Document ID: FERC-2011-1799-0001
Agency: ferc
Document Type: Rule
Title: Bidding by Affiliates in Open Seasons for Pipeline Capacity
Posted Date: 2011-11-23T05:00Z

[Federal Register Volume 76, Number 226 (Wednesday, November 23, 2011)]
[Rules and Regulations]
[Pages 72301-72306]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30115]

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  Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / 
Rules and Regulations  

[[Page 72301]]

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 284

[Docket No. RM11-15-000; Order No. 894]

Bidding by Affiliates in Open Seasons for Pipeline Capacity

AGENCY: Federal Energy Regulatory Commission, Energy.

ACTION: Final rule.

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SUMMARY: In this Final Rule, the Federal Energy Regulatory Commission 
revises its regulations governing interstate natural gas pipelines to 
prohibit multiple affiliates of the same entity from bidding in an open 
season for pipeline capacity in which the pipeline may allocate 
capacity on a pro rata basis, unless each affiliate has an independent 
business reason for submitting a bid. The Commission does not find it 
necessary to adopt its proposal in the Notice of Proposed Rulemaking 
that if more than one affiliate of the same entity participates in such 
an open season, then none of those affiliates may release any capacity 
obtained in that open season pursuant to a pro rata allocation to any 
affiliate, or otherwise allow any affiliate to obtain the use of the 
allowed capacity.

DATES: Effective Date: This rule will become effective December 23, 
2011.

FOR FURTHER INFORMATION CONTACT:

Jennifer Kunz, Office of the General Counsel, Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426. 
Jennifer.Kunz@ferc.gov. (202) 502-6102.
Michael Strzelecki, Office of Energy Market Regulation, Federal Energy 
Regulatory Commission, 888 First Street NE., Washington, DC 20426. 
Michael.Strzelecki@ferc.gov. (202) 502-6075.

SUPPLEMENTARY INFORMATION:

Table of Contents

 
                                                               Paragraph
                                                                  No.
 
I. Background...............................................           2
II. Need for the Rule.......................................           9
III. Prohibition on Multiple Affiliate Bidding in Open                13
 Seasons for Pipeline Capacity..............................
IV. Prohibition on Release of Capacity......................          27
V. Information Collection Statement.........................          35
VI. Environmental Analysis..................................          36
VII. Regulatory Flexibility Act.............................          37
VIII. Document Availability.................................          39
IX. Effective Date and Congressional Notification...........          42
 

Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, 
John R. Norris, and Cheryl A. LaFleur.
(Issued November 17, 2011)
    1. In this Final Rule, the Commission revises its Part 284 
regulations governing interstate natural gas pipelines to prohibit 
multiple affiliates of the same entity from bidding in an open season 
for pipeline capacity in which the pipeline may allocate capacity on a 
pro rata basis, unless each affiliate has an independent business 
reason for submitting a bid. The Commission does not find it necessary 
to adopt its proposal in the Notice of Proposed Rulemaking \1\ that if 
more than one affiliate of the same entity participates in such an open 
season, then none of those affiliates may release any capacity obtained 
in that open season pursuant to a pro rata allocation to any affiliate, 
or otherwise allow any affiliate to obtain the use of the allowed 
capacity.
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    \1\ Bidding by Affiliates in Open Seasons for Pipeline Capacity, 
76 FR 20571 (Apr. 13, 2011), FERC Stats. and Regs. ] 32,673 (2011) 
(NOPR).
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I. Background

A. Open Seasons for Pipeline Capacity

    2. The Commission's policy under the Natural Gas Act (NGA) \2\ is 
to allocate available interstate pipeline capacity to the shipper that 
values it the most, up to the maximum rate.\3\ In furtherance of this 
goal, the Commission favors the use of open seasons to allocate 
capacity and permits but does not require a net present value (NPV) 
evaluation as a tool for determining the highest valued use.\4\
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    \2\ 15 U.S.C. 717 et al. (2006).
    \3\ N. Natural Gas Co., 108 FERC ] 61,044, at P 11 (2004); 
Texican N. La. Transport, LLC v. Southern Natural Gas Co., 129 FERC 
] 61,270, at P 70 (2009) (Texican I), order on reh'g, 132 FERC ] 
61,167, at P 23, 26 (2010) (Texican II).
    \4\ Texican II, 132 FERC ] 61,167 at P 26.
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    3. Some pipelines hold open seasons to alert shippers to the 
availability of capacity on the pipeline and allow the shippers to bid 
for available capacity. The pipeline's open season process is an open 
and transparent procedure that is set forth in the pipeline's tariff. 
The pipeline notifies shippers of the availability of capacity by 
posting an open season notice on its EBB and/or Web site for the 
available capacity. During the open season, the Commission requires 
pipelines to sell all available capacity to shippers willing to pay the 
pipeline's maximum recourse rate.\5\
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    \5\ Promotion of a More Efficient Capacity Release Market, 
Notice of Proposed Rulemaking, 72 FR 65916 (Nov. 26, 2007), FERC 
Stats. & Regs. ] 32,625, at P 40 (2007) (citing Tenn. 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 (DC Cir. 2002)).

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[[Page 72302]]

    4. NPV is a method for awarding capacity from the bids received 
during the open season.\6\ NPV is a standard method of evaluating bids 
for capacity by using the time value of money to determine the present 
value of a time series of discounted cash flows.\7\ The highest bidder, 
based on the NPV of the bid, receives the capacity. Factors determining 
NPV are price, volume of gas, and duration of the contract. The 
Commission has stated that a ``net present value evaluation * * * 
allocates capacity to the shipper who will produce the greatest revenue 
and the least unsubscribed capacity. As such, it is an economically 
efficient way of allocating capacity and is consistent with Commission 
policy.'' \8\
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    \6\ NPV is not the only method a pipeline could use. Another is 
the ``first come-first served'' approach, where the first shipper to 
submit a qualifying bid receives the capacity.
    \7\ Saltville Gas Storage Co., L.L.C., 128 FERC ] 61,257, at P 2 
n.3 (2009).
    \8\ Tenn. Gas Pipeline Co., 76 FERC ] 61,101, at 61,522 (1996), 
order on reh'g, 79 FERC ] 61,297 (1997), order on reh'g, 82 FERC ] 
61,008 (1998), remanded sub nom. Process Gas Consumers Group v. 
FERC, 177 F.3d 995 (DC Cir. 1999), order on compliance, 91 FERC ] 
61,333 (2000), order on remand, 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 (DC Cir. 
2002).
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    5. In the event that there is not sufficient capacity to meet all 
equal maximum bids, pipelines apply a tiebreaker mechanism. One such 
mechanism is the pro rata allocation methodology. Under a pro rata 
allocation tiebreaker mechanism, in the event that there is not 
sufficient capacity to meet all qualifying bids, the capacity is 
allocated pro rata, i.e., based on the ratio of each shipper's 
respective nomination to all qualifying nominations, applied to the 
total available capacity.\9\
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    \9\ An alternative tiebreaker mechanism for multiple maximum 
bids is to award the capacity to the earliest applicant. The 
Commission has stated that ``no single tiebreaker method is 
definitely better than other methods; each system has advantages and 
disadvantages * * *. So long as its method is reasonable [a 
pipeline] may choose any method it wishes for inclusion as the 
default tiebreaker in its tariff.'' Trailblazer Pipeline Co., 103 
FERC ] 61,225, at 61,869 (2003), order on reh'g and compliance 
filing, 108 FERC ] 61,049, at 61,305 (2004).
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B. The NOPR

    6. On April 7, 2011, the Commission issued the NOPR, in which it 
proposed to add a new section 284.15 to its regulations prohibiting 
multiple affiliates of the same entity from bidding in an open season 
for pipeline capacity conducted by any interstate pipeline providing 
service under subparts B and G of Part 284 of the Commission's 
regulations in which the pipeline may allocate capacity on a pro rata 
basis, unless each affiliate has an independent business reason for 
submitting a bid. The Commission also proposed that if more than one 
affiliate of the same entity participates in such an open season, then 
none of those affiliates may release any capacity obtained in that open 
season pursuant to a pro rata allocation to any affiliate, or otherwise 
allow any affiliate to obtain the use of the allowed capacity. The 
Commission proposed that, for purposes of the new regulation, the term 
``affiliate'' be defined as provided in section 358.3(a)(1) and (3) of 
the Commission's existing regulations.\10\
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    \10\ 18 CFR 358.3(a)(1), (3) (2010). Section 358.3(a)(1) 
provides that an affiliate of a specified entity is ``another person 
that controls, is controlled by or is under common control with, the 
specified entity. An affiliate includes a division of the specified 
entity that operates as a functional unit.'' Section 358.3(a)(3) 
defines the term ``control.''
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    7. The Commission explained that some entities had developed and 
applied a strategy of bidding with multiple affiliates in open seasons 
for available capacity in order to defeat the pro rata allocation 
tiebreaker mechanism and obtain a greater share of the available 
capacity than a single bidder could have acquired by itself.\11\ The 
Commission further explained that, where the available capacity is 
finite, the price is capped by the pipeline's maximum tariff rate, and 
the tiebreaker is a pro rata allocation, shippers can obtain more 
capacity than they would be able to obtain themselves by bidding 
multiple affiliates to defeat the pro rata allocation mechanism.\12\ 
The Commission stated that each affiliate with a maximum NPV bid could 
then release the capacity to a single affiliate or otherwise allow its 
affiliate effectively to obtain the use of the allocated capacity.\13\ 
The Commission concluded that such gaming of the pro rata allocation 
mechanism has a chilling effect on competition and permits entities 
that apply a multiple affiliate bidding strategy inappropriately to 
gain a disproportionate share of available capacity by denying a fair 
distribution to all maximum rate bidders.\14\
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    \11\ NOPR, FERC Stats. & Regs. ] 32,673 at P 6.
    \12\ Id.
    \13\ Id. P 7.
    \14\ Id.
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C. Comments

    8. Comments on the NOPR were due on May 31, 2011. Twelve parties 
filed comments.\15\ In general, commenters support the Commission's 
efforts to prevent anticompetitive gaming of the pro rata allocation 
methodology. However, many commenters request that the Commission 
modify or clarify the proposal in various ways. We discuss the comments 
below in the context of reviewing each aspect of this Final Rule.
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    \15\ Comments were filed by American Gas Association (AGA); 
Capital Power Corporation (Capital Power); Southern Company 
Services, Inc. (SCS); DTE Energy Company (DTE Energy); Process Gas 
Consumers Group (PGC); Atmos Energy Marketing, LLC (AEM); American 
Public Gas Association (APGA); Natural Gas Supply Association 
(NGSA); Interstate Natural Gas Association of America (INGAA); 
National Energy Marketers Association (NEM); Sequent Energy 
Management, L.P. (Sequent); and Seminole Energy Services, LLC 
(Seminole).
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II. Need for the Rule

A. The NOPR

    9. In the NOPR, the Commission explained that it has come to its 
attention that some entities have developed and applied a strategy of 
bidding with multiple affiliates in open seasons for available capacity 
in order to defeat the pro rata allocation tiebreaker mechanism and 
obtain a greater share of the available capacity than a single bidder 
could acquire by itself.\16\ The Commission stated that such gaming of 
the pro rata allocation mechanism has a chilling effect on competition 
and permits entities that apply a multiple affiliate bidding strategy 
inappropriately to gain a disproportionate share of available capacity 
by denying a fair distribution to all maximum rate bidders. The 
Commission also recognized that multiple affiliate bidding behavior 
frustrates the Commission's policy of allocating capacity to the 
shipper that values it the most. Finally, the Commission stated that 
the proposed rule would provide clear notice to parties of prohibited 
behavior.
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    \16\ NOPR at P 6-8 (citing Tenaska Marketing Ventures, et al., 
126 FERC ] 61,040 (2009) (order approving stipulations and 
agreements). See also Trailblazer Pipeline Co., 101 FERC ] 61,405 
(2002), order on technical conference and denying reh'g, 103 FERC ] 
61,225 (2003), order on reh'g and compliance filing, 108 FERC ] 
61,049 (2004)).
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B. Comments

    10. CPC contends that the proposed prohibition on multiple 
affiliate bidding is unnecessary because the Commission has clearly 
articulated its policy and there is an enforcement mechanism in place 
to ensure compliance. CPC explains that if multiple affiliates are 
awarded capacity to the detriment of a third party, that third party 
may contact the Commission's enforcement staff. All other commenters 
support adoption of a regulation clarifying the Commission's rules 
concerning affiliate participation

[[Page 72303]]

in open seasons for pipeline capacity, although most commenters request 
modifications to the specific regulation proposed in the NOPR.

C. Commission Determination

    11. In the Commission's view, amendments to our existing 
regulations are necessary to prevent an entity from using multiple 
affiliates to secure a larger allocation of capacity than it could 
acquire by itself. Under conditions where the available capacity is 
limited and the value of the capacity is high, shippers are strongly 
motivated to obtain as much of that valuable capacity as possible in 
order to take advantage of the opportunity for profit. Where the 
available capacity is finite, the price is capped by the pipeline's 
maximum tariff rate, and the tiebreaker is a pro rata allocation, 
shippers can obtain more capacity than they would be able to obtain by 
themselves by bidding multiple affiliates to defeat the pro rata 
allocation mechanism. Such gaming of the pro rata allocation mechanism 
has the effect of harming entities that submit only one bid, and by 
extension, harming their customers, and has a chilling effect on 
competition.
    12. While the Commission has recently addressed the issue of 
multiple affiliate bidding, the Commission believes that further 
regulatory action is necessary. In the Commission's view, amendments to 
the existing regulations are needed to provide clear notice to parties 
participating in open seasons for interstate pipeline capacity that 
multiple affiliate bidding is prohibited, unless a participating 
affiliate has its own independent business reason for submitting a bid. 
Clarification of the prohibited behavior should facilitate compliance 
with the prohibition. Entities may contact the Commission's enforcement 
staff in the case of a possible violation.

III. Prohibition on Multiple Affiliate Bidding in Open Seasons for 
Pipeline Capacity

A. The NOPR

    13. In the NOPR, the Commission proposed to revise its regulations 
governing interstate natural gas pipelines to prohibit multiple 
affiliates of the same entity from bidding in an open season for 
pipeline capacity in which the pipeline may allocate capacity on a pro 
rata basis, unless each affiliate has an independent business reason 
for submitting a bid. The Commission stated that this proposed rule is 
designed to ensure that an entity cannot use multiple affiliates solely 
to secure a larger allocation of capacity than it could acquire by 
itself.\17\ The Commission explained that multiple affiliate bidding 
lessens competition because other bidders not engaging in similar 
conduct will receive less capacity--not because such bidders value the 
capacity any less, but because they bid only through the unit of the 
company intending to use the capacity or because they did not have 
multiple affiliates.\18\
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    \17\ Id. P 14.
    \18\ Id. P 9.
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    14. The Commission recognized that not all multiple affiliate 
bidding is used to defeat a pro rata allocation mechanism, and that in 
some cases, affiliates may have independent business reasons for 
submitting their bids.\19\ However, the Commission stated that it is 
impossible to describe in advance every situation that demonstrates an 
independent business reason.\20\ Therefore, the Commission provided two 
scenarios designed to be illustrative of situations in which a business 
unit uses awarded capacity to serve its own customers or otherwise acts 
consistently with its business plan, interests, and obligations.\21\ 
The Commission further stated that indications that a company is not 
acting independently would be if the business unit is used by its 
parent or affiliate in a way that differs from its usual business 
operations, is used to perform transactions that an affiliate or parent 
could not, or is acting as an ``alter ego'' of an affiliate or parent.
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    \19\ Id. P 11.
    \20\ Id. P 13.
    \21\ ``For example, a marketing arm of an energy company may bid 
to secure capacity for its wholesale customers and a retail 
operation of the same company may bid to secure capacity to serve 
its retail customers, and each would have an independent business 
reason for its bid. Or a marketing company may have two or more 
affiliates operating in different geographic areas, thus serving 
distinct markets all of which may be served by transportation on the 
same pipeline. When affiliates bid in such cases, other bidders are 
not unduly harmed, undue discrimination is not practiced, and 
Commission policy is not violated.'' Id. P 11.
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B. Comments

    15. Parties generally support the Commission's proposed prohibition 
on multiple affiliate bidding. These parties agree that the 
Commission's proposal should provide clarity to its policies and help 
to prevent anticompetitive gaming of the pro rata allocation 
methodology.
    16. Certain parties express concerns over the scope and specific 
elements of the proposed prohibition. CPC argues that the prohibition 
is not reasonably tailored to meet the Commission's goals because the 
rule would affect virtually every open season, whether or not capacity 
is constrained or whether or not any other prospective shipper is 
denied access to capacity. Some parties assert that the Commission 
should provide more detailed, objective criteria as to what constitutes 
an ``independent business reason'' that would allow affiliated entities 
to bid on constrained capacity, or create safe harbors or a bright-line 
test for what constitutes an ``independent business reason.'' For 
example, NGSA suggests that criteria might include whether the 
prospective affiliated shippers each had separate contracts to purchase 
or supply gas; whether the capacity was bid for in conjunction with a 
distinct retail provider obligation, internal use, or specific new 
supply project; or whether affiliates bidding operate out of different 
geographic locations or countries.
    17. AGA argues that the proposed rule would burden participation in 
pipeline open seasons because every market participant with affiliates 
would be required to document an independent business reason each time 
it bids. AGA states that the potential number of affiliates could be 
expansive, and that in many cases a market participant would have no 
way of knowing whether some of its affiliates intended to or did submit 
a bid in the same pipeline season. AGA suggests that the Commission 
modify proposed section 284.15(a) to focus narrowly on the conduct that 
is considered manipulative by prohibiting participation in an open 
season ``for the purpose of obtaining a larger allocation of capacity 
for one affiliate than that affiliate could acquire for itself,'' and 
not tying the prohibition to the absence of an independent business 
reason for participation in the open season.
    18. AGA further requests clarification that entities that operate 
in multiple jurisdictions either as affiliated entities or a single 
corporate entity with multiple operative divisions may submit multiple 
bids on behalf of two or more affiliates or divisions where each 
affiliate or division has its own need for the capacity. SCS requests 
clarification that its practice of acting as agent for its affiliates 
by submitting one bid for the total capacity needed by its affiliates 
would not trigger the proposed prohibition on multiple affiliate 
bidding. INGAA requests that the Commission clarify that pipelines are 
not required to determine whether open season bidders or releasing 
shippers are affiliated or whether bidders have independent business 
reasons for their bids.
    19. APGA suggests that, if affiliates of the same entity 
participate in an open season for pipeline capacity, each be required 
to identify itself as such in its bid and that any award of open season

[[Page 72304]]

capacity likewise note that fact. APGA asserts that an affiliation 
between entities may not be self-evident from the name of the entity, 
and this would put the public on notice that the rule is applicable and 
must be satisfied.
    20. Finally, DTE Energy argues that the Commission should exempt 
traditional gas and electric utilities from the definition of 
``affiliate'' used in the NOPR, as state public service commission 
review of these utilities' activities provides sufficient protection 
against manipulative practices.

C. Commission Determination

    21. In this Final Rule, the Commission adopts section 284.15(a) as 
proposed in the NOPR. The Commission finds that it is appropriate to 
prohibit multiple affiliates of the same entity from participating in 
an open season for pipeline capacity in which the pipeline may allocate 
capacity on a pro rata basis, unless each affiliate has an independent 
business reason for submitting a bid. This prohibition will help to 
prevent shippers from using multiple affiliates to defeat the pro rata 
allocation tiebreaker mechanism and obtain a greater share of available 
capacity than a single bidder could acquire by itself.
    22. As recognized in the NOPR, not all multiple affiliate bidding 
is used to defeat a pro rata allocation mechanism. Therefore, section 
284.15(a) provides an exception for affiliates that have independent 
business reasons for submitting their bids. For example, a marketing 
arm of an energy company may bid to secure capacity for its wholesale 
customers and a retail operation of the same company may bid to secure 
capacity to serve its retail customers, and each would have an 
independent business reason for its bid. Or a marketing company may 
have two or more affiliates operating in different geographic areas, 
thus serving distinct markets all of which may be served by 
transportation on the same pipeline. The prohibition against multiple 
affiliate bidding in section 284.15(a) is reasonably tailored to the 
harm the Commission is seeking to prevent, as it only restricts the 
participation of affiliates that do not have an independent business 
reason for bidding.
    23. Various commenters request further clarification of what 
constitutes an independent business reason. As the Commission explained 
in the NOPR, it is impossible to describe in advance every situation 
that demonstrates an independent business reason. However, our intent 
in permitting bidding by multiple affiliates where each has its own 
independent business reason for bidding is to allow each affiliate to 
acquire capacity which will facilitate or enhance its ability to 
provide service of value to its own customers or otherwise help 
accomplish its own business goals. The phrase ``independent business 
reason'' should be interpreted and applied in specific situations 
consistent with that intent.
    24. The scenarios described in P 22 above illustrate situations 
where each affiliate or business unit has an independent business 
reason to participate in an open season, because each is seeking 
pipeline capacity in order to transport natural gas to its own sales 
customers. Commenters have suggested various other scenarios in which 
an affiliate or business unit may use awarded capacity to accomplish 
its own business objectives and thus have an independent business 
reason for participating in an open season. For example, an affiliate 
may use natural gas to operate an industrial plant, refinery, or 
electric generation facility, and seek pipeline capacity to transport 
natural gas to that facility.\22\ A producer affiliate may be 
developing a new production field and seek pipeline capacity to 
transport natural gas produced from that field to market.\23\ A 
marketer affiliate participating in a retail access program may seek 
pipeline capacity to serve its retail customers in that program.\24\ A 
marketer affiliate may also seek pipeline capacity to transport natural 
gas to any other type of customer to whom it ordinarily sells natural 
gas. In all of these scenarios, the affiliate or business unit is 
seeking pipeline capacity to transport natural gas which it will 
consume in its own business operations or sell to others as part of its 
ordinary course of business. In such circumstances, the affiliate may 
participate in an open season, regardless of whether any other 
affiliate may participate in the same open season.\25\ By contrast, 
indications that a company is not acting independently would be if the 
business unit is used by its parent or affiliate in a way that differs 
from its usual business operations, is used to perform transactions 
that an affiliate or parent could not, or is acting as an ``alter ego'' 
of an affiliate or parent.
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    \22\ NGSA at 4; PGC at 3; AGA at 7.
    \23\ NGSA at 4.
    \24\ Id.
    \25\ As requested by SCS and AGA, the Commission also clarifies 
that a group of affiliated electric generators or gas distribution 
companies operating in different geographic areas may designate a 
single affiliate as their gas purchasing agent and that affiliate 
may participate in an open season to obtain pipeline capacity to 
serve all the affiliates in the group.
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    25. AGA argues that the proposed rule would burden participation in 
pipeline open seasons because each market participant would be required 
to document an independent business reason each time it bids and would 
have no way of knowing whether some of its affiliates submitted a bid. 
We disagree. First, the rule requires an affiliate to do no more than 
any reasonably prudent company would do when considering whether to bid 
in an open season for pipeline capacity. Before submitting a bid, the 
affiliate must decide whether and how much of the subject capacity it 
needs in order to accomplish its own business objectives, and it should 
maintain some record of the basis for its determination. The rule does 
not include any specific documentation requirement. Second, each 
affiliate only need concern itself with whether it, individually, has 
an independent business reason for bidding. The rule does not require 
that an entity coordinate with its affiliates to establish how its 
independent business reason differs from the business reasons of the 
other affiliates. In fact, not coordinating with affiliates would help 
to avoid the appearance of multiple affiliate bidding behavior. 
Similarly, if state public service commission review prevents gas and 
electric utilities from acquiring gas transportation for purposes not 
related to serving customers, as DTE Energy asserts, then it should not 
be burdensome for these entities to establish an independent business 
purpose. We therefore do not find it necessary to modify proposed 
section 284.15(a) or the proposed definition of ``affiliate.''
    26. We do not find it necessary to require that each affiliate 
identify itself as such and that any award of open season capacity note 
the affiliation. In order for multiple affiliates of the same entity to 
participate in an open season for pipeline capacity in which the 
pipeline may allocate capacity on a pro rata basis, each affiliate must 
have an independent business reason for submitting a bid. Therefore, 
consumers should be protected by the rule even if each affiliate is not 
labeled as such. We also note that each affiliate has the 
responsibility to ensure that it has an independent business reason for 
submitting a bid, not the pipeline conducting the open season.

IV. Prohibition on Release of Capacity

A. The NOPR

    27. The Commission also proposed that if more than one affiliate of 
the same entity participates in such an open season, then none of those 
affiliates may

[[Page 72305]]

release any capacity obtained in that open season pursuant to a pro 
rata allocation to any affiliate, or otherwise allow any affiliate to 
obtain the use of the allowed capacity. The Commission noted that some 
companies bidding with multiple affiliates have used capacity release 
as the final step in consolidating multiple shares of capacity for use 
by one of the company's units.\26\ The Commission explained that, by 
releasing the capacity acquired in the open season, affiliates are able 
to transfer the capacity each acquires to a single company that 
benefits by obtaining more capacity than it could have obtained by 
itself.\27\
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    \26\ NOPR, FERC Stats. & Regs. ] 32,673 at P 15 (citing Tenaska 
Marketing Ventures, et al., 126 FERC ] 61,040 at P 13, 18).
    \27\ Id.
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B. Comments

    28. Parties generally argue that the capacity release prohibition, 
as drafted, is overbroad and would have a chilling effect on the 
capacity release markets. For example, AGA argues that where an 
affiliate complies with section 284.15(a) and legitimately obtains 
capacity in an open season with a pro rata allocation, that affiliate 
should be permitted to release its capacity to any entity under the 
normal capacity release rules applicable to all other shippers. It 
argues that this is especially the case if the releasing affiliate 
posts the release for bidding and has no control over who might acquire 
the released capacity. AGA further states that, if the proposed 
capacity release prohibition is adopted, an affiliate legitimately 
obtaining capacity in an open season may be reluctant to offer capacity 
to the release market for fear that an affiliate would be the winning 
bidder for the capacity.
    29. Parties argue that, if the prohibition on capacity release is 
adopted, various clarifications are required. For example, AGA argues 
that the Commission should clarify that the prohibition on capacity 
release only applies where the affiliate cannot establish an 
independent business reason for bidding, and that, if an entity with 
multiple affiliates acquires capacity in an open season with a pro rata 
allocation and releases that capacity in a competitive bidding process 
where the winning bidder is an unaffiliated third party, an affiliate 
could subsequently acquire the capacity from that party. CPC proposes 
alternative language to the proposed regulation that would clarify that 
a ban on capacity release (1) Only applies to the extent two affiliates 
actually receive a pro rata award of capacity, and (2) expires after a 
reasonable period, such as two years. Numerous parties state that the 
Commission should clarify that the prohibition on capacity release does 
not apply to releases of pipeline capacity to (1) Qualifying asset 
managers as part of an Asset Management Agreement or (2) marketers 
participating in a state commission-regulated retail access program. 
PGC urges the Commission to recognize that, if industrial end-users 
decide to realign their natural gas purchasing and transportation 
practices to central management in order to maximize corporate 
efficiencies, capacity releases between affiliates may be required.
    30. Parties also express concern that seeking waiver of the 
capacity release prohibition would be overly burdensome.

C. Commission Determination

    31. In light of the comments received, the Commission has 
reconsidered its proposal and has decided not to adopt the proposed 
prohibition on capacity release. The prohibition on capacity release, 
proposed as section 284.15(b) in the NOPR, was intended to provide an 
additional deterrent to affiliates bidding for capacity for which they 
have no independent use. However, any behavior that the Commission 
intended to fall under the capacity release prohibition is covered by 
the prohibition on multiple affiliate bidding in proposed section 
284.15(a). Therefore, the Commission believes that the prohibition on 
multiple affiliate bidding in proposed section 284.15(a) is sufficient 
to prohibit the subject conduct without the additional capacity release 
prohibition.
    32. Furthermore, we appreciate commenters' concern that the 
capacity release prohibition could have a chilling effect on 
affiliates' participation in the capacity release markets. The 
Commission adopted the capacity release program in order to promote 
efficient use of firm pipeline capacity throughout the year.\28\ For 
example, the capacity release program permits a firm shipper to release 
its capacity to another shipper during periods when the release shipper 
does not need its capacity. This allows the releasing shipper to reduce 
its cost of reserving capacity and enables other shippers who value the 
capacity more to use it.
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    \28\ Promotion of a More Efficient Capacity Release Market, 
Order No. 712, 73 FR 37058 (June 30, 2008), FERC Stats. & Regs. ] 
31,271, at P 4 (2008), order on reh'g, Order No. 712-A, 73 FR 72692 
(Dec. 1, 2008), FERC Stats. & Regs. ] 31,284 (2008), order on reh'g, 
Order No. 712-B, 74 FR 18127 (Apr. 21, 2009), 127 FERC ] 61,051 
(2009).
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    33. Upon further consideration, the Commission has determined that 
an affiliate who legitimately obtains capacity in an open season for 
its own independent business purposes should be permitted to release 
that capacity to any entity under the normal capacity release rules 
applicable to all other shippers. This will enable affiliates to obtain 
the same benefits from capacity release as other shippers. We note, 
however, that the Commission may consider what an entity does with its 
awarded capacity, such as subsequently releasing the capacity to an 
affiliate on a long-term basis, as a factor in the determination of 
whether the entity in fact had an independent business reason to obtain 
the capacity.
    34. The Commission will therefore promulgate the Final Rule without 
the prohibition on capacity release. This Final Rule, as amended, 
should prevent anticompetitive gaming of the pro rata allocation 
methodology by using multiple affiliates of the same entity to acquire 
a larger share of the available capacity than one affiliate would be 
able to acquire by itself.

V. Information Collection Statement

    35. Office of Management and Budget (OMB) regulations require OMB 
to approve certain information collection requirements imposed by 
agency rule.\29\ This rule contains no new or revised information 
collections. Therefore, OMB review of this Final Rule is not required.
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    \29\ 5 CFR 1320.11 (2011).
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VI. Environmental Analysis

    36. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\30\ The 
Commission has categorically excluded certain actions from these 
requirements as not having a significant effect on the human 
environment.\31\ The actions proposed to be taken here fall within 
categorical exclusions in the Commission's regulations for rules that 
are corrective, clarifying or procedural, for information gathering, 
analysis, and dissemination, and for sales, exchange, and 
transportation of natural gas that requires no construction of 
facilities.\32\ Therefore an environmental review is

[[Page 72306]]

unnecessary and has not been prepared in this rulemaking.
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    \30\ Regulations Implementing the National Environmental Policy 
Act of 1969, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. 
& Regs., Regulations Preambles 1986-1990 ] 30,783 (1987).
    \31\ 18 CFR 380.4 (2011).
    \32\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5), and 380.4(a)(27) 
(2011).
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VII. Regulatory Flexibility Act

    37. The Regulatory Flexibility Act of 1980 (RFA) \33\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
The Commission is not required to make such an analysis if proposed 
regulations would not have such an effect.\34\ Most companies regulated 
by the Commission do not fall within the RFA's definition of a small 
entity.\35\
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    \33\ 5 U.S.C. 601-612 (2006).
    \34\ 5 U.S.C. 605(b) (2006).
    \35\ 5 U.S.C. 601(3) (citing section 3 of the Small Business 
Act, 15 U.S.C. 623 (2006)). Section 3 defines a ``small-business 
concern'' as a business which is independently owned and operated 
and which is not dominant in its field of operation.
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    38. This Final Rule should have no significant negative impact on 
those entities, be they large or small, subject to the Commission's 
regulatory jurisdiction under the NGA. Most companies to which the 
Final Rule applies do not fall within the RFA's definition of small 
entities. In addition, this Final Rule is only triggered if more than 
one affiliate of the same entity participates in an open season for 
pipeline capacity in which the pipeline may allocate capacity on a pro 
rata basis, and each affiliate does not have an independent business 
reason for submitting a bid. Therefore, the rule would only affect a 
limited number of small entities. This Final Rule will not have a 
significant economic effect on these small entities. Therefore, the 
Commission certifies that this Final Rule will not have a significant 
economic effect on a substantial number of small entities.

VIII. Document Availability

    39. 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 p.m. 
Eastern time) at 888 First Street NE., Room 2A, Washington, DC 20426.
    40. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    41. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-(866) 208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referenceroom@ferc.gov.

IX. Effective Date and Congressional Notification

    42. These regulations are effective December 23, 2011. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of OMB, that this rule 
is not a ``major rule'' as defined in section 351 of the Small Business 
Regulatory Enforcement Fairness Act of 1996.

List of Subjects in 18 CFR Part 284

    Continental shelf, Natural gas, Reporting and recordkeeping 
requirements.

    By the Commission. Commissioner Spitzer is not participating.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
    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

0
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.

0
2. Section 284.15 is added to subpart A to read as follows.

Sec.  284.15  Bidding by affiliates in open seasons for pipeline 
capacity.

    (a) Multiple affiliates of the same entity may not participate in 
an open season for pipeline capacity conducted by any interstate 
pipeline providing service under subparts B and G of this part, in 
which the pipeline may allocate capacity on a pro rata basis, unless 
each affiliate has an independent business reason for submitting a bid.
    (b) For purposes of this section, an affiliate is any person that 
satisfies the definition of affiliate in Sec.  358.3(a)(1) and (3) of 
this chapter with respect to another entity participating in an open 
season subject to paragraph (a) of this section.

[FR Doc. 2011-30115 Filed 11-22-11; 8:45 am]
BILLING CODE 6717-01-P