Report of the Natural Gas Regulation Committee

Energy Law Journal, July 1, 2012 | Go to article overview

Report of the Natural Gas Regulation Committee


This report summarizes policy developments and legal decisions that have occurred at the Federal Energy Regulatory Commission (FERC) and the U.S. Courts of Appeals in the area of natural gas regulation between July 1, 2011 and June 30, 2012.*

I. RULEMAKING ACTIONS

A. Affiliates Rules

In Order No. 894, the FERC revised its open access regulations regarding participation in an open season that employs a pro-rata method of allocation.1 The amended regulation prohibits a participant in the open season "from using multiple affiliates to secure a larger allocation of capacity than it could acquire" independently "unless each affiliate has an independent business reason for submitting a bid."2

"Before submitting a bid, [an] 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."3 The FERC noted that it is the responsibility of every affiliate, and "not the pipeline conducting the open season," "to ensure that it has an independent business reason for submitting a bid."4 Without comprehensively listing the circumstances under which it would find that an independent business reason existed, the FERC provided some examples,5 and stated that it may assess the use to which an entity puts "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."6 The FERC declined to specify a particular documentation obligation.7

The Final Rule eschews a per se restriction against affiliates participating in an open season who "release any capacity obtained in that open season pursuant to a pro rata allocation to any [other] affiliate."8 Rather, "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."9

B. Financial Forms

In Order No. 710-C,10 the FERC generally denied rehearing and reaffirmed the findings made in Order No. 710-B, which revised the "financial forms, statements, and reports for natural gas companies, contained in FERC Form Nos. 2, 2-A, and 3-Q."11 Following consideration on remand of the regulations from the United States Court of Appeals for the District of Columbia Circuit,12 the goal of Order No. 710-B had been "to provide greater transparency on fuel data by requiring the reporting of functionalized fuel data on pages 521a through 521c of those forms, and to include on those forms the amount of fuel waived, discounted or reduced as part of a negotiated rate agreement."13 Subsequently, the Interstate Natural Gas Association of America (INGAA) filed a request for rehearing, arguing that adding the level of detail required by Order No. 710-B would increase the reporting burden.14 In response, the FERC did not reduce the additional reporting obligations, but did "distinguish between the initial start-up costs . . . as compared to the ongoing costs of reporting the information required to be reported under [Order No. 710-B] once the reporting mechanism is in place."15 Therefore, the FERC included a revised burden estimate in Order No. 710-C.16 In response to INGAA's concern that the new regulations required the collection of data before "pipelines [might] have the accounting systems in place," the FERC delayed "the commencement of implementation of the filing requirements . . . until the fourth quarter period ("Q4") of 2011."17

C. Market Transparency

In Order No. 757, the FERC amended its regulations to eliminate 18 C.F.R. § 284.13(e) and 18 C.F.R. § 284.126(c) relating to semi-annual storage reporting requirements for interstate natural gas companies, intrastate pipelines and Hinshaw pipelines, finding the rules to be "duplicative [of] other reporting requirements. …

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