Petition for Rulemaking To Update Commission Regulations Regarding Allocation of Interstate Pipeline Capacity
| Published date | 29 March 2024 |
| Record Number | 2024-06562 |
| Citation | 89 FR 22097 |
| Court | Federal Energy Regulatory Commission |
| Section | Proposed rules |
Federal Register, Volume 89 Issue 62 (Friday, March 29, 2024)
[Federal Register Volume 89, Number 62 (Friday, March 29, 2024)]
[Proposed Rules]
[Pages 22097-22101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-06562]
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DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 284
[Docket No. RM22-17-000]
Petition for Rulemaking To Update Commission Regulations
Regarding Allocation of Interstate Pipeline Capacity
AGENCY: Federal Energy Regulatory Commission.
ACTION: Petition for rulemaking.
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SUMMARY: In this Petition for rulemaking, the Federal Energy Regulatory
Commission (Commission) seeks additional information concerning the
practices of interstate natural gas pipelines related to the packaging
of non-contiguous and/or operationally unrelated segments of capacity
in a
[[Page 22098]]
single auction or open season and the aggregation of bids across those
segments to determine the highest value bid for the purpose of
allocating capacity, as well as comment on whether the Commission
should continue to allow such practices.
DATES: Comments are due June 27, 2024, and reply comments are due July
29, 2024.
ADDRESSES: Comments, identified by docket number, may be filed in the
following ways. Electronic filing through http://www.ferc.gov, is
preferred.
Electronic Filing: Documents must be filed in acceptable
native applications and print-to-PDF, but not in scanned or picture
format.
For those unable to file electronically, comments may be
filed by USPS mail or by hand (including courier) delivery.
[cir] Mail via U.S. Postal Service Only: Addressed to: Federal
Energy Regulatory Commission, Secretary of the Commission, 888 First
Street NE, Washington, DC 20426.
[cir] Hand (including courier) Delivery: Deliver to: Federal Energy
Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852.
The Comment Procedures Section of this document contains more
detailed filing procedures.
FOR FURTHER INFORMATION CONTACT:
Catherine Liow (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426, 202-502-6459
David Faerberg (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE, Washington,
DC 20426, 202-502-8275
SUPPLEMENTARY INFORMATION:
1. In this Petition for rulemaking, the Commission seeks
information concerning the practices of interstate natural gas
pipelines related to the packaging of non-contiguous and/or
operationally unrelated segments of capacity in a single auction or
open season and the aggregation of bids across those segments to
determine the highest value bid for the purpose of awarding capacity,
as well as comment on whether the Commission should continue to allow
such practices. Specifically, the Commission seeks comment on: (1)
additional information and data on interstate natural gas pipeline
posting practices related to the packaging of non-contiguous and/or
operationally unrelated segments of capacity in a single auction or
open season; (2) relevant information that bears on whether the
Commission should reconsider its policy; and (3) what regulatory,
economic, or policy goals would or would not be achieved by modifying
the current policy.
I. Background
2. Pursuant to the Commission's regulations, a pipeline must post
available firm capacity on its website as it becomes available.\1\ The
pipeline may sell that capacity in several non-discriminatory ways,
such as through a first-come, first-served or auction method. Prior to
pipelines proposing tariff provisions detailing how they would evaluate
bids for capacity, most pipelines simply allocated capacity on a first-
come, first-served basis. Pursuant to this approach, ``[t]he first
shipper to submit a request received the available capacity, even if
the shipper requested service for only a few days or weeks while others
sought transportation for longer periods.'' \2\
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\1\ 18 CFR 284.13(d)(1).
\2\ Process Gas Consumers Grp. v. FERC, 292 F.3d 831, 833 (D.C.
Cir. 2002) (Process Gas Consumers).
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3. While some pipelines still use a first-come, first-served
method, it is now more common for pipelines to use an auction method to
award available capacity. Under this approach, and consistent with the
terms of their tariffs, pipelines can conduct an open season announcing
available capacity and stating criteria for an acceptable bid, the
method for determining the best bid, and the bid closing date.\3\
Pipelines evaluate capacity bids submitted during the open season
timeframe on a net present value (NPV) basis, which is the discounted
cash flow of incremental revenues that the pipeline receives that are
based upon such factors as the price, term, and quantity of
transportation service.
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\3\ The Commission does not require pipelines to sell capacity
solely through open seasons. So long as the pipeline posts all
available firm capacity, it may sell that capacity on a first-come,
first-served basis depending on the pipeline's tariff. Tenn. Gas
Pipeline Co., 119 FERC ] 61,126, at P 20 (2007) (citing N. Nat. Gas
Co., 110 FERC ] 61,361, at P 10 (2005)). The Commission has provided
pipelines with some degree of flexibility in how they market their
capacity to accomplish the goal of enabling those who value capacity
the most to obtain it, because the Commission assumes that the
pipeline will generally seek the highest possible rate from those to
whom it sells capacity, since that is in the pipeline's economic
interest. See, e.g., ANR Pipeline Co., 116 FERC ] 61,201, at P 9
(2006).
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4. The Commission allows pipelines to include multiple segments
(including non-contiguous and/or operationally unrelated segments) of
capacity together in an open season for the purposes of accepting and
aggregating bids to determine NPV and award the capacity to the highest
bidder.\4\ Bid values for each capacity segment cannot be greater than
the maximum recourse rate for that segment. Moreover, shippers are not
required to bid on all segments posted in the open season. However, a
competing shipper willing to bid on multiple or all segments of the
posting may generate a higher NPV and therefore become the winning
bidder. For example, a shipper choosing to bid the maximum recourse
rate on a single segment of desired capacity would generate an NPV
based on the incremental revenues from the maximum recourse rate on the
term of that segment, but a competing shipper willing to bid on
multiple or all segments posted by the pipeline may generate a higher
NPV.\5\ The Commission has allowed the inclusion of non-contiguous and/
or operationally unrelated segments in capacity postings because the
practice allows the pipeline to sell more capacity than it otherwise
would, potentially benefiting shippers in the long run. Specifically,
the Commission has found that maximum revenues and increased use of
pipeline capacity will increase billing determinants and thereby lower
unit fixed costs in a pipeline's next rate case.\6\
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\4\ N. Border Pipeline, 164 FERC ] 61,150 (2018) (Northern
Border); Transcon. Gas Pipe Line Co., LLC, 172 FERC ] 61,258 (2020)
(Transco).
\5\ Northern Border, 164 FERC ] 61,150 at P 23, Transco, 172
FERC ] 61,258 at P 15.
\6\ Northern Border, 164 FERC ] 61,150 at P 24.
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5. The Commission, and subsequently the D.C. Circuit, have
addressed issues concerning the competitive effects of the NPV
evaluation in a narrower context and have maintained that capacity
should be awarded to the bid with the highest valuation. This arose
with respect to the length of the contract term in a proposal submitted
by Tennessee Gas Pipeline Company (Tennessee). The court upheld the
Commission's decision to accept Tennessee's proposed NPV evaluation
method for awarding pipeline capacity, which included no cap on the
term of the contract in the NPV evaluation. The pipeline argued that,
under this approach, it would be able to ``award firm capacity to those
shippers who value the capacity most--that is, since rates are capped,
to those shippers offering the longest contracts.'' \7\ The court
stated, ``. . . as [the Commission] argues, the fact that shippers may
at times bid up contract length likely reflects not an exercise of
Tennessee's market power, but rather
[[Page 22099]]
competition for scarce capacity.'' \8\ The court supported the
Commission's conclusion that ``an uncapped bidding process maximizes
market efficiency by identifying which shipper is willing to pay the
most--in terms of contract length--to obtain such capacity.'' \9\
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\7\ Process Gas Consumers, 292 F.3d at 833.
\8\ Id. at 837 (noting that, even under an NPV allocation
method, the Commission regulates the rates pipelines may charge and
requires them to sell available capacity at those rates, such that
there is neither the legal ability to withhold existing capacity nor
an incentive to refuse to build new capacity).
\9\ Id. at 838.
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II. Petition
6. On June 22, 2022, in Docket No. RM22-17-000, American Gas
Association (AGA), American Public Gas Association (APGA), Process Gas
Consumers Group (PGC), and Natural Gas Supply Association (NGSA)
(collectively, Petitioners) filed a petition requesting that the
Commission initiate a rulemaking to consider precluding interstate
natural gas pipelines from aggregating bids on non-contiguous and/or
operationally unrelated capacity segments to determine the highest
value bid for the purpose of allocating capacity (Petition).
7. Petitioners assert that the interstate natural gas pipeline
practice of packaging high market value capacity with non-contiguous
and/or operationally unrelated parcels of capacity that Petitioners
consider to be unwanted capacity with little or no market value is
becoming increasingly commonplace in the market. Petitioners submit
that this practice results in unjust and unreasonable rates, distorts
market pricing, removes the incentive for pipelines to build more
capacity where needed, and constitutes illegal tying. Petitioners
further contend that this practice effectively denies many shippers
access to needed capacity and, as a practical matter, results in undue
discrimination against industrial gas consumers, municipal gas systems,
and local distribution utilities. They also allege that this practice
results in higher prices for the ultimate gas consumers. Petitioners
state that the Commission has only previously considered this issue
within the narrow context of tariff filings by individual pipelines and
not on a generic basis. Petitioners request that the Commission
initiate a rulemaking to consider new regulations that would prevent
interstate natural gas pipelines from continuing the practice of: (1)
packaging non-contiguous and/or operationally unrelated segments of
capacity in auctions; and (2) awarding capacity based on an NPV basis
that includes the aggregate bids.
8. Notice of the Petition was issued on June 15, 2022.
Interventions, protests, and comments were due on or before July 18,
2022. The notice did not provide for reply comments. Supporting
comments were filed by seven entities.\10\ Comments in opposition or
protests were filed by five entities.\11\
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\10\ 1.5C, LLC, bp Energy Company, Interstate Power and Light
Company, Continental Resources, Inc., and the Indicated Shippers
(Ascent Resources-Utica, LLC, Chesapeake Energy Marketing, L.L.C.,
ConocoPhillips Company, Continental Resources, Inc., and XTO Energy
Inc.). Sabine Pass Liquefaction, LLC and the National Association of
Regulatory Utility Commissioners also filed late comments in support
of the Petition.
\11\ Interstate Natural Gas Association of America (INGAA),
Transcontinental Gas Pipe Line Company, LLC (Transco), Northern
Natural Gas Company (Northern Natural), Kinder Morgan, Inc. (Kinder
Morgan), and ANR Pipeline Company and Northern Border Pipeline
Company (jointly) (ANR and Northern Border).
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III. Commission Staff Informal Survey
9. In 2019, in response to outreach from stakeholders concerned
about bid aggregation for non-contiguous capacity postings,\12\
Commission staff (Staff) surveyed short-term capacity postings publicly
available on 50 pipelines' Electronic Bulletin Boards (EBB).\13\ Staff
identified a total of 98 firm capacity auction postings.\14\ Staff
performed a similar informal survey in August 2023, reviewing publicly
available capacity postings from most of the same pipelines but with
some substitutions. Staff identified a total of 85 firm capacity
auction postings.\15\ In its review, Staff focused on determining the
frequency with which the pipelines offered non-contiguous paths
available for bidding because such postings could reflect the practices
opposed by the Petitioners. For the surveyed periods in 2019 and 2023,
Staff identified 11 examples and 7 examples, respectively, of postings
for non-contiguous paths for which the rules of the pipeline's NPV
analysis stated that parties could increase the NPV of bids by bidding
on additional segments of capacity. However, Staff could not determine
whether any of these examples reflect the packaging of high-value
capacity with low-value capacity criticized by the Petitioners because
Staff did not analyze the market value of any paths.
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\12\ According to comments filed by Indicated Shippers in the
RM22-17-000 Petition for Rulemaking, high market value capacity can
be considered ``jewel'' and capacity with little or no market or
operational value can be considered ``junk.'' As argued in the
Petition, Indicated Shippers assert that interstate natural gas
pipelines can use ``jewel'' capacity to extract additional revenues
for the ``junk'' capacity from those placing bids on the combined
packages of ``junk'' and ``jewel'' capacity, distorting the value of
the packages and resulting in higher prices for natural gas
consumers. Indicated Shippers Comments at 2-3. We use the phrase
``junk and jewel'' to refer to this scenario throughout the
document.
\13\ We note that pipelines are only required to publicly
provide informational postings on their EBBs for 90 days. 18 CFR
284.13(b). After the 90 days, pipelines are required to archive this
information for a period of three years. 18 CFR 284.12(a)(3)(v).
\14\ In conducting its survey, Staff did not examine postings
related to new expansions, right-of-first-refusal, receipt point
shifts, and reserving capacity.
\15\ As noted above, in conducting its survey, Staff did not
examine postings related to new expansions, right-of-first-refusal,
receipt point shifts, and reserving capacity.
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IV. Request for Comments
10. As part of ensuring that the Commission continues to meet its
statutory obligations, the Commission, on occasion, engages in public
inquiry to gauge whether there is a need to add to, modify, or
eliminate certain policies or regulatory requirements. Following our
review of the Petition and of Staff's 2019 and 2023 surveys, we are
issuing this NOI to examine the practices of interstate natural gas
pipelines related to the packaging of non-contiguous and/or
operationally unrelated segments of capacity in a single auction or
open season and the aggregation of bids across those segments to
determine the highest value bid for the purpose of awarding capacity,
as well as whether the Commission should continue to allow such
practices. We invite comments from interested persons on what, if any,
policy changes the Commission should implement, as well as the
potential impacts of any such policy changes.
11. We invite interested persons to submit comments and reply
comments on any or all of the questions listed below. Commenters need
not respond to all of the questions.
A. Frequency of the Inclusion of Aggregated Non-Contiguous Segments in
Capacity Postings
A1. In the Docket No. RM22-17-000 Petition for Rulemaking,
Petitioners provided 15 examples of what they describe as ``junk and
jewel'' postings from 2018 through 2022. If available, please provide
the Commission with any more recent examples of postings pairing
desirable, high-value capacity with unwanted, low-value capacity.
Explain, with supporting data if possible, whether there has been a
change in frequency of such postings since the filing of the Petition.
Is the publicly available information on pipelines' EBBs sufficient to
identify the frequency with which pipelines offer non-contiguous and/or
operationally unrelated paths for aggregated bidding?
A2. Please comment on the frequency with which shippers who were
allowed to bid on multiple segments of capacity
[[Page 22100]]
were awarded capacity in the auction despite bidding on only a portion
of the posted capacity.
A3. It appears that the examples of ``junk and jewel'' scenarios
provided by the Petition only include short-term (less than one year)
capacity auctions. Please provide information that might explain why
these scenarios are mostly occurring with short-term capacity auctions.
If available, please provide specific examples of postings for long-
term (equal to or greater than one year) capacity that use bid
aggregation with non-contiguous and/or operationally unrelated segments
of capacity.
A4. Please provide information on how and why non-contiguous and/or
operationally unrelated segments are chosen to package together in the
same open season. Comment as to what extent capacity that Petitioners
label as ``junk'' is still required to serve certain markets.
A5. Please explain if there are any seasonal trends for available
capacity postings, particularly for any non-contiguous paths that
appear together in postings. What are the times of year at which these
situations occur for short-term, seasonal, and long-term capacity?
What, if any, market conditions (time of year, pipeline-specific
business practices, market scenarios, etc.) elevate the potential for
pipelines to post capacity with bid aggregation for non-contiguous and/
or operationally unrelated capacity postings?
B. Impacts of Bid Aggregation on Pipeline Rates
B1. Please explain whether and how shippers do or do not receive
the benefit of a rate reduction related to capacity awards of short-
term capacity in rate cases (i.e., including billing determinants and
revenues in the test period, along with selection of the test period
itself). Provide examples from specific rate cases if possible. Include
information about distance-based allocation and zoned billing
determinants.
B2. Petitioners claim that current Commission policy allows for
pipelines to collect revenue from shippers above the Commission-
approved maximum tariff rates by packaging high-value segments with
non-contiguous and/or operationally unrelated low-value segments.
Please explain in more detail. If this practice is effectively allowing
pipelines to collect over the maximum tariff rate, then please provide
other methods for awarding capacity desired by multiple customers.
C. Customers and Operational Need
C1. Petitioners argue that LDCs, municipal gas systems, and
industrial customers have an operational need for segments of capacity
to serve LDC load or a power plant or manufacturing facility but, due
to various constraints, cannot justify bidding on other segments of the
``effectively tied'' capacity that they do not need for their
customers. Given the short-term nature of the example contracts cited
by Petitioners, please describe how these short-term contracts would
help meet long-term load growth and please explain alternative
solutions employed by these entities to meet their load growth and/or
long-term supply needs.
C2. Please explain or provide specific examples of how certain
shippers such as LDCs and municipal gas systems might not have the
creditworthiness to bid on multiple unrelated paths to increase their
chance of winning valuable capacity or how they might be subject to a
prudence review from state regulators for bidding on non-contiguous
and/or operationally unrelated capacity packages.
C3. Please explain to what extent industrial customers are
prohibited from bidding on non-contiguous and/or operationally
unrelated capacity packages.
D. Potential Policy Changes
D1. Please comment on whether the Commission should change its
current policy, which allows bid aggregation on non-contiguous segments
so long as shippers are not required to bid on undesired segments of
capacity. Explain any issues that the Commission should consider when
determining whether to make this policy change. What policy and/or
regulation changes should the Commission implement if it determines
that it should no longer allow interstate natural gas pipelines to
package non-contiguous and/or operationally unrelated segments of
capacity in an open season? Explain any additional issues that the
Commission should consider if it were to make this policy change (e.g.,
how should the Commission determine whether segments of capacity are
non-contiguous and/or operationally unrelated, etc.). Additionally,
please provide any potential alternative policy change and explain how
it would be implemented.
D2. Explain how a policy change might affect short-term capacity
auctions and how it would affect shippers (e.g., LDCs, marketers,
producers, etc.) and interstate natural gas pipelines. Explain any
interactions between this policy and the Commission's negotiated rate
policy.\16\
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\16\ Nat. Gas Pipelines Negotiated Rate Policies & Pracs.;
Modification of Negotiated Rate Pol'y, 104 FERC ] 61,134 (2003),
order on reh'g and clarification, 114 FERC ] 61,042, reh'g dismissed
and clarification denied, 114 FERC ] 61,304 (2006).
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V. Comment Procedures
12. The Commission invites interested persons to submit comments
and reply comments on the matters and issues addressed in this
document, including any related matters or alternative proposals that
commenters may wish to discuss. Comments are due June 27, 2024 and
reply comments are due July 29, 2024. Comments must refer to Docket No
RM22-17-000 and must include the commenter's name, the organization
they represent, if applicable, and their address in their comments.
13. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's website at http://www.ferc.gov. The Commission accepts most standard word-processing
formats. Documents created electronically using word-processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
14. Commenters that are not able to file comments electronically
may file an original of their comment by USPS mail or by courier or
other delivery services. For submissions sent via USPS only, filings
should be mailed to: Federal Energy Regulatory Commission, Office of
the Secretary, 888 First Street NE, Washington, DC 20426. Submission of
filings other than by USPS should be delivered to: Federal Energy
Regulatory Commission, 12225 Wilkins Avenue, Rockville, MD 20852.
VI. Document Availability
15. 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 the Commission's Home Page (http://www.ferc.gov).
16. From the Commission'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.
17. User assistance is available for eLibrary and the Commission's
website during normal business hours. For assistance, please contact
the Commission's Online Support at 202-
[[Page 22101]]
502-6652 (toll free at 1-866-208-3676) or email at
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659 or email at [email protected].
Authority: 15 U.S.C. 717-717z, 3301-3432; 42 U.S.C. 7101-7352;
43 U.S.C. 1331-1356.
By direction of the Commission.
Issued: March 21, 2024.
Debbie-Anne Reese,
Acting Secretary.
[FR Doc. 2024-06562 Filed 3-28-24; 8:45 am]
BILLING CODE 6717-01-P
