Promotion of a More Efficient Capacity Release Market, 65916-65936 [E7-22952]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 72, Number 226 (Monday, November 26, 2007)]
[Proposed Rules]
[Pages 65916-65936]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-22952]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 284

[Docket No. RM08-1-000]


Promotion of a More Efficient Capacity Release Market

November 15, 2007.
AGENCY: Federal Energy Regulatory Commission, Department of Energy.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission is proposing 
revisions to its regulations governing interstate natural gas pipelines 
to reflect changes in the market for short-term transportation services 
on pipelines and to improve the efficiency of the Commission's capacity 
release mechanism. The Commission is proposing to permit market based 
pricing for short-term capacity releases and to facilitate asset 
management arrangements by relaxing the Commission's prohibition on 
tying and on its bidding requirements for certain capacity releases.

DATES: Comments are due January 10, 2008.

ADDRESSES: You may submit comments, identified by docket number by any 
of the following methods:
    Agency Web site: https://ferc.gov. Documents created electronically 
using word processing software should be filed in native applications 
or print-to-PDF format and not in a scanned format.
    Mail/Hand Delivery: Commenters unable to file comments 
electronically must mail or hand deliver an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Secretary of 
the Commission, 888 First Street, NE., Washington, DC 20426.
    Instructions: For detailed instructions on submitting comments and 
additional information on the rulemaking process, see the Comment 
Procedures section of this document.

FOR FURTHER INFORMATION CONTACT: 
Robert McLean, Office of the General Counsel, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, 
Robert.McLean@ferc.gov, (202) 502-8156.
David Maranville, Office of the General Counsel, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
David.Maranville@ferc.gov, (202) 502-6351.

SUPPLEMENTARY INFORMATION: 

Notice of Proposed Rulemaking

Table of Contents

 
                                                              Paragraph
                                                               numbers
 
I. Background..............................................           2.
  A. The Capacity Release Program..........................           2.
  B. Petitions and Industry Comments.......................          15.
II. Removal of Maximum Rate Ceiling for Short-Term Capacity          23.
 Release...................................................
  A. Policies Enhancing Competition........................          30.
  B. Data on Capacity Release Transactions.................          33.
  C. Available Pipeline Service Constrains Market Power              40.
   Abuses..................................................
  D. Monitoring............................................          42.
  E. Requests to Expand Market-Based Rate Authority........          43.
    1. Removal of Price Ceiling for Long-Term Releases.....          43.
    2. Removal of Price Ceiling for Pipeline Short-Term              46.
     Transactions..........................................
III. Asset Management Arrangements.........................          53.
  A. Background............................................          53.
  B. Discussion............................................          63.
    1. Tying...............................................          75.
    2. The Bidding Requirement.............................          83.
    3. Definition of AMAs..................................          91.
IV. State Mandated Retail Choice Programs..................          97.
V. Shipper Must-Have-Title Requirement.....................         106.
VI. Regulatory Requirements................................         111.
  A. Information Collection Statement......................         111.
  B. Environmental Analysis................................         114.
  C. Regulatory Flexibility Act............................         115.
  D. Comment Procedures....................................         117.
  E. Document Availability.................................         121.
 

    1. In this Notice of Proposed Rulemaking, the Commission proposes 
to revise its Part 284 regulations

[[Page 65917]]

concerning the release of firm capacity by shippers on interstate 
natural gas pipelines. First, the Commission proposes to remove, on a 
permanent basis, the rate ceiling on capacity release transactions of 
one year or less. Second, the Commission proposes to 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 supply the gas 
needs of the capacity holder. Specifically, the Commission proposes to 
exempt capacity releases made as part of AMAs from the prohibition on 
tying and from the bidding requirements of section 284.8. These 
proposals are designed to enhance competition in the secondary capacity 
release market and increase shipper options for how they obtain gas 
supplies.

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.\1\ 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.'' \2\
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    \1\ Pipeline Service Obligations and Revisions to Regulations 
Governing Self-Implementing 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 1991-June 1996 ] 30,939 (April 8, 1992); order on 
reh'g, Order No. 636-A, 57 FR 36,128 (August 12, 1002), 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 (D.C. Cir. 1996); 
order on remand, Order No. 636-C, 78 FERC ] 61,186 (1997).
    \2\ Order No. 636 at 30,393 (citations omitted).
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    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.\3\
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    \3\ In brief, under the Commission's 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.
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    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.'' \4\
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    \4\ Order No. 636 at 30,418.
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    5. In Order No. 636, the Commission expressed concerns regarding 
its ability to ensure that firm shippers would reallocate their 
capacity in a non-discriminatory 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.\5\ 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.'' \6\
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    \5\ See Algonquin Gas Transmission Corp., 59 FERC ] 61,032 
(1992).
    \6\ Order No. 636 at 30,416.
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    6. The Commission sought to ensure that the efficiencies of the 
secondary market were not frustrated by unduly discriminatory access to 
the market.\7\ 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.
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    \7\ Order No. 636-A at 30,554.
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    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.\8\ In order to enforce the prohibition on private transfers 
of capacity, the Commission required that a shipper must have title to 
any gas that it ships on the pipeline.\9\
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    \8\ 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).
    \9\ As the Commission subsequently explained in Order No. 637, 
``the capacity release rules were designed with [the shipper-must-
have-title] policy as their foundation,'' because, without this 
requirement, ``capacity holders could simply transport gas over the 
pipeline for another entity.'' Regulation of Short-Term 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. 637-A, FERC Stats. & Regs. ] 31,099, 
reh'g denied, Order No. 637-B, 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 (D.C. 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 (D.C. Cir. 
2005). See section V below for a further explanation of the shipper-
must-have-title requirement.
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    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.\10\ 
This ceiling was derived from the Commission's estimate of the maximum 
rates necessary for the pipeline to

[[Page 65918]]

recover its annual cost-of-service revenue requirement, which the 
Commission prorated over the period of each release.\11\
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    \10\ Order No. 636 at 30,418; Order No. 636-A at 30,560.f
    \11\ Order No. 637 at 31,270-71.
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    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).'' \12\ The Commission 
permitted the releasing shipper to choose a pre-arranged 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.\13\
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    \12\ 18 CFR Sec. 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.''
    \13\ 18 CFR Sec.  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 forty-eight hours, 
after the release transaction commences.''
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    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. 636-A, where it stated:

    The Commission reiterates that all terms and conditions for 
capacity release must be posted and non-discriminatory 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. 636-A 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.\14\ 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.\15\
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    \14\ Secondary Market Transactions on Interstate Natural Gas 
Pipelines, Proposed Experimental Pilot Program to Relax the Price 
Cap for Secondary Market Transactions, 61 FR 41401 (Aug. 8, 1996), 
76 FERC ] 61,120, order on reh'g, 77 FERC ] 61,183 (1996).
    \15\ 77 FERC ] 61,183 (1996) at 61,699.
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    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 two-year 
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 short-term 
marketplace.\16\
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    \16\ 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 
31,279.
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    13. Upon an examination of pricing data on basis differentials 
between points,\17\ 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 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 short-term 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 
short-term shippers, because with the rate ceilings in place, a shipper 
looking for short-term 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 short-term transportation at the 
times that it needed it most.\18\ Throughout this experiment, the 
Commission retained the rate ceiling for firm and interruptible 
capacity available from the pipeline as well as long-term capacity 
release transactions.
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    \17\ 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.
    \18\ Order No. 637 at 31,282.
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    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,\19\ upheld the Commission's experimental price ceiling 
program for short-term capacity release transactions as set forth in 
Order No. 637.\20\ 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.\21\ 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.\22\
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    \19\ 285 F.3d 18 (D.C. Cir. 2002) (INGAA).
    \20\ 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 non-cost advantages cited by the Commission and 
the experimental nature of this particular ``lighthanded'' 
regulation, we find the Commission's decision neither a violation of 
the NGA, nor arbitrary or capricious.'' INGAA at 35.
    \21\ 734 F.2d 1486 (D.C. Cir. 1984) (Farmers Union).
    \22\ Id. at 33.

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[[Page 65919]]

B. Petitions and Industry Comments

    15. 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 release transactions.\23\ They 
stated that removing the price ceiling would improve the efficiency of 
the capacity market by giving releasing shippers a greater incentive to 
release their capacity during periods of constraint. They asserted that 
this would allow shippers who value the capacity the most to obtain it, 
provide more accurate price signals concerning the value of capacity, 
and provide greater potential cost mitigation to holders of long-term 
firm capacity. They also pointed out that the Commission now permits 
pipelines to negotiate rates with individual customers using basis 
differentials (i.e., the difference between natural gas commodity 
prices at two trading points, such as a supply basin and a city gate 
delivery point) and such negotiated rates may exceed the pipeline's 
recourse maximum rate. PG&E and Southwest assert that releasing 
shippers must have greater pricing flexibility in order to compete with 
such negotiated rate deals offered by the pipelines.
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    \23\ Docket No. RM06-21-000. PG&E subsequently clarified that it 
only seeks removal of the price cap for capacity releases of less 
than a year.
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    16. In October 2006, a group of large natural gas marketers \24\ 
(Marketer Petitioners) requested clarification of the operation of the 
Commission's capacity release rules in the context of asset (or 
portfolio) management services.\25\ An AMA is an agreement under which 
a capacity holder releases, on a pre-arranged basis, all or some of its 
pipeline capacity, along with associated gas purchase contracts, to an 
asset or portfolio manager. The asset manager uses the capacity to 
satisfy the gas supply needs of the releasing shipper, and, when the 
capacity is not needed to serve the releasing shipper, the asset 
manager uses it to make gas sales or re-releases the capacity to third 
parties.
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    \24\ Coral Energy Resources, LP; ConocoPhillips Co.; Chevron 
USA, Inc.; Constellation Energy Commodities Group, Inc.; Tenaska 
Marketing Ventures; Merrill Lynch Commodities, Inc.; Nexen Marketing 
USA, Inc.; and UBS Energy LLC.
    \25\ The Marketer Petitioners originally filed their petition in 
Docket Nos. RM91-11-009 and RM98-10-013. However, the Commission has 
re-docketed the petition in Docket No. RM07-4-000.
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    17. The Marketer Petitioners state that Order No. 636 adopted the 
capacity release program as a means for shippers to transfer unneeded 
capacity to other entities who desired it. However, the Marketer 
Petitioners state, today many local distribution companies (LDCs) and 
others desire to release their capacity to a replacement shipper (asset 
manager) with greater market expertise, who will continue to use the 
capacity to provide gas supplies to the releasing shipper and will be 
better able to maximize the value of the released capacity when it is 
not needed to serve the releasing shipper. The Marketer Petitioners 
state that the Commission's current capacity release rules may 
interfere with marketers providing efficient asset management services. 
They also assert that they are not seeking to remove the capacity 
release rate cap, but acknowledge that if the Commission took such 
action, it would eliminate some of their problems.
    18. On January 3, 2007, the Commission issued a request for 
comments on the current operation of the Commission's 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's request for comments was in part in response to the 
petitions discussed above. In addition to the issues raised by the 
petitions, 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 shipper-must-have-
title requirement.
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    \26\ Pacific Gas & Electric Co., 118 FERC ] 61,005 (2007).
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    19. In response to the price ceiling issues, commenting LDCs and 
pipelines both advocate lifting the ceiling, subject to different 
conditions. The LDCs favor lifting the ceiling only if it would still 
apply to the pipeline's direct sales of capacity because, among other 
things, the pipelines have negotiated rate authority that is not 
available to releasing shippers.\27\ The pipelines advocate the removal 
of the cap only if the Commission removes the cap from the entire 
capacity marketplace; otherwise, they argue, it will create a 
bifurcated market and an uneven playing field.
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    \27\ Under the negotiated rate program, a pipeline may charge 
rates different from those set forth in its open access tariff, as 
long as the shipper has recourse to taking service at the maximum 
tariff rate. See, Alternatives to Traditional Cost-of-Service 
Ratemaking for Natural Gas Pipelines, 74 FERC ] 61,076, reh'g 
denied, 75 FERC ] 61,024 (1996), petitions for review denied sub 
nom., Burlington Resources Oil & Gas Co. v. FERC, 172 F.3d 918 (D.C. 
Cir. 1998). See also Natural Gas Pipelines Negotiated Rate Policies 
and Practices; Modification of Negotiated Rate Policy, 104 FERC ] 
61,134 (2003), order on reh'g and clarification, 114 FERC ] 61,042, 
dismissing reh'g and denying clarification, 114 FERC ] 61,304 
(2006).
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    20. Producers and industrial customers generally oppose lifting the 
price ceiling on a permanent basis, arguing that the Commission must 
first develop new data to support such action and that it cannot rely 
on the results of the Order No. 637 experiment that terminated five 
years ago. Certain producers, however, would countenance a new 
experiment conducted by the Commission to gather new data related to 
the lifting of the price ceiling. Additionally, certain marketers and 
the American Public Gas Association (APGA) argue that the Commission 
cannot remove the ceiling unless there is a finding of lack of market 
power.
    21. In response to the request for comments on whether the 
Commission should consider adjusting the capacity release regulations 
to foster AMAs, numerous commenters responded that AMAs are beneficial 
to the market place and that the Commission should do something to 
facilitate their use. A vast majority of the commenters assert that 
AMAs provide substantial benefits, including more load responsive use 
of gas supply, greater liquidity, increased use of transportation 
capacity, cost effective procurement vehicles for LDCs and other end 
users, and the enhancement of competition. They state that AMAs also 
relieve LDCs from management of their daily gas supply and capacity 
needs. Others comment that AMAs benefit all parties involved: The 
releasing shipper reduces its costs through use of its capacity 
entitlements to facilitate third party sales; the third parties benefit 
from receiving a bundled product at an acceptable price; and the asset 
manager receives whatever profits are not passed on to the releasing 
shipper.
    22. In particular, the Marketer Petitioners and other commenters 
request that the Commission clarify that the different payments made 
between parties in an AMA do not constitute prohibited above maximum 
rate transactions or below maximum rate transactions that thus require 
posting and bidding. They also request that the Commission revisit its 
prohibition on tying to allow the packaging of gas supply contracts and 
pipeline or storage capacity, or multiple segments of capacity, as part 
of an AMA. Certain commenters also suggest changes to the Commission's 
notice and bidding requirements for capacity releases. A number of LDCs 
and marketers request that the bidding requirement be eliminated 
altogether or that the regulations be revised to eliminate

[[Page 65920]]

bidding for capacity releases made to implement an AMA.

II. Removal of Maximum Rate Ceiling for Short-Term Capacity Release

    23. Based upon its review of the petitions, comments and available 
data, the Commission proposes to lift the price ceiling for short-term 
capacity release transactions of one year or less. The Commission's 
capacity release program has created a successful secondary market for 
capacity.\28\ Commenters from disparate segments of the natural gas 
industry agree that the capacity release program has been beneficial to 
the industry in creating a competitive secondary market for natural gas 
transportation.\29\
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    \28\ 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 39-41) (2005), order on reh'g, 113 FERC ] 61,173 (2005).
    \29\ See e.g., PG&E and Southwest Gas Petition at 10 (``There is 
reason to believe that the secondary market is more competitive 
today than it was six years ago.''); Market Petitioners at 3 (``The 
Commission's capacity release program has proven to be a critical 
initiative in opening U.S. natural gas markets to competition.''); 
AGA Comments at 3 (``The Commission's regulations have permitted the 
development of an open and active secondary market for pipeline 
capacity that has provided significant benefits to natural gas 
consumers.''); INGAA Comments at 12 (``The current market for short-
term transportation capacity is large and highly competitive.''); 
and NGSA Comments at 2 (``The basic structure of the Commission's 
policies is still providing the benefits intended of transparent, 
nondiscriminatory, efficient allocation of capacity.'').
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    24. As the comments point out, shippers and potential shippers are 
looking for 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. Pipelines, for example, have been using their 
negotiated rate authority to sell their own capacity based on market-
derived basis differentials reflective of the difference in gas prices 
between two points. The Commission recently clarified that pipelines 
may use such basis differential pricing as a part of negotiated rate 
transactions even when those prices exceed maximum tariff rates.\30\ 
Under the Commission's regulations, releasing shippers also may enter 
into capacity release transactions based on basis differentials, but 
such releases cannot exceed the maximum rate.\31\ In their comments, 
releasing shippers request the ability to release at above the maximum 
rate so that they may offer potential buyers rates competitive with 
pipeline negotiated rate transactions.\32\
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    \30\ Natural Gas Pipelines Negotiated Rate Policies and 
Practices; Modification of Negotiated Rate Policy, 104 FERC ] 61,134 
(2003), order on reh'g and clarification, 114 FERC ] 61,042, 
dismissing reh'g and denying clarification, 114 FERC ] 61,304 
(2006).
    \31\ See Standards for Business Practices for Interstate Natural 
Gas Pipelines and for Public Utilities, Order No. 698, 72 FR 38757 
(July 16, 2007), FERC Stats. & Regs. ] 31,251 (June 25, 2007).
    \32\ See, e.g., PG&E and Southwest Gas Petition at 10-11.
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    25. As the Commission recognized in Order No. 637,\33\ the 
traditional cost-of-service price ceilings in pipeline tariffs, which 
are based on average yearly rates, are not well suited to the short-
term capacity release market.\34\ Removal of the price ceiling will 
enable releasing shippers to offer competitively-priced alternatives to 
the pipelines' negotiated rate offerings. Removal of the ceiling also 
permits more efficient utilization of capacity by permitting prices to 
rise to market clearing levels, thereby permitting those who place the 
highest value on the capacity to obtain it. Removal of the price 
ceiling also will provide potential customers with additional 
opportunities to acquire capacity. The price ceiling reduces the firm 
capacity holders' incentive to release capacity during times of 
scarcity, because they cannot obtain the market value of the capacity.
---------------------------------------------------------------------------

    \33\ Order No. 637 at 31,271-75.
    \34\ 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 virtually all pipelines have 
taken advantage of negotiated rate authority.
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    26. Further, the elimination of the price ceiling for short-term 
capacity releases will provide more accurate price signals concerning 
the market value of pipeline capacity. More accurate price signals will 
promote the efficient construction of new capacity by highlighting the 
location, frequency, and severity of transportation constraints. 
Correct capacity pricing information will also provide transparent 
market values that will better enable pipelines and their lenders to 
calculate the potential profitability and associated risk of additional 
construction designed to alleviate transportation constraints.
    27. Moreover, removing the price ceiling on short-term capacity 
releases should not harm, and may benefit, the ``primary intended 
beneficiaries of the NGA--the `captive' shippers.'' \35\ Those shippers 
typically have long-term firm contracts with the pipeline, and 
therefore will ``continue to receive whatever benefits the rate 
ceilings generally provide,'' while also ``reaping the benefits of 
[the] new rule, in the form of higher payments for their releases of 
surplus capacity.'' \36\
---------------------------------------------------------------------------

    \35\ INGAA at 33.
    \36\ Id.
---------------------------------------------------------------------------

    28. 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 
`non-cost factors may legitimate a departure from a rigid cost-based 
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.' \37\
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    \37\ Id. at 31.

    29. Many of the changes effected in Order Nos. 636 and 637 have 
enhanced competition between releasing shippers as well as between 
releasing shippers and the pipeline. As discussed below, the data 
obtained by the Commission both during the Order No. 637 experiment and 
more recently confirms the finding made in Order No. 637 that short-
term release prices are reflective of market prices as revealed by 
basis differentials, rather than reflecting the exercise of market 
power. Moreover, shippers purchasing capacity will 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 reporting 
requirements in Order No. 637 and the Commission's implementation of 
the Energy Policy Act of 2005, specifically with respect to market 
manipulation, provide the Commission with enhanced ability to monitor 
the market and detect and deter abuses.

A. Policies Enhancing Competition

    30. In Order No. 636 and, as expanded in Order No. 637, the 
Commission instituted a number of policy revisions designed to enhance 
competition and improve efficiency across the pipeline grid. 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.

[[Page 65921]]

    31. 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 will 
make more capacity available and enhance 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,\38\ 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.\39\
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    \38\ 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.
    \39\ Order No. 637 at 31,300.

    32. 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.

B. Data on Capacity Release Transactions

    33. The data accumulated by the Commission during the Order No. 637 
experiment, as well as review of more recent data, show 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.\40\ The staff paper 
provided analysis of capacity release transactions on 34 pipelines 
during the 22-month period from March 2000 to December 2001.\41\
---------------------------------------------------------------------------

    \40\ 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 short-term released capacity was waived.
    \41\ 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.
---------------------------------------------------------------------------

    34. In brief, the data gathered during the 33-month 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.

                                    Table I.--Above Cap Releases by Pipeline
                         [Releases awarded between March 26, 2000 and December 31, 2001]
----------------------------------------------------------------------------------------------------------------
                                                  Releases above                     Releases
                                                     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

[[Page 65922]]

 
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
----------------------------------------------------------------------------------------------------------------

    35. 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 one-half 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 above-ceiling 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, reflecting scarcity rather 
than monopoly. * * * [citation omitted] A surge in the price of 
candles during a power outage is no evidence of monopoly in the 
candle market.\42\
---------------------------------------------------------------------------

    \42\ INGAA at 32.

    36. Several commenters argue that the data gathered by the 
Commission is too stale to support the instant proposal to remove the 
price ceiling on short-term capacity releases. However, these 
commenters fail to produce any evidence to support specific concerns 
existing today that did not exist during the experimental period. 
Moreover, the Commission has gathered additional current data and has 
replicated the evidence presented in Order No. 637. The current data 
shows that the conditions that existed at the time of Order No. 637 and 
during the past experimental period continue in today's marketplace.
    37. Figure 1 illustrates the fluctuations in the market value of 
transportation service, as shown by the basis differentials between 
Louisiana and New York City. This graph compares the daily difference 
in gas prices between Louisiana and New York City to Transcontinental 
Gas Pipe Line Corporation's maximum interruptible transportation rate, 
including fuel retainage, during the 12 months ending July 31, 2007. 
This graph shows that for most of the year, the value of transportation 
service, as indicated by the basis differentials, is less than the 
maximum transportation rate. However, during brief, peak demand 
periods, the value of transportation service is measurably greater than 
the maximum transportation rate. For example, on February 5, 2007, the 
basis differential between Louisiana and New York City was in excess of 
$27.00 per MMBtu, while the maximum tariff rate plus the cost of fuel 
was approximately $1.08 per MMBtu.\43\
---------------------------------------------------------------------------

    \43\ In Order No. 637, the Commission presented similar data in 
figure 6 showing the implicit transportation value between South 
Louisiana and Chicago. Order No. 637 at 31,274.

---------------------------------------------------------------------------

[[Page 65923]]

[GRAPHIC] [TIFF OMITTED] TP26NO07.004

    38. Figures 2 and 3 below reflect that a similar pattern of 
transportation value is evident in other areas of the country. Focusing 
on fluctuations in the market value of transportation service as shown 
by basis differentials between Louisiana and Chicago and between the 
Permian Basin and the California border, respectively, these figures 
show that for most of the year, the value of transportation service is 
less than the maximum transportation rate of Natural Gas Pipeline 
Company of America and El Paso Natural Gas Company, respectively. 
However, similar to figure 1, these figures also reflect that during 
brief, peak-demand periods, the value of transportation service is 
measurably greater than the maximum transportation rate.

[[Page 65924]]

[GRAPHIC] [TIFF OMITTED] TP26NO07.005

[GRAPHIC] [TIFF OMITTED] TP26NO07.006


[[Page 65925]]


    39. The data in all three of the above figures reflect similar 
market conditions to the data that the Commission relied upon in 
lifting the price ceiling for short-term capacity releases in Order No. 
637, with the market value of capacity generally below the pipeline's 
maximum rate except for relatively brief price spikes.\44\ In affirming 
the Commission's actions, the court in INGAA found that the data 
presented by the Commission constituted a substantial basis for the 
conclusion that a considerable amount of competition existed in the 
capacity release market. Further, the INGAA court concluded that the 
price spikes reflected in the data were consistent with competition and 
that such spikes reflected scarcity rather than monopoly. \45\
---------------------------------------------------------------------------

    \44\ Order No. 637 at 31,273-75.
    \45\ INGAA at 32.
---------------------------------------------------------------------------

C. Available Pipeline Service Constrains Market Power Abuses

    40. The Commission envisions that under the instant proposal the 
pipeline's open access transportation maximum tariff rates (recourse 
rates) will serve as additional protection against possible abuses of 
market power by releasing shippers. The Commission requires pipelines 
to sell all their available capacity to shippers willing to pay the 
pipeline's maximum recourse rate.\46\ Under their negotiated rate 
authority, pipelines are free to negotiate individualized rates with 
particular shippers that may be above the maximum tariff rate, subject 
to several conditions including the availability of the maximum tariff 
rate as a recourse rate for potential firm shippers.\47\ As the 
Commission explained in its negotiated rate policy statement, ``[t]he 
availability of a recourse service would prevent pipelines from 
exercising market power by assuring that the customer can fall back to 
traditional cost-based service if the pipeline unilaterally demands 
excessive prices or withholds service.'' \48\
---------------------------------------------------------------------------

    \46\ Tennessee Gas Pipeline Co., 91 FERC ] 61,053 (2002), reh'g 
denied, 94 FERC ] 61,097 (2001), petitions for review denied sub 
nom., Process Gas Consumers Group v. FERC, 292 F.3d 831, 837 (D.C. 
Cir. 2002).
    \47\ See, Alternatives to Traditional Cost-of-Service Ratemaking 
for Natural Gas Pipelines, 74 FERC ] 61,076, reh'g denied, 75 FERC ] 
61,024 (1996), petitions for review denied sub nom., Burlington 
Resources Oil & Gas Co. v. FERC, 172 F.3d 918 (D.C. Cir. 1998). See 
also Natural Gas Pipelines Negotiated Rate Policies and Practices; 
Modification of Negotiated Rate Policy, 104 FERC ] 61,134 (2003), 
order on reh'g and clarification, 114 FERC ] 61,042, dismissing 
reh'g and denying clarification, 114 FERC ] 61,304 (2006).
    \48\ Alternatives to Traditional Cost-of-Service Ratemaking for 
Natural Gas Pipelines, 74 FERC ] 61,076 at 61,240 (1996).
---------------------------------------------------------------------------

    41. The court in INGAA recognized the value of the pipeline's 
recourse rate protecting against possible abuses of market power by 
releasing shippers stating that,

    [i]f holders of firm capacity do not use or sell all of their 
entitlement, the pipelines are required to sell the idle capacity as 
interruptible service to any taker at no more than the maximum 
rate--which is still applicable to the pipelines.\49\
---------------------------------------------------------------------------

    \49\ INGAA at 32.

Removing the price ceiling for short-term capacity release transactions 
will enable releasing shippers to offer negotiated rate transactions 
similar to those offered by the pipelines. Moreover, the same pipeline 
open access service will protect against the possibility that a 
releasing shipper will attempt to exercise market power by withholding 
capacity. For example, should a releasing shipper attempt to charge a 
price above competitive levels, the potential purchaser could seek to 
negotiate a more acceptable rate with the pipeline. Even when the 
pipeline's firm service is not available, a cost based interruptible 
rate is always available as an alternative when a releasing shipper 
attempts to withhold capacity.

D. Monitoring

    42. Order No. 637 improved the Commission's and the industry's 
ability to monitor capacity release transactions by requiring daily 
posting of these transactions on pipeline Web sites.\50\ This has 
increased the information available to buyers while at the same time 
making it easier for the Commission to identify situations in which 
shippers are abusing their market power.\51\ Further, the Commission 
will entertain complaints and respond to specific allegations of market 
power on a case-by-case basis if necessary. Furthermore, the Commission 
will direct staff to monitor the capacity release program and, using 
all available information, issue a report on the general performance of 
the capacity release program, within six months after two years of 
experience under the new rules.
---------------------------------------------------------------------------

    \50\ 18 CFR 284.8 (2007).
    \51\ Order No. 637 at 31,283; Order No. 637-A at 31,558.
---------------------------------------------------------------------------

E. Requests to Expand Market-Based Rate Authority

1. Removal of Price Ceiling for Long-Term Releases
    43. Several commenters request that the Commission remove the price 
ceiling on long-term capacity releases in addition to eliminating the 
price ceiling on short-term capacity releases. The Commission declines 
to make such an adjustment to its policies at this time for several 
reasons. As discussed above, by lifting the price ceiling for short-
term capacity releases, the Commission seeks to provide releasing 
shippers the flexibility to price their capacity in a manner consistent 
with the short-term price variations in transportation capacity market 
values. This action will ameliorate restrictions on the efficient 
allocation of capacity during the short-term periods when demand drives 
the value of transportation capacity above the current maximum rate.
    44. Limiting the removal of the release ceiling to short-term 
transactions will also serve as additional protection for potential 
replacement shippers. Such a limit will ensure that a replacement 
shipper cannot be locked into a transaction that is not protected by 
the maximum rate ceiling for more than one year. The expiration of such 
a short-term transaction would give the replacement shipper an 
opportunity to explore other options for satisfying its capacity needs. 
The replacement shipper could seek to negotiate a different price with 
its current releasing shipper or to obtain capacity from another 
releasing shipper or directly from the pipeline.\52\ Any transaction in 
which the parties want to continue the release past one year would have 
to be re-posted for bidding to ensure that the capacity is allocated to 
the highest valued use. This bidding process could provide an 
opportunity for re-determining the current market value of the 
capacity.
---------------------------------------------------------------------------

    \52\ Releasing and replacement shippers cannot simply roll over 
a short-term release transaction in order to extend the release 
beyond one year. The Commission's current regulations do not permit 
rollovers or extensions of capacity releases made at less than 
maximum rate or for less than 31 days without re-posting and bidding 
of that capacity. 18 CFR Section 284.8(h) (2007).
---------------------------------------------------------------------------

    45. Finally, because any such release of a year or less would have 
to be re-posted for bidding upon its expiration, the second release 
would be a new release separate from the first release, and thus such a 
second release of a year or less would also not be subject to the price 
ceiling. The Commission, however, requests comment on whether there 
should be any limit on the ability of releasing shippers to make 
multiple, consecutive short-term releases not subject to the price 
ceiling.
2. Removal of Price Ceiling for Pipeline Short-Term Transactions
    46. Pipelines request that the Commission remove the price ceiling 
for primary pipeline capacity whether firm

[[Page 65926]]

or interruptible. In sum, they argue that because the transportation of 
gas on pipelines has become sufficiently competitive, and because 
released capacity competes directly with primary short-term firm, 
interruptible transportation and storage services provided by 
interstate pipelines, the Commission should lift the rate ceiling on 
the entire short-term capacity market, not just on capacity releases. 
Further, they assert that because short-term firm and interruptible 
services compete directly with capacity release, the same market 
liquidity considerations that warrant lifting the ceiling on short-term 
releases support lifting the price ceiling in the primary market. The 
pipelines assert that the Commission should treat all holders of 
capacity equally, whether they are pipelines or releasing shippers.
    47. The pipelines also assert that removing the price ceiling only 
on short-term capacity releases would bifurcate the single marketplace 
for natural gas transportation services. They argue that if prices for 
some of the capacity in the marketplace remain subject to a price 
ceiling while the price ceiling is removed for other forms of capacity, 
then once the capped capacity has been fully utilized, prices for the 
uncapped capacity will be higher than they would have been without any 
price ceiling at all. They assert that in affirming the Commission's 
experiment in removing the price ceiling for short-term capacity 
releases, the court in INGAA recognized this economic cost and labeled 
it as a ``cost of g