Daily Rules, Proposed Rules, and Notices of the Federal Government
This Order denies rehearing and grants clarification in part and denies clarification in part of Order No. 712-A. This order also terminates Docket Nos. RM06-21-000 and RM07-4-000.
1. On November 21, 2008, the Commission issued Order No. 712-A in which it denied rehearing and granted clarification in part of Order No. 712.
2. Several parties seek clarification and/or rehearing of Order No. 712-A. The Marketer Petitioners seek clarification concerning an asset manager's delivery obligation when an AMA includes released capacity on upstream and downstream pipelines.
3. In Order No. 712, the Commission exempted capacity releases that were meant to implement AMAs from the Commission's prohibition against tying and its bidding requirements. As part of the definition of AMAs that would qualify for these exemptions, the Commission determined that there must be a significant delivery or purchase obligation on the replacement shipper to deliver gas to, or purchase gas from, the releasing shipper in order to distinguish AMAs from standard capacity releases.
4. In addition, the Commission denied a request by the Public Service Company of North Carolina, South Carolina Electric and Gas Company and Scana Energy Marketing, Inc., (collectively Scana) to clarify that in a situation where parties include released capacity on both an upstream and downstream pipeline in an AMA, the asset manager's delivery obligation only applies to the released capacity on the downstream pipeline that directly connects to the releasing shipper's delivery point.
5. The Commission also denied Scana's and BP Energy Company's (BP) request for clarification that where released storage and transportation capacity are combined in an AMA, the delivery/purchase obligations associated with the release only apply to the transportation contract. The Commission ruled again that while the delivery/purchase obligation is not cumulative of the released transportation and storage capacity, to qualify for the exemptions provided for AMAs an asset manager must have the necessary purchase/delivery obligation for each separate contract for released capacity.
6. The Marketer Petitioners seek clarification of both these rulings. Marketer Petitioners argue that while the rulings reflect the Commission's intent to confirm that the releases at issue are associated with
7. The Marketer Petitioners claim the same may be true where a releasing shipper has options for both (1) long haul transportation from the production area and (2) short haul transportation from market area storage that form a “network” whereby the releasing shipper can serve its needs at its city gate delivery point. According to the Marketer Petitioners, this may result in optional capacity paths for an asset manager to transport gas, or withdraw gas from storage, to meet the releasing shipper's city gate delivery point obligations. Marketer Petitioners assert that requiring the asset manager's delivery/purchase obligation to apply to the full contract demand under each capacity release in the transportation chain creates significant uncertainty as to the delivery obligation at the delivery points on the upstream pipelines and on the downstream pipeline at the releasing shipper's city gate.
8. The Marketer Petitioners posit an example in their pleading where the releasing shipper has capacity on upstream Pipelines A and B, and on downstream Pipeline C. Pipeline C connects with the releasing shipper's city gate. Both Pipelines A and B interconnect with Pipeline C at Point Y, which is the releasing shipper's receipt point on Pipeline C. (
9. The Marketer Petitioners state it is unclear in this situation if the asset manager's delivery obligation at the releasing shipper's city gate is equal to (1) the releasing shipper's 5,000 Dth contract demand on Pipeline C, or (2) the releasing shipper's 6,000 Dth total of the releasing shipper's 1,000 Dth contract demand on Pipeline A and 5,000 Dth contract demand on Pipeline B. Marketer Petitioners also question whether, if the delivery obligation is only 5,000 Dth at the city gate, the asset manager nevertheless has a 6,000 Dth delivery obligation at Point Y. Marketer Petitioners state that, without certainty as to the Commission's view of the location and amount of the required delivery obligation, it is unclear if all of the transportation and storage capacity is eligible for inclusion in an AMA.
10. Marketer Petitioners thus request clarification that the ruling that an asset manager's delivery/purchase obligation must apply to the full contract demand under each capacity release in a transportation chain is not intended to alter that asset manager's obligation at a particular point, or in other words, that it does not add additional delivery points to an AMA. Specifically, in the example described above, they request clarification that, while the asset manager may have a delivery obligation associated with the releases on Pipelines A, B, and C, of 1,000 Dth/day, 5,000 Dth/day, and 5,000 Dth per day, respectively, that would not alter the asset manager's contractual 5,000 Dth/day delivery obligation to the releasing shipper at its city gate. They claim that such a clarification would affirm the Commission's holding that it does not intend the delivery/purchase obligation under an AMA to be cumulative of the total contract demands associated with the capacity in a released chain and make clear that the Commission did not intend to allow AMA customers to use the Commission's rulings to enlarge their delivery/purchase entitlements at a particular receipt or delivery point under an AMA.
11. The Marketer Petitioners note that any concern that the Commission may have about “unneeded” capacity being included in an AMA could be addressed by the Commission clarifying that when an AMA encompasses capacity released on more than one pipeline, the posting should indicate that the AMA also involves capacity on other pipeline(s) and should be posted by all the pipelines involved. They assert that such a posting requirement would illuminate the totality of the release capacity to be included in the AMA.
12. The Commission grants clarification in part and denies clarification in part. As we stated in Order No. 712-A, the asset manager's delivery/purchase obligation must apply to the full contract demand under each capacity release in the transportation chain.
13. The Commission grants clarification that the asset manager's delivery obligation at the releasing shipper's city gate need only be up to the contract demand of the released capacity on the downstream pipeline that interconnects directly with the releasing shipper's city gate. The fact the releasing shipper may have also released to the asset manager capacity on an upstream pipeline or pipelines with total contract demand exceeding the released capacity on the downstream pipeline does not increase the asset manager's required delivery obligation at the releasing shipper's city gate on the downstream pipeline. Thus, in the example set forth in Figure 1, the asset manager's delivery obligation at the releasing shipper's city gate would be equal to the 5,000 Dth/day released capacity on Pipeline C, despite the fact the released capacity on Pipelines A and B totals 6,000 Dth/day.
14. While a releasing shipper may release capacity to an asset manager on an upstream pipeline(s) that exceeds the released downstream capacity, the asset manager must have a delivery obligation
15. In such a situation, however, if the releasing shipper requires the asset manager to deliver volumes on the upstream pipelines that exceed the contract demand on the downstream pipeline, the releasing shipper would be required to take delivery of the excess volumes at points on the upstream pipeline or pipelines, and would also be responsible for transporting that excess gas away from those points. In the example in Figure 1, for instance, the releasing shipper could require the asset manager to deliver 6,000 Dth to Point Y. That releasing shipper, however, would have to take delivery of 1,000 Dth of that gas at Point Y and make its own additional arrangements to have the gas transported away from Point Y, since this quantity exceeds the asset manager's released capacity rights on the downstream pipeline. The releasing shipper could not require the asset manager to transport more than 5,000 Dth/day on Pipeline C from Point Y to the city gate. The asset manager could only be held responsible for transporting to the releasing shipper's city gate a volume up to the contract demand on the downstream pipeline.
16. The Commission finds that this rule is straightforward, non-discriminatory and the most reasonable to administer for both parties and the Commission. It is also consistent with the Commission's clarification in Order No. 712-A that the delivery obligations for AMAs associated with a chain of upstream and downstream pipelines and contracts are not cumulative. Further, it minimizes the potential for parties to include unneeded upstream capacity in an AMA.
17. In Order No. 712, as affirmed in Order No. 712-A, the Commission determined that capacity releases by local distribution companies (LDC) 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.
18. Several parties seek clarification of that ruling. National Grid seeks clarification that an LDC releasing capacity as part of a state-approved retail access program may release directly to a marketer's asset manager as long as the asset manager has an identical obligation to supply gas to the marketer as the marketer's obligation to supply gas to the releasing LDC. National Grid asserts that certain marketers that participate in its state-approved retail access program are requesting that they be allowed to release directly to their asset manager so that the asset manager, not the marketer, will be the one who has to meet the creditworthiness standards of the pipeline. National Grid asserts that cutting out the middle man will enable marketers to avoid having to post scarce credit assurances.
19. National Grid also requests clarification that an LDC that releases to an asset manager can require the asset manager to release capacity to marketers serving under the retail choice program and that such a release will qualify for the exemptions. National Grid asserts that the need for this clarification arises from the fact that the number of customers participating in an LDC's retail choice program may change from time to time and thus the LDC may release to an asset manager only to find out that some sales customers have changed to transportation only service. National Grid claims this change necessitates a release by the LDC to the converting customers' marketers. National Grid stated that the requested clarification will allow for more efficient releases because the LDC could direct the asset manager to effectuate those new releases.
20. National Fuel seeks clarification that the prohibition against tying and the bidding requirements do not apply to releases by an LDC to a marketer when the marketer is acting as an agent of a retail access marketer pursuant to a state-mandated retail access program. It asserts the situation described by BP in BP's request for clarification of Order No. 712—where a wholesale entity receives releases as part of a state-approved program, for the purpose of selling gas to another retail marketer that makes sales directly to retail customers—is not a unique situation and should be the subject of the general rulemaking proceeding. National Fuel asserts that not all marketers participating in state-approved retail unbundling programs sell directly to
21. Alternatively, National Fuel seeks a limited waiver for the situation described above. It states the waiver would only apply under the following circumstances: (1) Releases to these marketers would occur only when there is a valid, written agency agreement between the retail marketer and the marketer receiving releases of capacity, requiring the marketer to act as agent for the retail marketer and obligating the agent to meet the retail marketer's gas supply needs; and (2) the marketer acting as agent must do so as part of a state-approved customer choice program and under published state-approved tariffs and/or procedures. National Fuel argues that the result would be fully consistent with both the goal of the exemptions for state choice programs and the non-discriminatory and efficiency goals of Order No. 712.
22. The New York State Public Service Commission (NYPSC) filed in support of both National Grid's and National Fuel's clarification requests. The NYPSC asserts that Order No. 712-A should be clarified to avoid “hindering” state retail access programs. It claims that the releases at issue are made to effect service to the very same customers for whose benefit the pipeline capacity was purchased by the releasing LDC and that without the exemptions provided by Order No. 712 it would be more difficult for marketers to provide service to their end use customers. The NYPSC further argues that requiring the issue to be resolved on a case by case basis does not foster the Commission's goals and harms state retail access programs.
23. Other LDCs located in New York also filed in support of National Grid's and National Fuel's requests. Con Ed and OR assert that a release to a “wholesale marketer acting as agent for a retail marketer participating in a state-approved retail choice program is equivalent to a capacity release directly to a retail marketer.”
24. NYSEG and RGE lend similar support to the clarification requests claiming that state retail access releases involve storage as well as transportation and that without the ability to use an agent to obtain the capacity and serve the retail load many retail marketers may not be able to participate in the program. They also seek a waiver in the event the Commission denies clarification.
25. Energy America filed support for the clarification requests stating that it has acted as agent for Direct Energy Services and other retail marketers with respect to sourcing needs and managing transportation and storage capacity. Energy America states that as agent, it signs an agency agreement with the LDC making clear that it is acting as an agent to provide service to the retail marketer under the retail access program. The LDC then releases capacity to the agent who transports and sells gas to the retail marketer at the city gate. Energy America asserts that without a clarification or waiver, retail marketers may be unable to participate in retail access programs.
26. The NYSEMC filed comments requesting that the Commission reject National Grid's clarification. It asserts that National Grid seeks a blanket exemption for all marketers acting as agents in retail choice programs, not a company specific waiver as suggested in Order No. 712-A. Further, NYSEMC takes issue with the claim that the Commission should grant the clarification because some marketers may not be able to meet the financial or technical requirements of interstate pipelines. It asserts that lack of financial capability is not a reason to expand the scope of exemptions granted by Order No. 712.
27. NYSEMC argues that granting a broad exemption as requested by the New York utilities that also operate in Pennsylvania and elsewhere would effectively result in a blanket waiver of the type denied in Order No. 712-A. It also argues that granting the requested relief would increase the risk of defaults by permitting less creditworthy suppliers access to systems they would not otherwise be able to obtain. It claims that it would not be in the public interest to allow circumvention of creditworthiness standards in the current credit climate and that relaxed credit requirements were actually one of the causes of the current economic situation. It further argues that the Commission would hinder the continued development of a viable and robust competitive market by affording certain marketers preferential credit treatment.
28. National Grid answers NYSEMC's comments, claiming that NYSEMC mischaracterizes National Grid's clarification request by framing it as a request for an open-ended exemption. National Grid asserts that it is requesting an exemption only where the wholesale marketer supplier advises the LDC that the marketer has an obligation to supply gas to the retail marketer that is equivalent to the retail marketer's obligation to supply gas to the releasing LDC's customers. National Grid claims such obligation could be created by an agency relationship or some other contractual framework. National Grid also states that NYSEMC's concerns about creditworthiness of small customers are misplaced because the wholesale supplier would still be required to meet the pipeline's creditworthiness standards. National Grid also notes that granting its clarification would provide retail customers with a greater choice of providers.
29. The Commission clarifies that the exemptions from bidding and the prohibition against tying for releases to
30. As stated above, in Order Nos. 712 and 712-A the Commission exempted from bidding releases “to a marketer participating in a state-regulated retail access program as defined in paragraph (h)(4) of this section * * *.”
31. The Commission rejects the argument that granting this clarification will allow circumvention of interstate pipeline creditworthiness standards. If a retail marketer is unable to satisfy these standards, the replacement shipper supplier will be required to satisfy the pipeline's creditworthiness criteria. If no party can meet these standards then the pipeline does not have to allow the release.
32. The Commission also grants National Grid's requested clarification that an LDC that releases to an asset manager can require the asset manager to release capacity to marketers serving under the retail choice program and that such a release will qualify for the exemptions from the tying prohibition and bidding requirements. This condition is one that can be addressed in the agreement between the releasing shipper and asset manager, and will allow LDCs and asset managers to operate efficiently to effectuate the goals of retail access programs.
33. The clarifications granted above render the various requests for waiver moot.
34. The Commission initiated Docket Nos. RM06-21 and RM07-4 to address a petition filed by Pacific Gas and Electric Co. and Southwest Gas Corporation concerning the potential removal of the maximum rate ceiling on capacity release transactions and a petition filed by the Marketer Petitioners seeking clarification of the operation of the Commission's capacity release rules in the context of asset management services. The issues raised in the petitions have been fully addressed in the instant docket. Accordingly, the Commission hereby terminates Docket Nos. RM06-21 and RM07-4.
(A) The requests for rehearing of Order No. 712-A are denied and the requests for clarification of Order No. 712-A are granted in part and denied in part as discussed above.
(B) Docket Nos. RM06-21 and RM07-4 are hereby terminated.
By the Commission.