Federal Register: Part III [18 CFR Part 284]

DEPARTMENT OF ENERGY

CFR Citation: 18 CFR Part 284

Docket ID: [Docket No. RM08-1-000; Order No. 712]

NOTICE: Part III

DOCUMENT ACTION: Final rule.

SUBJECT CATEGORY: Promotion of a More Efficient Capacity Release Market

DATES: This rule will become effective July 30, 2008.

DOCUMENT SUMMARY: In this Final Rule the Federal Energy Regulatory Commission revises its regulations governing interstate natural gas pipelines to reflect changes in the market for shortterm transportation services on pipelines and to improve the efficiency of the Commission's capacity release program. The Commission permits market based pricing for short term capacity releases and facilitates asset management arrangements by relaxing the Commission's prohibition on tying and on its bidding requirements for certain capacity releases. The Commission further clarifies that its prohibition on tying does not apply to conditions associated with gas inventory held in storage for releases of firm storage capacity. Finally, the Commission waives its prohibition on tying and bidding requirements for capacity releases made as part of stateapproved retail open access programs.

SUMMARY: Energy Department, Federal Energy Regulatory Commission,

DOCUMENT BODY 2: Issued June 19, 2008.

SUPPLEMENTAL INFORMATION

Order No. 712
Final Rule
Table of Contents
Paragraph Numbers I. Background.............................................. 2.

A. The Capacity Release Program........................ 2.

B. The NOPR............................................ 15.

C. Comments............................................ 19. II. Overview of the Final Rule............................. 24. III. Price Cap Issues...................................... 30.

A. Removal of Maximum Rate Ceiling for ShortTerm 30. Capacity Releases..................................... 1. Maximum Rate Ceiling Interferes With Efficient 32. Transactions...................................... 2. Assurance of Just and Reasonable Rates.......... 38. a. Market Conditions Ensure Just and Reasonable 39. Rates......................................... b. Recourse Rate Protection.................... 48. c. ShortTerm Customers Are Not Captive........ 50. d. NonCost Factors............................ 51. e. Oversight................................... 55. 3. Comments........................................ 57. a. Lack of Competition in Certain Areas........ 58. b. Benefits From Removing the Price Ceiling.... 63. c. Promotion of Construction................... 67. d. Changed Circumstances....................... 68. e. Exemption From Bidding for ShortTerm 72. Releases at the Maximum Rate..................

B. Removal of Price Ceiling for LongTerm Releases..... 74.

C. Removal of Price Ceiling for Pipeline ShortTerm 81. Transactions.......................................... 1. Removal of the Price Ceiling Is Not Justified... 82. 2. Response to Specific Comments................... 87. a. Evidentiary Record.......................... 87. b. Infrastructure Incentives................... 90. c. Competitive Market Structure................ 92. d. Differences in Flexibility Between Pipeline 95. Capacity and Released Capacity................ e. Bifurcation of the Markets.................. 103. IV. Asset Management Arrangements.......................... 109.

A. Background.......................................... 110.

B. Discussion.......................................... 118. 1. Tying........................................... 127. 2. Bidding......................................... 132. 3. Definition of AMAs.............................. 138. a. NOPR Proposal............................... 138. b. Comments.................................... 141. c. Modified Definition......................... 144. 4. Supply AMAs..................................... 148. 5. AMA Profit Sharing Arrangements................. 154. 6. Exemption From Buy/Sell Prohibition............. 163. 7. Other AMA Terms and Conditions.................. 170. 8. Posting and Reporting Requirements.............. 172. 9. Part 157 Capacity............................... 178. V. Tying of Storage Capacity and Inventory................. 186. VI. Liquefied Natural Gas.................................. 191. [[Page 37059]]
VII. State Mandated Retail Unbundling...................... 194. VIII. Implementation Schedule.............................. 202. IX. Information Collection Statement....................... 203. X. Environmental Analysis.................................. 216. XI. Regulatory Flexibility Act............................. 217. XII. Document Availability................................. 220. XIII. Effective Date and Congressional Notification........ 223. Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.
Order No. 712
Final Rule

Issued June 19, 2008.

1. In this Final Rule, the Commission revises its Part 284 regulations concerning the release of firm capacity by shippers on interstate natural gas pipelines. First, as proposed in its Notice of Proposed Rulemaking,\1\ the Commission will remove, on a permanent basis, the rate ceiling on capacity release transactions of one year or less. Second, the Commission will modify its regulations to facilitate the use of asset management arrangements (AMAs), under which a capacity holder releases some or all of its pipeline capacity to an asset manager who agrees to either purchase from, or supply the gas needs of, the capacity holder. Specifically, the Commission will exempt capacity releases made as part of AMAs from the prohibition on tying and from the bidding requirements of section 284.8. Third, the Commission clarifies that its prohibition on tying does not apply to conditions associated with gas inventory held in storage for releases of firm storage capacity. Fourth, the Commission will modify its regulations to facilitate retail open access programs by exempting capacity releases made under stateapproved retail access programs from the prohibition on tying and from the bidding requirements of section 284.8. This Final Rule is designed to enhance competition in the secondary capacity release market and to increase shipper gas supply options. This rule will become effective 30 days after publication in the Federal Register.
\1\ Promotion of a More Efficient Capacity Release Market, 72 FR 65,916, FERC Stats. and Regs. ] 32,625 (November 26, 2007) 121 FERC ] 61,170 (2007) (NOPR).
I. Background

A. The Capacity Release Program

2. The Commission adopted its capacity release program as part of the restructuring of natural gas pipelines required by Order No. 636.\2\ In Order No. 636, the Commission sought to foster two primary goals. The first goal was to ensure that all shippers have meaningful access to the pipeline transportation grid so that willing buyers and sellers can meet in a competitive, national market to transact the most efficient deals possible. The second goal was to ensure consumers have ``access to an adequate supply of gas at a reasonable price.'' \3\ \2\ Pipeline Service Obligations and Revisions to Regulations Governing SelfImplementing Transportation; and Regulation of Natural Gas Pipelines After Partial Wellhead Decontrol, Order No. 636, 57 FR 13,267 (April 16, 1992), FERC Stats. and Regs., Regulations Preambles January 1991June 1996 ] 30,939 (April 8, 1992), order on reh'g, Order No. 636A., 57 FR 36,128 (August 12, 1992), FERC Stats. and Regs., Regulations Preambles January 1991 June 1996 ] 30,950 (August 3, 1992), order on reh'g, Order No. 636 B, 57 FR 57,911 (Dec. 8, 1992), 61 FERC ] 61,272 (1992), notice of denial of reh'g, 62 FERC ] 61,007 (1993); aff'd in part, vacated and remanded in part, United Dist. Companies v. FERC, 88 F.3d 1105 (DC Cir. 1996), order on remand, Order No. 636C, 78 FERC ] 61,186 (1997).

\3\ Order No. 636 at 30,393 (citations omitted).

3. To accomplish these goals, the Commission sought to maximize the availability of unbundled firm transportation service to all participants in the gas commodity market. The linchpin of Order No. 636 was the requirement that pipelines unbundle their transportation and storage services from their sales service, so that gas purchasers could obtain the same high quality firm transportation service whether they purchased from the pipeline or another gas seller. In order to create a transparent program for the reallocation of interstate pipeline capacity to complement the unbundled, open access environment created by Order No. 636, the Commission also adopted a comprehensive capacity release program to increase the availability of unbundled firm transportation capacity by permitting firm shippers to release their capacity to others when they were not using it.\4\
\4\ In brief, under the Commission's current capacity release program, a firm shipper (releasing shipper) sells its capacity by returning its capacity to the pipeline for reassignment to the buyer (replacement shipper). The pipeline contracts with, and receives payment from, the replacement shipper and then issues a credit to the releasing shipper. The replacement shipper may pay less than the pipeline's maximum tariff rate, but not more. 18 CFR 284.8(e) (2007). The results of all releases are posted by the pipeline on its Internet web site and made available through standardized, downloadable files.

4. 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 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.'' \5\ \5\ Order No. 636 at 30,418.

5. In Order No. 636, the Commission expressed concerns regarding its ability to ensure that firm shippers would reallocate their capacity in a nondiscriminatory manner to those who placed the highest value on the capacity up to the maximum rate. The Commission noted that prior to Order No. 636, it authorized some pipelines to permit their shippers to ``broker'' their capacity to others. Under such capacity brokering, firm shippers were permitted to assign their capacity directly to a replacement shipper, without any requirement that the brokering shipper post the availability of its capacity or allocate it to the highest bidder.\6\ However, in Order No. 636, the Commission found ``there [were] too many potential assignors of capacity and too many different programs for the Commission to oversee capacity brokering.'' \7\
\6\ See Algonquin Gas Transmission Corp., 59 FERC ] 61,032 (1992).
\7\ Order No. 636 at 30,416.

[[Page 37060]]

6. The Commission sought to ensure that the efficiencies of the secondary market were not frustrated by unduly discriminatory access to the market.\8\ Therefore, the Commission replaced capacity brokering with the capacity release program designed to provide greater assurance that transfers of capacity from one shipper to another were transparent and not unduly discriminatory. This assurance took the form of several conditions that the Commission placed on the transfer of capacity under its new program.

\8\ Order No. 636A at 30,554.

7. First, the Commission 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 the pipeline must post information regarding the contract, including any special
conditions.\9\ In order to enforce theprohibition on private transfers of capacity, the Commission required that a shipper must have title to any gas that it ships on the pipeline.\10\

\9\ 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 at 30,420 (emphasis in original).
\10\ As the Commission subsequently explained in Order No. 637, ``the capacity release rules were designed with [the shippermust havetitle] policy as their foundation,'' because, without this requirement, ``capacity holders could simply transport gas over the pipeline for another entity.'' Regulation of ShortTerm Natural Gas Transportation Services and Regulation of Interstate Natural Gas Transportation Services, Order No. 637, FERC Stats. & Regs. ] 31,091 at 31,300, clarified, Order No. 637A, FERC Stats. & Regs. ] 31,099, reh'g denied, Order No. 637B, 92 FERC ] 61,062 (2000), aff'd in part and remanded in part sub nom. Interstate Natural Gas Ass'n of America v. FERC, 285 F.3d 18 (DC Cir. 2002), order on remand, 101 FERC ] 61,127 (2002), order on reh'g, 106 FERC ] 61,088 (2004), aff'd sub nom. American Gas Ass'n v. FERC, 428 F.3d 255 (DC Cir. 2005).

8. Second, the Commission determined that the record of the proceeding that led to Order No. 636 did not reflect that the market for released capacity was competitive. The Commission reasoned that the extent of competition in the secondary market may not be sufficient to ensure that the rates for released capacity will be just and reasonable. Therefore, the Commission imposed a ceiling on the rate that the releasing shipper could charge for the released capacity.\11\ This ceiling was derived from the Commissionapproved monthly maximum tariff rates, necessary for the pipeline to recover its annual costof service revenue requirement.\12\
\11\ Order No. 636A at 30,560.

\12\ Order No. 637 at 31,27071.

9. Third, the Commission required that capacity offered for release at less than the maximum rate must be posted for bidding, and the pipeline must allocate the capacity ``to the person offering the highest rate (not over the maximum rate).'' \13\ The Commission permitted the releasing shipper to choose a prearranged replacement shipper who can retain the capacity by matching the highest bid rate. The bidding requirement, however, does not apply to releases of 31 days or less or to any release at the maximum rate. But all releases, whether or not subject to bidding, must be posted.\14\
\13\ 18 CFR 284.8(e) (2007) provides in pertinent part that ``[t]he pipeline must allocate released capacity to the person offering the highest rate (not over the maximum rate) and offering to meet any other terms or conditions of the release.''
\14\ 18 CFR 284.8(h)(1) provides that a release of capacity for less than 31 days, or for any term at the maximum rate, need not comply with certain notification and bidding requirements, but that such release may not exceed the maximum rate. Notice of the release ``must be provided on the pipeline's electronic bulletin board as soon as possible, but not later than fortyeight hours, after the release transaction commences.''

10. Finally, the Commission prohibited tying the release of capacity to any extraneous conditions so that the releasing shippers could not attempt to add additional terms or conditions to the release of capacity. The Commission articulated the prohibition against the tying of capacity in Order No. 636A, where it stated:

The Commission reiterates that all terms and conditions for capacity release must be posted and nondiscriminatory and must relate solely to the details of acquiring transportation on the interstate pipelines. Release of capacity cannot be tied to any other conditions. Moreover, the Commission will not tolerate deals undertaken to avoid the notice requirements of the regulations. Order No. 636A at 30,559 (emphasis in the original).

11. Subsequent to the Commission's adoption of its capacity release program in Order No. 636, the Commission conducted two experimental programs to provide more flexibility in the capacity release market. In 1996, the Commission sought to establish an experimental program inviting individual shipper and pipeline applications to remove price ceilings related to capacity release.\15\ The Commission recognized that significant benefits could be realized through removal of the price ceiling in a competitive secondary market. Removal of the ceiling permits more efficient capacity utilization by permitting prices to rise to market clearing levels and by permitting those who place the highest value on the capacity to obtain it.\16\
\15\ Secondary Market Transactions on Interstate Natural Gas Pipelines, Proposed Experimental Pilot Program to Relax the Price Cap for Secondary Market Transactions, 61 FR 41,401 (Aug. 8, 1996), 76 FERC ] 61,120, order on reh'g, 77 FERC ] 61,183 (1996).

\16\ 77 FERC ] 61,183 at 61,699 (1996).

12. In 2000, in Order No. 637, the Commission conducted a broader experiment in which the Commission removed the rate ceiling for short term (less than one year) capacity release transactions for a twoyear period ending September 30, 2002. In contrast to the experiment that it conducted in 1996, in the Order No. 637 experiment the Commission granted blanket authorization in order to permit all firm shippers on all open access pipelines to participate. The Commission stated that it undertook this experiment to improve shipper options and market efficiency during peak periods. The Commission reasoned that during peak periods, the maximum rate cap on capacity release transactions inhibits the creation of an effective transportation market by preventing capacity from going to those that value it the most and therefore the elimination of this rate ceiling would eliminate this inefficiency and enhance shipper options in the shortterm
marketplace.\17\
\17\ Order No. 637 at 31,263. The Commission also explained why it was lifting the price cap on an experimental basis, instead of permanently, stating:

While the removal of the price cap is justified based on the record in this rulemaking, the Commission recognizes that this is a significant regulatory change that should be subject to ongoing review by the Commission and the industry. No matter how good the data suggesting that a regulatory change should be made, there is no substitute for reviewing the actual results of a regulatory action. The two year waiver will provide an opportunity for such a review after sufficient information is obtained to validly assess the results. Due to the variation between years in winter temperatures, the waiver will provide the Commission and the industry with two winter's worth of data with which to examine the effects of this policy change and determine whether changes or modifications may be needed prior to the expiration of the waiver. Order No. 637 at 31,27980.

13. Upon an examination of pricing data on basis differentials between points,\18\ the Commission found that the price ceiling on capacity release transactions limited the capacity options of short term shippers because firm capacity holders were able to avoid [[Page 37061]]
price ceilings on released capacity by substituting bundled sales transactions at market prices (where the market place value of transportation is an implicit component of the delivered price). As a consequence, the Commission determined that the price ceilings did not limit the prices paid by shippers in the shortterm market as much as the ceilings limit transportation options for shippers. In short, the Commission found that the rate ceiling worked against the interests of shortterm shippers, because with the rate ceilings in place, a shipper looking for shortterm capacity on a peak day who was willing to offer a higher price in order to obtain it, could not legally do so; this reduced its options for procuring shortterm transportation at the times that it needed it most.\19\ Throughout this experiment, the Commission retained the rate ceiling for firm and interruptible capacity available from the pipeline as well as for longterm capacity release transactions.
\18\ Among other things, the data showed that the value of pipeline capacity, as shown by basis differentials, was generally less than the pipelines' maximum interruptible transportation rates, except during the coldest days of the year, and capacity release prices also averaged somewhat less than pipelines' maximum interruptible rates.

\19\ Order No. 637 at 31,28081.

14. On April 5, 2002, the United States Court of Appeals for the District of Columbia Circuit, in Interstate Natural Gas Association of America v. FERC,\20\ upheld the Commission's experimental price ceiling program for shortterm capacity release transactions as set forth in Order No. 637.\21\ The court found that the Commission's ``light handed'' approach to the regulation of capacity release prices was, given the safeguards that the Commission had imposed, consistent with the criteria set forth in Farmers Union Cent. Exch. v. FERC.\22\ The court found that the Commission made a substantial record for the proposition that market rates would not materially exceed the ``zone of reasonableness'' required by Farmers Union. The court also found that the Commission's inference of competition in the capacity release market was well founded, that the price spikes shown in the Commission's data were consistent with competition and reflected scarcity of supply rather than monopoly power, and that outside of such price spikes, the rates were well below the estimated regulated price.\23\ The Commission's experiment in lifting the price ceiling for short term capacity releases ended on September 20, 2002.\24\ \20\ 285 F.3d 18 (DC Cir. 2002) (INGAA).
\21\ Specifically, the court found that: ``[g]iven the substantial showing that in this context competition has every reasonable prospect of preventing seriously monopolistic pricing, together with the noncost advantages cited by the Commission and the experimental nature of this particular ``light handed'' regulation, we find the Commission's decision neither a violation of the NGA, nor arbitrary or capricious.'' INGAA at 35.
\22\ 734 F.2d 1486 (DC Cir. 1984) (Farmers Union) (finding that a move from heavyhanded to lighthanded regulation can be justified by a showing that under current circumstances, the goals and purposes of the Natural Gas Act (NGA) will be accomplished through substantially less regulatory oversight.
\23\ Id. at 33.
\24\ Regulation of ShortTerm Natural Gas Transportation Services and Regulation of Interstate Natural Gas Transportation Services, FERC Stats. & Regs., Regulations Preambles July 1996 December 2000, ] 31,091 (Feb. 9, 2000), order on rehearing, Order No. 637A, FERC Stats. & Regs., Regulations Preambles July 1996 December 2000, ] 31,099 (May 19, 2000), order on rehearing, Order No. 637B, 92 FERC ] 61,062 (July 26, 2000), aff'd in part and remanded in part, Interstate Natural Gas Association of America v. FERC, 285 F.3d 18 (DC Cir. Apr. 5, 2002).

B. The NOPR

15. On January 3, 2007, the Commission, in response to petitions from various gas industry participants concerning issues related to capacity releases,\25\ issued a request for comments on the operation of the capacity release program and whether changes in any of its capacity release policies would improve the efficiency of the natural gas market.\26\ The Commission also included in its request for comments a series of questions asking whether the Commission should lift the price ceiling, remove its capacity release bidding requirements, modify its prohibition on tying arrangements, and/or remove the shippermusthavetitle requirement.
\25\ In August 2006, Pacific Gas and Electric Co. (PG&E) and Southwest Gas Corp. (Southwest) filed a petition requesting the Commission to amend sections 284.8(e) and (h)(1) of its regulations to remove the maximum rate cap on capacity releases. Subsequently, in October 2006, a group of large natural gas marketers (Marketer Petitioners) requested clarification of the operation of the Commission's capacity release rules in the context of asset (or portfolio) management services.
\26\ Pacific Gas & Electric Co., 118 FERC ] 61,005 (2007).

16. After review of the petitions, comments, responses to its questions, and available data, the Commission issued a Notice of Proposed Rulemaking (NOPR), proposing two major changes to its capacity release regulations and policies. First, the Commission proposed to lift the price ceiling for shortterm capacity release transactions of one year or less. The Commission determined that the traditional cost ofservice price ceilings in pipeline tariffs, which are based on annual costs recovered over twelve equal monthly payments, are not well suited to the shortterm capacity release market, because they do not reflect shortterm variations in the market value of the capacity. Therefore, removing the price ceiling for shortterm capacity releases would permit more efficient utilization of capacity by allowing prices to rise to market clearing levels, thereby permitting those who place the highest value on the capacity to obtain it. The Commission determined that the data obtained by the Commission both during the Order No. 637 experiment and more recently indicated that shortterm release prices reflect market value of the capacity as revealed by basis differentials, rather than the exercise of market power. Moreover, the Commission reasoned that shippers purchasing capacity would be adequately protected because the pipeline's firm and interruptible services will provide just and reasonable recourse rates limiting the ability of releasing shippers to exercise market power. Finally, the Commission stated that reporting requirements in Order No. 637 and the Commission's implementation of the Energy Policy Act of 2005, specifically with respect to market manipulation, give the Commission an enhanced ability to monitor the market and detect and deter abuses. The Commission did not propose to remove the price ceiling on either longterm capacity releases or the pipelines' sale of their own primary capacity.

17. Second, the Commission proposed to revise its capacity release policies to give releasing shippers greater flexibility to negotiate and implement AMAs, based on the Commission's findings that AMAs provide significant benefits to participants in the natural gas and electric marketplaces.\27\ Recognizing that the linking of transportation capacity with gas supply arrangements would violate the Commission's prohibition against ``tying'' released capacity to any extraneous conditions, the Commission proposed to exempt prearranged capacity release transactions that met certain criteria \28\ from the prohibition against tying.\29\ This proposal would permit a releasing shipper in a prearranged release to require that the replacement shipper agree to supply the releasing shipper's gas requirements and take assignment of the releasing shipper's gas supply contracts, as well as released transportation capacity on one or more pipelines and storage capacity with the gas currently in storage.\30\
\27\ NOPR at P 6774.
\28\ The Commission's definition of AMA as proposed in the NOPR is discussed in detail below.
\29\ NOPR at P 7582.
\30\ In addition, the releasing shipper could require that, upon expiration of the AMA, the replacement shipper must return storage capacity included in the release with an appropriate level of inventory, e.g., to promise to replenish storage inventories to a mutually agreed upon level.

[[Page 37062]]

18. The Commission's second proposal to facilitate AMAs was to exempt prearranged releases to implement AMAs from competitive bidding.\31\ The Commission stated that, because the asset manager will manage the releasing shipper's gas supply operations on an ongoing basis, it is critical that the releasing shipper be able to release the capacity to its chosen asset manager. Requiring releases made in order to implement an AMA to be posted for bidding would thus interfere with the negotiation of beneficial AMAs by potentially preventing the releasing shipper from releasing the capacity to its chosen asset manager. The Commission concluded that in the AMA context the bidding requirement creates an unwarranted obstacle to the efficient management of pipeline capacity and supply assets. The Commission emphasized that AMAs would remain subject to all existing posting and reporting requirements.\32\
\31\ See NOPR at P 8390. Section 284.8 of the Commission's regulations require capacity release transactions to be posted for competitive bidding unless the transactions are at the maximum tariff rate or are for a term of 31 days or less.
\32\ While the NOPR originally required that any comments were due January 10, 2008, a number of entities filed for an extension of that deadline until February 8, 2008. On January 14, the Commission granted an extension of time for filing comments until January 25, 2008.

C. Comments

19. Over 60 entities from all segments of the natural gas industry filed comments on the NOPR. The vast majority of those who filed comments regarding the Commission's proposal to permanently remove the price cap for shortterm capacity releases of one year or less support the proposal, generally agreeing with the Commission's reasoning in support of removing the cap. Many of the local distribution companies (LDC), marketers, producers, and endusers who support lifting the price cap on shortterm capacity releases also support retaining the price cap on longterm capacity releases \33\ and/or primary pipeline capacity.\34\ These parties generally view retention of these price caps as providing valuable safeguards in preventing the exercise of market power in the uncapped shortterm capacity release market. \33\ Those commenters include Direct Energy Services, LLC (Direct Energy), New Jersey Natural Gas Company (NJNG), Oklahoma Independent Petroleum Association (OIPA), Reliant Energy Inc. (Reliant), Statoil Natural Gas, LLC (Statoil), and Weyerhaeuser Company (Weyerhaeuser).
\34\ Such commenters include Edison Electric Institute (EEI), NJNG, NJR Energy Services Company (NJR), Nstar Gas Company (Nstar), OIPA, Piedmont Natural Gas Company, Inc. (Piedmont), Statoil, Weyerhaeuser, and the Wisconsin Distributor Group (WDG). American Gas Association (AGA), American Public Gas Association (APGA), and Independent Petroleum Producers of America (IPAA) oppose lifting the price cap for primary capacity, arguing that doing so would undercut a major premise for lifting the price cap in the shortterm secondary market, namely, that the availability of recourse rates from the pipeline will constrain the exercise of market power in the secondary market.

20. Two commenters oppose the Commission's proposal to lift the price cap for the shortterm capacity release market, arguing that the Commission has not supported its proposed rule and that the proposed rule would fail a costbenefit test.\35\ Other commenters express concern over the potential for capacity owners to exercise market power under the proposed rule.\36\ For example, some endusers of gas express concerns about the concentration of capacity ownership on lateral pipelines and therefore argue that the Commission should either not remove the price cap for laterals or do so on a casebycase basis.\37\ Other parties generally urge the Commission to carefully monitor markets to ensure that they are functioning properly. Some suggest a final test period before permanently removing the cap, periodic reassessments of the uncapped market, or a process to revisit the determination if the market becomes dysfunctional.\38\
\35\ Tenaska Marketing Ventures (Tenaska) and National Energy Marketers Association (NEM).
\36\ See Comments of NEM.
\37\ Weyerhaeuser, Northwest Industrial Gas Users (NWIGU), and Process Gas Consumers (PGC).
\38\ Direct Energy, OIPA, Honeywell International, Inc. (Honeywell), Arizona Public Service Company (APS) (arguing that the market currently served by El Paso Natural Gas Pipeline east of California is not competitive). Commerce Energy Group, Inc. (Commerce Energy) suggests including a contingency for replacing the price cap in ``exceptional capacity situations.''

21. In general, commenters also overwhelmingly supported the Commission's efforts to facilitate the development of AMAs.\39\ Those commenters agree with the Commission's assessment that AMAs provide value and benefits to market participants and to natural gas markets overall. Virtually all who commented support the steps proposed by the Commission to facilitate AMAs, though many of those that support the Commission's proposal regarding AMAs request that the Commission modify or clarify the proposal in various ways in order to permit broader use of AMAs and greater flexibility in the terms of permitted AMAs. They request, for example, that the Commission permit uncapped AMA releases of a year or less to be rolled over without bidding, clarify that profit sharing arrangements in an AMA do not violate any applicable price cap, relax the requirements concerning the replacement shipper's obligation to deliver gas to the releasing shipper, exempt AMAs from the Commission's prohibition against buy/sell arrangements, and allow supply side AMAs. Williston Basin commented that exempting AMAs from the tying prohibition and bidding requirements would encourage discrimination against pipelines and provide preferential treatment to asset managers.
\39\ See e.g., Comments of the AGA at 12, Comments of APGA at 24; Comments of Atmos Energy Corporation (Atmos) at 24, Comments of BG Energy Merchants (BGEM) at 12, Comments of BP Energy Company (BP) at 2, Comments of Direct Energy at 34, Comments of Duke Energy Corporation (Duke Energy) at 3, Comments of the EEI at 6, Comments of the Electric Power Supply Association (EPSA) at 2, Comments of Florida Cities at 2, Comments of the Interstate Natural Gas Association of America (INGAA) at 6, Comments of Marketer
Petitioners at 2, Comments of National Grid Delivery Companies (National Grid) at 2, Comments of NJNG at 1, Comments of the Natural Gas Supply Association (NGSA) at 3, Comments of NJR at 1, Comments of NWIGU at 6, Comments of Nstar at 12, Comments of the Ohio Gas Marketers Group (OGMG) at 1, Comments of Piedmont at 1, Comments of PPM Energy, Inc., (PPM) at 13, Comments of PGC at 5, Comments of the Public Utilities Commission of Ohio (PUCO) at 57, Comments of Puget Sound Energy, Inc. (Puget Sound) at 89, Comments of Sequent Energy Management, L.P. (Sequent) at 56, Comments of the Financial Institutions Energy Group (FEIG) at 67, Comments of Turlock Irrigation District (Turlock) at 5, Comments of Ultra Petroleum Corporation (Ultra) at 4, Comments of the WDG at 3, and Comments of the Wyoming Pipeline Authority at 5.

22. The Commission also received favorable comments on whether it should clarify its prohibition against tying agreements to allow a releasing shipper to include conditions in a storage release concerning the sale and/or repurchase of gas in storage inventory outside the AMA context. All comments that addressed this issue supported removing this prohibition for storage services. They assert that a shipper releasing storage capacity should be permitted to require the replacement shipper to take assignment of any gas that remains in the released storage capacity at the time the release takes effect; and/or to return the storage capacity to releasing shipper at end of the release with a specified amount of gas in storage.\40\ Commenters note that tying storage capacity with storage inventory will enable transactions to be consummated more readily and that the nature of the relationship between storage capacity and storage inventory calls out for a waiver of the tying rule. Others add that the ability of releasing shippers to ``tie'' storage capacity with storage inventory such that releasing [[Page 37063]]
shippers would be permitted to require that replacement shippers take inventory as a condition of release, even in circumstances outside the AMA context, will provide benefits to the marketplace similar to those provided by AMAs.\41\
\40\ Public Service Commission of New York (PSCNY) comments at 2021.

\41\ Comments of Marketer Petitioners.

23. The Commission also received numerous comments on its inquiry whether prearranged capacity release deals necessary to implement retail access programs should be treated as similar to releases made as part of an AMA, and thus accorded the same exemptions. The majority of comments on this issue advocated affording capacity releases under state retail choice programs the same blanket exemptions from the tying prohibition \42\ and bidding requirements as those granted to asset managers.\43\ AGA, for example, recommends that the Commission add an exemption from the bidding requirements for any prearranged, recallable capacity release from an LDC to a natural gas marketer in accordance with the terms of a retail choice program approved by a State commission. AGA also asks that the Commission clarify that LDC releases to retail choice marketers would be entitled to the same partial exemption from the tying prohibition as would be releases under AMAs. The SPSCNY would extend the AMA exemption from the tying prohibition to releases of storage capacity conducted according to state retail access programs.
\42\ Those commenters include AGA, Commerce Energy, Duke Energy, Hess Corporation (Hess), Interstate Gas Supply (IGS), NJNG, New York State Electric and Gas Corporation (NYSEG), Rochester Gas & Electric Corporation (RG&E), OGMG, the Public Service Commission of North Carolina (PSNC), South Carolina Electric and Gas Company (SCE&G), SCANA Energy Marketing (SEMI), PSCNY, and Sequent.
\43\ Those commenters include the AGA, Boardwalk Pipeline Partners (Boardwalk), BP, Commerce Energy, Direct Energy, Duke Energy, FPL Energy, LLC (FPL Energy), Hess, IGS, NJNG, NYSEG, RG&E, Nstar, OGMG, Peoples Gas System, a Division of Tampa Electric Company (Peoples), PG&E, PSCNY, PUCO, SEMI, Sequent, and the WDG. II. Overview of the Final Rule

24. In this Final Rule, the Commission is modifying its policies and regulations concerning the release of capacity by firm shippers on interstate pipelines in order to enhance the efficiency and effectiveness of the secondary capacity release market. The Commission's capacity release program has created a successful secondary market for capacity.\44\ As a result, natural gas markets in general, and the secondary release market in particular, have undergone significant development and change in the sixteen years since Order No. 636 and the inception of the capacity release program. As this market has developed, shippers and potential shippers have sought greater flexibility in the use of capacity. They seek to better integrate capacity with the underlying gas transactions, and are looking for more flexible methods of pricing capacity to better reflect the value of that capacity as revealed by the market price of gas at different trading points. They also seek to implement AMAs, in which capacity holders release their capacity to asset managers (generally marketers) that have greater expertise in maximizing the value of pipeline capacity and negotiating beneficial transactions in the gas commodity markets.
\44\ As the Commission observed in 2005, the ``capacity release program together with the Commission's policies on segmentation, and flexible point rights, has been successful in creating a robust secondary market where pipelines must compete on price.'' Policy for Selective Discounting by Natural Gas Pipelines, 111 FERC ] 61,309, at P 3941, order on reh'g, 113 FERC ] 61,173 (2005).

25. In this Final Rule the Commission is taking actions to respond to the industry's request for greater flexibility in the capacity release market and to revise its policies and regulations to reflect the changes and developments in the marketplace. The first major revision is the removal of the price ceiling on short term capacity releases. The permanent elimination of the price ceiling for short term releases will enable shippers to offer competitivelypriced alternatives to pipelines' negotiated rate offerings and will permit shortterm capacity release prices to rise to market clearing levels, thereby allocating capacity to those that value it the most. It will also provide more accurate price signals concerning the market value of pipeline capacity.

26. The Commission is also revising its regulations and policies to accommodate and facilitate AMAs, a relatively recent development in the industry. AMAs provide significant benefits to many participants in the natural gas and electric marketplaces and to the secondary marketplace itself. They maximize the utilization and value of capacity by creating a mechanism for capacity holders to use third party experts to both (1) manage their gas supply arrangements and (2) use that capacity to make gas sales or rereleases of the capacity to others when the capacity is not needed to serve the releasing shipper. AMAs result in ultimate savings for enduse customers by providing for lower gas supply costs and more efficient use of the pipeline grid.\45\ The Commission's goal in facilitating AMAs in this rule is to make the capacity release program more efficient by bringing it into line with the realities of today's secondary gas marketplace.
\45\ See Comments of BGEM at 2, Comments of BP at 5, Comments of Nstar at 8, Comments of Piedmont at 45, Comments of PUCO at 7, Comments of WDG at 3.

27. To that end, the Commission in this rule is adopting its NOPR proposal to exempt capacity releases made to implement AMAs from the prohibition on tying and the bidding requirements of section 284.8. The Commission is also making several revisions to the definition of AMAs as proposed in the NOPR. The Final Rule modifies the definition of AMAs proposed in the NOPR to relax the delivery obligation of the replacement shipper to the releasing shipper and to permit supply side AMAs. The Final Rule also clarifies that short term AMAs may be rolled over without bidding. Further, the Final Rule clarifies that the price ceiling does not apply to any consideration provided by an asset manager to the releasing shipper as part of an AMA. These steps, requested by many industry commenters that support the Commission's efforts in the NOPR to facilitate AMA's, will further enhance the efficiency of AMAs by allowing greater flexibility for parties to customize arrangements to meet unique customer needs while at the same time ensuring that capacity releases that qualify for the exemptions from tying and bidding granted in this rule are bona fide AMAs. The rule also extends the benefits of AMAs to sellers of natural gas, creating an even greater diversity of potential suppliers and participants in the secondary market.

28. The Commission is also revising its policies to reflect the realities of today's marketplace by allowing a releasing shipper to include conditions in a release concerning the sale/and repurchase of gas in storage inventory, even outside the AMA context. Allowing such arrangements reflects the fact that in the storage context, storage capacity is inextricably linked to storage inventory. By permitting the tying of releases of storage capacity to conditions on storage inventory, the Commission will enhance the efficient use of storage capacity while at the same time ensuring that releasing shippers will have adequate storage inventories for the winter.

29. The Final Rule also extends the blanket exemptions from the prohibition against tying and from bidding granted to AMAs to capacity releases made to a
[[Page 37064]]
marketer participating in a state approved retail access program, finding that such programs provide benefits similar to AMAs. III. Price Cap Issues
A. Removal of Maximum Rate Ceiling for ShortTerm Capacity Releases

30. In this Final Rule, the Commission amends section 284.8 of its regulations to eliminate the price ceiling for shortterm capacity release transactions of one year or less. The Commission finds that this action will improve shipper options and market efficiency, particularly during peak periods, by allowing the prices of shortterm capacity release transactions to reflect shortterm variations in the market value of that capacity. This will enable shippers to better integrate capacity with the underlying gas transactions, and will permit more flexible methods of pricing capacity to better reflect the value of that capacity as revealed by the market price of gas at different trading points. The Commission has previously provided pipelines with the flexibility to enter into negotiated rate transactions which are permitted to exceed the maximum rate ceiling, and this rule will permit releasing shippers similar flexibility in pricing release transactions.

31. At the same time, we are convinced that the rates resulting from removal of the price cap for capacity release will be just and reasonable. The data collected over many years shows that the value of short term capacity only exceeds the price ceiling in times when capacity is scarce. These data are confirmed by the data gathered during the experimental release of the price ceiling which showed that capacity release prices exceed the price ceiling only for brief periods of constraint. Moreover, we are not relying solely on competition to ensure just and reasonable prices. We are maintaining the rate cap on pipeline services that will provide the same protection for capacity release transactions as it now does for pipeline negotiated rate transactions. Further, we have required informational postings of capacity release transactions that will provide transparency and facilitate the filing of complaints if circumstances warrant. The Commission will also continue to actively monitor the release market. 1. Maximum Rate Ceiling Interferes With Efficient Transactions

32. As we explained in Order No. 637,\46\ the traditional costof service maximum rates in pipeline tariffs are not well suited to the shortterm capacity release market.\47\ Under the traditional ratemaking methodology, the Commission develops a maximum annual transportation rate for each pipeline that, when applied to the pipeline's contract demand and throughput levels, will enable the pipeline to recover its annual costofservice revenue requirement. Each pipeline's maximum rates for services of less than a year are simply the maximum annual rate prorated over the shorter period. \46\ Order No. 637 at 31,27175.
\47\ While the Commission offered pipelines the opportunity to propose other types of rate designs, such as seasonal and term differentiated rates, only a very few pipelines have sought to make such rate design changes, although many pipelines have taken advantage of negotiated rate authority.

33. Such prorated annual rates bear no relationship to the competitive rates that would be established in the shortterm capacity market, particularly during peak periods. The market value of transportation service from the production area to the downstream market may be inferred by comparing the downstream delivered gas price in bundled sales to the market price at upstream market centers in the production area.\48\ As the DC Circuit recognized in INGAA, ``if the difference between field prices and city gate prices in a particular pathway is only $.07, people will not pay more than $.07 for the unbundled transportation.'' \49\ As discussed in more detail below, the data set forth in Order No. 637 and the updated data in Figures 1 through 3 below concerning the implicit value of transportation in the bundled sales market demonstrates the variability of transportation value in the shortterm market and the divergence between the transportation value and costofservice rates. This data shows that during most of the year, the value of transportation service is significantly less than the pipelines' annual costofservice maximum transportation rates, but during brief, peak demand periods, the value of transportation service is measurably greater than the maximum transportation rates.
\48\ In Order No. 637, the Commission explained ``gas commodity markets now determine the economic value of pipeline services in many parts of the country. Thus, even as FERC has sought to isolate pipeline services from commodity sales, it is within the commodity markets that one can see revealed the true price for gas
transportation.'' Order No. 637 at 31,274 (quoting M. Barcella, How Commodity Markets Drive Gas Pipeline Values, Public Utilities Fortnightly, February 1, 1998 at 2425).

\49\ INGAA at 31.

34. Because the existing capacity release price ceiling does not reflect shortterm variations in the market value of the capacity, the price ceiling inhibits the efficient allocation of capacity and harms, rather than helps, the shortterm shippers it is intended to protect. The price ceiling operates to prevent the shipper most valuing short term capacity on a peak day from being able to obtain it, because that shipper cannot offer a releasing shipper the full value the shipper places on that capacity. The price ceiling may also reduce the amount of released capacity available during peak periods. As the Commission explained in Order No. 637, ``As a result of the maximum rate, firm capacity holders may not find it sufficiently profitable to make their capacity available for release. For instance, a dual fuel industrial customer might determine that it would be more economic not to use gas, and to substitute a different fuel, if it could obtain a sufficiently high price for its released capacity.'' \50\ Thus, during a peak day the price ceiling may only serve to limit a purchasing shipper's capacity options, with the result that it must purchase gas in a bundled transaction in the downstream market at a price reflecting the marketdetermined value of the transportation.

\50\ Order No. 637 at 31,279.

35. The increased use by pipelines and shippers of negotiated rate transactions based on gas price differentials demonstrates that buyers and sellers value the ability to calibrate the price of transportation to its value in the market. The maximum rate ceiling applied to capacity release transactions denies releasing and replacement shippers the same ability to negotiate transactions that reflect the market value of capacity at all times. As the Commission has found, providing the ability to negotiate capacity release transactions based on price differentials will help in providing shortterm capacity to replacement shippers, such as gasfired electric generators.\51\ With the price ceiling in effect, releasing shippers are unable to effectively use price differentials as a measure of capacity value because they are denied the ability to recover the value of capacity during peak periods when that value exceeds the maximum rate cap.
\51\ Standards for Business Practices for Interstate Natural Gas Pipelines, Notice of Proposed Rulemaking, 71 FR 64,655 (November 3, 2006), FERC Stats. & Regs. Proposed Regulations ] 32,609, P 17 (Oct. 25, 2006), Order No. 698, 72 FR 38,757 (July 16, 2007), FERC Stats. & Regs. Regulations Preambles ] 31,251 at P 51 (Jun. 25, 2007).

36. The price ceiling also harms captive customers holding long term contracts on the pipeline. Those customers pay maximum rates for both peak and offpeak periods. During off
[[Page 37065]]
peak periods, they can only recover a small portion of the capacity cost through capacity release because of the low market value of off peak capacity. However, during peak periods, the price ceiling prevents those customers from releasing their capacity for its full market value.

37. Finally, the price ceiling reduces the dissemination of accurate capacity pricing information. That is because the price ceiling causes transactions to move to the bundled sales market during peak periods, so that there is no separate capacity transaction to be reported.

2. Assurance of Just and Reasonable Rates

38. As the court stated in INGAA, the Commission may depart from cost of service ratemaking upon:

A showing that * * * the goals and purposes of the statute will be accomplished `through the proposed changes.' To satisfy that standard, we demanded that the resulting rates be expected to fall within a `zone of reasonableness, where [they] are neither less than compensatory nor excessive.' [citation omitted]. While the expected rates' proximity to cost was a starting point for this inquiry into reasonableness, [citation omitted], we were quite explicit that `noncost factors may legitimate a departure from a rigid costbased approach,' [citation omitted]. Finally, we said that FERC must retain some general oversight over the system, to see if competition in fact drives rates into the zone of reasonableness `or to check rates if it does not.' \52\
\52\ INGAA at 31.
Accordingly, we analyze below (1) the extent to which market conditions and other factors may be expected to keep shortterm capacity release prices within a reasonable zone despite the removal of the price ceiling, (2) the noncost factors supporting a removal of the price ceiling, and (3) our oversight of the shortterm capacity release market after removal of the price ceiling.

a. Market Conditions Ensure Just and Reasonable Rates

39. The Commission finds that the shortterm capacity release market is generally competitive. Therefore competition, together with our continuing requirement that pipelines must sell shortterm firm and interruptible services to any shipper offering the maximum rate, and the Commission's ongoing monitoring efforts will keep shortterm capacity release rates within the ``zone of reasonableness'' required by INGAA and Farmers Union.

40. In Order Nos. 636 and 637, the Commission instituted a number of policy revisions which have enhanced competition between releasing shippers as well as between releasing shippers and the pipeline. These revisions provide shippers with enhanced market mechanisms that will help ensure a more competitive market and mitigate the potential for the exercise of market power. The Commission required pipelines to permit releasing shippers to use flexible point rights and to fully segment their pipeline capacity. Flexible point rights enable shippers to use any points within their capacity path on a secondary basis, which enables shippers to compete effectively on release transactions with other shippers. Segmentation further enhances the ability to compete because it enables the releasing shipper to retain the portion of the pipeline capacity it needs while releasing the unneeded portion. Effective segmentation makes more capacity available and enhances competition. As the Commission explained in Order No. 637:

The combination of flexible point rights and segmentation increases the alternatives available to shippers looking for capacity. In the example,\53\ a shipper in Atlanta looking for capacity has multiple choices. It can purchase available capacity from the pipeline. It can obtain capacity from a shipper with firm delivery rights at Atlanta or from any shipper with delivery point rights downstream of Atlanta. The ability to segment capacity enhances options further. The shipper in New York does not have to forgo deliveries of gas to New York in order to release capacity to the shipper seeking to deliver gas in Atlanta. The New York shipper can both sell capacity to the shipper in Atlanta and retain the right to inject gas downstream of Atlanta to serve its New York market.\54\
\53\ In the example used in Order No. 636, a shipper holding firm capacity from a primary receipt point in the Gulf of Mexico to primary delivery points in New York could release that capacity to a replacement shipper moving gas from the Gulf to Atlanta while the New York releasing shipper could inject gas downstream of Atlanta and use the remainder of the capacity to deliver the gas to New York.

\54\ Order No. 637 at 31,301.

41. In addition to enhancing competition through expansion of flexible point rights and segmentation, the Commission in Order No. 637 also required pipelines to provide shippers with scheduling equal to that provided by the pipeline, so that replacement shippers can submit a nomination at the first available opportunity after consummation of the capacity release transaction. The change makes capacity release more competitive with pipeline services and increases competition between capacity releasers by enabling replacement shippers to schedule the use of capacity obtained through release transactions quickly rather than having to wait until the next day.

42. The data accumulated by the Commission during the Order No. 637 experiment, as well as review of more recent data, confirm that capacity release prices reflect competitive conditions in the industry. On May 30, 2002, the Commission issued a notice of staff paper presenting data on capacity release transactions during the experimental period when the capacity release ceiling price was waived.\55\ The staff paper provided analysis of capacity release transactions on 34 pipelines during the 22month period from March 2000 to December 2001.\56\
\55\ On May 30, 2002, a staff paper was posted on the
Commission's web site presenting, and analyzing data on capacity release transactions relating to the experimental period when the rate ceiling on shortterm released capacity was waived.
\56\ Many of these release transactions would have occurred prior to completion of the pipeline's Order No. 637 compliance proceedings and the implementation of the changes to flexible point rights, segmentation and scheduling described above.

43. In brief, the data gathered during the 22month period show that without the price ceiling, prices exceeded the maximum rate only during short time periods and appear to be reflective of competitive conditions in the industry. The following table shows the distribution of above ceiling price releases among the pipelines studied. [[Page 37066]]
Table I.Above Cap Releases by Pipeline [Releases Awarded Between March 26, 2000 and December 31, 2001] Releases above Release max rate % of total quantity above % of total Pipeline (number of releases max rate release transactions) (MMBtu/day) quantity Algonquin....................................... 1 0.1 18,453 0.2 ANR Pipeline.................................... 1 0.1 30,000 0.2 CIG............................................. 19 6.5 109,984 4.4 Dominion (CNGT)................................. 21 1.0 65,789 0.7 Columbia Gas.................................... 101 4.4 374,727 2.7 Columbia Gulf................................... .............. .............. .............. .............. East Tennessee.................................. .............. .............. .............. .............. El Paso......................................... 135 13.3 631,683 12.5 Florida Gas..................................... 25 1.7 43,526 1.4 Great Lakes..................................... 3 1.3 15,000 0.6 Iroquois........................................ .............. .............. .............. .............. Kern River...................................... 2 3.9 55,000 2.5 KMI (KNEnergy).................................. 3 1.0 1,409 0.0 Gulf South (Koch)............................... .............. .............. .............. .............. Midwestern...................................... 1 0.6 50,000 2.3 Mississippi River............................... .............. .............. .............. .............. Mojave Pipeline Co.............................. 1 2.6 40,000 4.7 Natural Gas Pipeline Co......................... 16 3.2 270,489 2.3 Reliant (Noram)................................. .............. .............. .............. .............. Northern Border................................. .............. .............. .............. .............. Northern Natural................................ 12 1.6 23,273 0.5 Northwest Pipeline.............................. 24 1.8 139,850 4.1 Paiute Pipeline................................. .............. .............. .............. .............. Panhandle Eastern............................... 1 0.4 1,000 0.1 Southern Natural................................ 7 0.3 24,101 0.2 Tennessee Gas................................... 11 0.4 36,421 0.2 TETCO........................................... 122 3.8 645,856 3.3 Texas Gas....................................... 6 0.5 103,237 1.0 Trailblazer..................................... 3 25.0 15,000 10.0 Transco......................................... 183 3.3 1,540,885 4.1 Transwestern.................................... 11 4.5 64,058 6.5 Trunkline....................................... .............. .............. .............. .............. Williams........................................ 4 0.4 16,500 0.3 Williston Basin................................. .............. .............. .............. ..............

Total....................................... 713 2.2 4,316,241 2.1

44. These data show that during periods without capacity constraints, prices remained at or below the maximum rate. The staff paper does identify 713 releases above the ceiling price, representing an average total capacity release contract volume of 4.3 billion cubic feet (Bcf) per day. However, the staff paper reflects that these above ceiling price releases represented only a small portion of the total releases on these pipelines, comprising approximately two percent of total transactions on the pipelines studied for the entire period, and two percent of gas volumes. Further, above ceiling releases accounted for no more than six or seven percent of transactions during any given month of the period. As one would expect, the percentages of releases occurring above the ceiling increased during peak periods. However, average release rates were higher by only one cent per MMBtu per day or five and onehalf percent higher than they would have been with the price ceiling in place. Of the 34 pipelines in the study, 10 reported no releases above the ceiling price, and 20 pipelines reported fewer than 25 aboveceiling price releases. The data gathered during this 22 month period reflects the Commission's expectations and affirms the Commission's findings in the Order No. 637 proceeding. As the court stated in INGAA:

The data represented in the graph [ ] do support the Commission's view that the capacity release market enjoys
considerable competition. The brief spikes in moments of extreme exigency are completely consistent with competition, ref

FOR FURTHER INFORMATION CONTACT William Murrell, Office of Energy Market Regulation, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, William.Murrell@ferc.gov, (202) 5028703. Robert McLean, Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
Robert.McLean@ferc.gov. (202) 5028156. David Maranville, Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington DC 20426, David.Maranville@ferc.gov, (202) 5026351.