be put on the pipeline's electronic bulletin board 
and contracting is done directly with the pipeline.
    Order No. 636, FERC Stats. & Regs. ] 30,939 at 30,420 (emphasis 
in original).
    \20\ 18 CFR 284.8(c)-(e), (h) (2010).
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    8. In orders issued concurrently with Order No. 636, the Commission 
terminated the capacity brokering program.\21\ The Commission also 
stated it would not authorize any more buy/sell transactions.\22\ 
Traditionally, a buy/sell transaction is a commercial arrangement 
whereby a shipper holding interstate pipeline capacity buys gas at the 
direction of, on behalf of, or directly from another entity (e.g., an 
end-user), ships that gas through its interstate pipeline capacity, and 
then resells an equivalent quantity of gas to the downstream entity at 
the delivery point. The Commission believed that to permit buy/sell 
transactions to utilize interstate pipeline capacity after the capacity 
release mechanism went into effect would frustrate the new, nationally 
uniform capacity release program.\23\
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    \21\ Algonquin, 59 FERC ] 61,032.
    \22\ El Paso Natural Gas Co., et al., 59 FERC ] 61,031 (1992) 
(El Paso).
    \23\ Id. at 61,080.
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    9. On June 25, 2010, Arizona Public Service Company (APS) and 
Sequent Energy Management, L.P. (Sequent) (collectively, Petitioners) 
sought clarification that a certain proposed transaction involving a 
Hinshaw storage facility was not a prohibited buy/sell transaction as 
contemplated by Commission policy.\24\ They contended that the 
Commission's buy/sell prohibition was inapplicable to service on 
Hinshaw pipelines, because the buy/sell prohibition was intended to 
prevent the circumvention of the Commission's capacity release program 
instituted in Order No. 636 and Hinshaw pipelines do not offer capacity 
release. Alternatively, Petitioners requested a limited waiver should 
the Commission determine that the transaction was a prohibited buy/sell 
transaction. Under the proposed agreement, APS would have the right to 
deliver gas to Sequent and Sequent would take title to the gas and 
inject it into storage at Chevron Keystone Gas Storage, LLC (Keystone 
Storage), a Hinshaw pipeline with a limited blanket certificate to 
provide certain storage and hub services in interstate commerce. APS 
would have the right to require Sequent to redeliver gas to APS and 
title would pass back to APS at the Keystone Storage delivery point. 
Like other section 311 and Hinshaw pipelines, Keystone Storage's tariff 
requires that the storage or transportation capacity holder possesses 
title to the gas being stored or transported.
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    \24\ According to their petition, APS is Arizona's largest 
electric utility company and Sequent purchases and sells natural gas 
and provides other energy-related services to customers throughout 
the United States.
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    10. The Petitioners raised an issue which the Commission had not 
previously addressed--whether the prohibition on buy/sell transactions 
applies to interstate open-access transportation services provided by 
section 311 and Hinshaw pipelines, and the APS/Sequent order found that 
the prohibition did apply. The Commission explained that, while Order 
No. 636 adopted the prohibition on buy/sell transactions in conjunction 
with the creation of the capacity release program for interstate 
pipelines, the prohibition on buy/sell transactions, together with the 
shipper-must-have-title rule, play a more fundamental role than just 
preventing the circumvention of the capacity release program.\25\ These 
rules help enforce the central requirement of the Commission's Part 284 
regulations that all open-access pipelines, including section 311 and 
Hinshaw pipelines, ``must provide such service without undue 
discrimination, or preference.'' \26\ They do this by ensuring that 
capacity is allocated among shippers in a transparent manner based on 
the procedures and not unduly discriminatory priorities in the 
pipeline's Commission-approved tariff, either for the direct sale of 
capacity by the pipeline or for capacity release by firm shippers.\27\
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    \25\ APS/Sequent, 132 FERC ] 61,064 at P 16.
    \26\ Id. (citing sections 284.7(b)(1) and 284.9(b) of the 
Commission's regulations, which are applicable to intrastate 
pipelines providing service under Subpart C of the Part 284 
regulations).
    \27\ APS/Sequent, 132 FERC ] 61,064 at P 16.

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[[Page 66048]]

    11. The Commission acknowledged that it does not require section 
311 and Hinshaw pipelines to include capacity release provisions in 
their tariffs, nor have any such pipelines done so. However, it did not 
follow from this fact that the prohibition on buy/sell transactions was 
unnecessary. Rather, the Commission stated that the absence of a 
capacity release program for section 311 and Hinshaw pipelines means 
that their tariffs contain no provisions to ensure that capacity 
reassignments by shippers are transparent and non-discriminatory. In 
these circumstances, a blanket authorization of buy/sell transactions 
would allow holders of capacity on such pipelines to privately contract 
to allow another party to make use of their capacity without informing 
the pipeline or publicly disclosing the transaction. This, the 
Commission stated, would create the same potential for discrimination 
and inability of the Commission to monitor capacity reassignment which 
led to the adoption of the capacity release program as the sole method 
for capacity reassignment on interstate pipelines.\28\
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    \28\ Id. P 17.
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    12. Recognizing, however, that capacity reassignments could promote 
more efficient use of firm pipeline capacity, and given the absence of 
any generic capacity reassignment programs on section 311 and Hinshaw 
pipelines, the Commission agreed to consider, on a case-by-case basis, 
requests for waiver of the buy/sell prohibition, where it can be shown 
that a particular buy/sell transaction provides significant benefits to 
the market.\29\ Along those same lines, the Commission found that, in 
this case, good cause existed to grant Petitioners a limited waiver of 
the Commission's buy/sell prohibition in order to allow the proposed 
agreement to proceed.\30\
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    \29\ Id. P 19.
    \30\ Id. P 21.
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    13. Neither of the Petitioners sought rehearing of the APS/Sequent 
order. However, following that order, fifteen motions to intervene out-
of-time were filed. Also filed were five requests for rehearing of the 
APS/Sequent order and each of those requests were filed by entities 
seeking late intervention. The entities seeking rehearing are: (1) 
Texas Pipeline Association (TPA); (2) BG Energy Merchants, LLC (BG 
Energy); (3) Morgan Stanley Capital Group Inc. (Morgan Stanley); (4) 
the Associations; \31\ and (5) the Marketer Group.\32\ Of the five 
rehearing requests, four asked that the Commission reverse its ruling 
expanding the buy/sell prohibition to section 311 and Hinshaw pipelines 
and one asked the Commission to consider requiring section 311 and 
Hinshaw pipelines to offer capacity release. Two of the four requests 
seeking reversal stated that issues regarding the secondary market on 
section 311 and Hinshaw pipelines, including the buy/sell prohibition, 
should have been addressed in a NOI proceeding to examine the available 
options and their implications.
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    \31\ The Associations include Natural Gas Supply Association, 
Electric Power Supply Association, and Independent Petroleum 
Association of America.
    \32\ The Marketer Group includes Barclays Capital Energy Inc., 
Chevron U.S.A. Inc., Citigroup Energy Inc., ConocoPhillips Company, 
Encana Marketing (USA) Inc., Iberdrola Renewables, Inc., J.P. Morgan 
Ventures Energy Corporation, Tenaska Marketing Ventures, Sempra 
Energy Trading LLC and Shell Energy North America (U.S.) L.P.
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    14. The Marketer Group, Morgan Stanley, TPA and the Associations 
requested that the Commission reverse its ruling expanding the buy/sell 
prohibition to section 311 and Hinshaw pipelines.\33\ They contended, 
among other things, that the Commission erred by expanding the buy/sell 
prohibition to section 311 and Hinshaw pipelines on the basis of 
discrimination concerns without a record establishing the existence of 
discrimination. If the Commission seeks transparency, Morgan Stanley 
argued that a necessary precursor is a capacity release mechanism. In 
fact, Morgan Stanley argued that the efficiency gains cited by the APS/
Sequent order cannot be fully realized absent a capacity release 
mechanism on section 311 and Hinshaw facilities. The Associations 
suggested that if the Commission wishes to address any issues with 
regard to the secondary market of capacity on section 311 and Hinshaw 
pipelines, it should initiate a notice of inquiry proceeding to examine 
any available options and their implications.
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    \33\ TPA, in addition to the foregoing, requests that the 
Commission clarify that the shipper-must-have-title rule also does 
not apply to section 311 and Hinshaw pipelines. Section 311 and 
Hinshaw pipelines generally include in their statements of operating 
conditions a requirement that shippers possess title to the gas 
being stored or transported.
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    15. The Marketer Group, Morgan Stanley, TPA and the Associations 
also argued that the APS/Sequent order failed to establish a record 
addressing the potential effect, results, and impacts on shippers. 
Among the issues they argued the APS/Sequent order did not consider 
are: (1) The potential market uncertainty that may result from the 
expansion of the buy/sell prohibition to section 311 and Hinshaw 
pipelines; (2) the impact on the efficient use of section 311 and 
Hinshaw pipeline capacity; (3) the burden and impracticability of 
entities having to seek a waiver for buy/sell transactions on section 
311 and Hinshaw pipelines; and (4) the extent of the Commission's 
jurisdiction to impose the buy/sell prohibition on section 311 and 
Hinshaw pipelines given Congress' decision to provide the Commission 
with only limited jurisdiction over section 311 and Hinshaw pipelines. 
The Marketer Group states that, if the Commission believes that it may 
be in the public interest to apply the buy/sell prohibition to section 
311 and Hinshaw pipelines, the Commission should issue a NOI in which a 
record can be compiled to examine the necessity for and the 
implications associated with the issue.
    16. In its rehearing request, BG Energy requested that the 
Commission institute a notice and comment proceeding to consider 
requiring a uniform capacity release program for section 311 and 
Hinshaw pipelines that requires capacity to be posted and subject to 
bidding on a non-discriminatory basis. It contended that a firm shipper 
on a section 311 or Hinshaw pipeline that wants to release or acquire 
interstate capacity encounters cumbersome, lengthy, and non-transparent 
procedures.
    17. In a contemporaneous order in the APS/Sequent proceeding, the 
Commission is denying the late interventions and dismissing the 
requests for rehearing.\34\ In that order, the Commission finds that 
the entities requesting late intervention seek only to raise general 
policy issues concerning capacity reassignment on section 311 and 
Hinshaw pipelines which are more appropriately addressed in a 
rulemaking proceeding.
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    \34\ Arizona Public Service Company and Sequent Energy 
Management, L.P., 133 FERC ] 61,049 (2010).
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II. Discussion

    18. As stated above, the Commission is issuing this NOI to consider 
whether and how holders of firm interstate capacity on section 311 and 
Hinshaw natural gas pipelines should be permitted to allow others to 
make use of their firm interstate capacity, including to what extent 
buy/sell transactions should be permitted. Specifically, the Commission 
requests comments on the following questions:

A. Questions Related to Application of Buy/Sell Prohibition to Section 
311 and Hinshaw Pipelines

    1. The requests for rehearing in APS/Sequent suggest that marketers 
and others holding firm interstate capacity

[[Page 66049]]

on section 311 and Hinshaw pipelines are using buy/sell transactions to 
allow others to make use of their capacity. Are buy/sell transactions 
commonly used in connection with service on section 311 and Hinshaw 
pipelines or are such transactions relatively rare? Are such 
transactions more commonly used with respect to storage capacity as in 
APS/Sequent or are they used with respect to all types of services? 
Have such transactions provided for more efficient use of firm capacity 
on section 311 and Hinshaw pipelines?
    2. Are there any experiences or concerns of undue discrimination or 
preference or loss of market transparency related to the buy/sell 
transactions which have occurred on section 311 and Hinshaw pipelines?
    3. Could buy/sell transactions be allowed without risk of undue 
discrimination or preference or loss of market transparency? Section 
311 and Hinshaw pipelines generally include in their statements of 
operating conditions a requirement that shippers possess title to the 
gas being stored or transported. Is application of the shipper-must-
have-title rule sufficient to minimize concerns about undue 
discrimination and transparency, since it ensures that the capacity 
holder has an interest in the gas being transported? \35\
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    \35\ See El Paso, 59 FERC ] 61,031 at 61,079.
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    4. When the Commission grandfathered existing buy/sell transactions 
at the time of Order No. 636, the Commission required participants in 
those transactions to notify the interstate pipeline of them, and the 
Commission required the pipeline, for informational purposes, to post 
notice of the transactions on its electronic bulletin board.\36\ Would 
a similar reporting requirement for participants in buy/sell 
transactions to notify the relevant section 311 and Hinshaw pipelines 
and for those pipelines to post notice of them reasonably mitigate 
concerns related to undue discrimination or preference or loss of 
market transparency?
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    \36\ Id. at 61,080.
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    5. In ANR,\37\ the U.S. Court of Appeals for the District of 
Columbia Circuit held that the Commission must provide a reasonable 
justification for excluding section 311 pipelines from requirements 
imposed on interstate pipelines, where such regulatory differences may 
place the interstate pipelines at a competitive disadvantage. Would 
allowing buy/sell transactions on section 311 and Hinshaw pipelines, 
but not on interstate natural gas pipelines, cause any competitive 
disadvantage to interstate pipelines?
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    \37\ See ANR, 71 F.3d 897.
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    6. Consistent with the NGPA's goal of encouraging intrastate 
pipelines to provide interstate service, the Commission has not imposed 
on intrastate pipelines all of the Part 284 requirements imposed on 
interstate pipelines. Would extending the buy/sell prohibition to 
service on section 311 and Hinshaw pipelines deter intrastate pipelines 
from participating in the interstate market? If so, explain what 
burdens such a prohibition places on section 311 and Hinshaw pipelines 
that would make them less likely to offer interstate service.

B. Questions Related to Requiring Section 311 and Hinshaw Pipelines 
Providing Firm Service To Also Allow Capacity Release

    1. The Commission has consistently held that capacity reassignments 
promote more efficient use of firm pipeline capacity by enabling a 
holder of such capacity to permit its capacity to be used by another 
party for a higher valued use. However, Order No. 636 did not require 
section 311 and Hinshaw pipelines providing firm interstate services to 
offer capacity release because of a concern that imposing all the 
requirements of Order No. 636 on such pipelines could discourage them 
from offering interstate services. Should the Commission reexamine its 
decision not to require section 311 and Hinshaw pipelines to offer 
capacity release in light of market changes since the issuance of Order 
No. 636 in 1992 and the success of the interstate capacity release 
program?
    2. As discussed above, the U.S. Court of Appeals for the District 
of Columbia Circuit has held that the Commission ``must provide a 
reasonable justification for excluding'' an intrastate pipeline from a 
requirement that binds interstate pipelines.\38\ Similarly, the 
Commission has held that it may grant intrastate facilities 
``additional flexibility,'' but not if lighter regulation would ``harm 
any party [or] impede the Commission's goal of fostering a national 
pipeline grid.'' \39\ Does the absence of a transparent method for 
shippers on section 311 and Hinshaw pipelines to reassign their 
capacity interfere with the Commission's goal of fostering an efficient 
national pipeline grid in which buyers and sellers of natural gas have 
the maximum ability to reach one another? Would requiring some or all 
section 311 and Hinshaw pipelines to offer capacity release provide 
sufficient benefits to the market as a whole to outweigh any costs 
incurred as a result of such a requirement? Does exempting section 311 
and Hinshaw pipelines from offering capacity release give them a 
competitive advantage over interstate pipelines?
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    \38\ See ANR, 71 F.3d 897.
    \39\ See EPGT, 99 FERC ] 61,295 at 62,252-3.
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    3. Should any requirement for section 311 and Hinshaw pipelines to 
offer capacity release be limited to some category of such pipelines 
whose services significantly affect interstate markets? If so, how 
should that category be defined (e.g., based on size as shown by annual 
throughput above a certain level, percentage of business that is 
interstate, or storage providers with market-based rates)?
    4. In Order No. 720,\40\ the Commission required major non-
interstate pipelines, defined as those pipelines that are not natural 
gas companies under the NGA and deliver annually more than 50 million 
MMBtu measured in average deliveries over the past three years, to post 
daily scheduled volume information. Should the Commission adopt the 
threshold utilized in Order No. 720 to determine which section 311 and 
Hinshaw pipelines would be required to offer capacity release?
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    \40\ Pipeline Posting Requirements under Section 23 of the 
Natural Gas Act, Order No. 720, FERC Stats. & Regs. ] 31,283 (2008), 
Order No. 720-A, 75 FR 5178 (Jan. 21, 2010), FERC Stats. & Regs. ] 
31,302 (2010), Order No. 720-B, 75 FR 44,893 (July 30, 2010), FERC 
Stats. & Regs. ] 31,314 (2010).
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    5. In this regard, based upon our review of existing section 311 
and Hinshaw pipelines, there are some intrastate pipelines whose 
current service consists virtually entirely of interstate service 
provided under NGPA section 311.\41\ This is particularly true of some 
of the newer section 311 and Hinshaw storage providers. Should any 
requirement to offer capacity release be limited to section 311 and 
Hinshaw pipelines whose business is predominantly interstate? If so, 
what standard should be used to determine if such a pipeline's business 
is predominantly interstate?
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    \41\ For example, Regency Intrastate Gas, LLC and Bay Gas 
Storage, Ltd. transport over 95 percent of their throughput as 
interstate gas. Crosstex LIG, LLC and Enterprise Texas, LLC along 
with Regency Intrastate Gas, LLC predominately serve the interstate 
market and have recently undertaken major expansions that are 
primarily dedicated to moving shale gas into the interstate 
marketplace.
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    6. The capacity release program is only applicable to firm 
services, and the Commission does not require section 311 and Hinshaw 
pipelines to offer firm services. Would a requirement that section 311 
and Hinshaw pipelines offering firm service also offer capacity release 
discourage such pipelines from offering any firm interstate service?

[[Page 66050]]

Would this concern be minimized if the requirement to offer capacity 
release is limited to larger section 311 and Hinshaw pipelines whose 
services are predominantly interstate?
    7. If section 311 and Hinshaw pipelines are required to offer 
capacity release, should the regulations be the same as the capacity 
release regulations for interstate pipelines set forth in section 284.8 
of the Commission's regulations? Would a subset of those regulations be 
sufficient for purposes of preventing undue discrimination and 
promoting transparency, while minimizing any burden on the pipelines 
offering capacity release?
    19. Finally, as we recognized in the APS/Sequent order, the 
Commission has not previously addressed the issue of whether the buy/
sell prohibition applies to interstate service provided by section 311 
and Hinshaw pipelines. Thus, until the Commission issued that order, 
there was no clear policy prohibiting such transactions. Therefore, the 
Commission will not institute any enforcement actions with respect to 
prior buy/sell transactions involving section 311 and Hinshaw 
pipelines. In addition, the Commission grants a blanket waiver of the 
prohibition on buy/sell transactions to allow existing and new buy/sell 
transactions involving section 311 and Hinshaw pipelines to continue to 
take place until the Commission issues a further order in this 
proceeding. This will avoid disrupting any ongoing relationships 
established through currently existing buy/sell transactions and also 
avoid discouraging beneficial new arrangements, while the Commission 
considers the policy issues raised in this proceeding. As we recognized 
in the APS/Sequent order, capacity reassignments can promote more 
efficient use of firm pipeline capacity by enabling a holder of such 
capacity to permit its capacity to be used by another party for a 
higher valued use.

III. Procedure for Comments

    20. The Commission invites interested persons to submit comments 
and other information on the matters, issues, and specific questions 
identified in this notice. Comments are due 60 days from the date of 
publication in the Federal Register. Comments must refer to Docket No. 
RM11-1-000, and must include the commenter's name, the organization 
they represent, if applicable, and their address.
    21. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    22. Commenters unable to file comments electronically must mail or 
hand deliver an original copy of their comments to: Federal Energy 
Regulatory Commission, Secretary of the Commission, 888 First Street, 
NE., Washington, DC 20426. The current requirements are specified on 
the Commission's Web site, see, e.g., the ``Quick Reference Guide for 
Paper Submissions,'' available at http://www.ferc.gov/docs-filing/efiling.asp, or via phone from FERC Online Support at 202-502-6652 or 
toll-free at 1-866-208-3676.
    23. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters are not required to 
serve copies of their comments on other commenters.

IV. Document Availability

    24. 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 print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, 
Washington, DC 20426.
    25. From the Commission's Home Page on the Internet, this 
information is available in the Commission's document management 
system, eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and 
downloading. To access this document in eLibrary, type the docket 
number (excluding the last three digits) in the docket number field.
    26. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours. For assistance, please contact 
the Commission's Online Support at 1-866-208-3676 (toll free) or 202-
502-6652 (e-mail at <a href="/cdn-cgi/l/email-protection#460003140509282a2f282315333636293432062023342568212930"><span class="__cf_email__" data-cfemail="43050611000c2d2f2a2d26103633332c313703252631206d242c35">[email protected]</span></a>) or the Public Reference 
Room at 202-502-8371, TTY 202-502-8659 (e-mail at 
<a href="/cdn-cgi/l/email-protection#710104131d18125f0314171403141f1214031e1e1c31171403125f161e07"><span class="__cf_email__" data-cfemail="dfafaabdb3b6bcf1adbab9baadbab1bcbaadb0b0b29fb9baadbcf1b8b0a9">[email protected]</span></a>).

    By direction of the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2010-27156 Filed 10-26-10; 8:45 am]
BILLING CODE 6717-01-P


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