Bidding by Affiliates in Open Seasons for Pipeline Capacity, 72301-72306 [2011-30115]
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Rules and Regulations
Federal Register
Vol. 76, No. 226
Wednesday, November 23, 2011
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DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 284
[Docket No. RM11–15–000; Order No. 894]
Bidding by Affiliates in Open Seasons
for Pipeline Capacity
Federal Energy Regulatory
Commission, Energy.
AGENCY:
ACTION:
Final rule.
FOR FURTHER INFORMATION CONTACT:
In this Final Rule, the Federal
Energy Regulatory Commission revises
its regulations governing interstate
natural gas pipelines to prohibit
multiple affiliates of the same entity
from bidding in an open season for
pipeline capacity in which the pipeline
may allocate capacity on a pro rata
basis, unless each affiliate has an
independent business reason for
submitting a bid. The Commission does
not find it necessary to adopt its
proposal in the Notice of Proposed
Rulemaking that if more than one
affiliate of the same entity participates
in such an open season, then none of
those affiliates may release any capacity
obtained in that open season pursuant
to a pro rata allocation to any affiliate,
or otherwise allow any affiliate to obtain
the use of the allowed capacity.
DATES: Effective Date: This rule will
become effective December 23, 2011.
SUMMARY:
Jennifer Kunz, Office of the General
Counsel, Federal Energy Regulatory
Commission, 888 First Street NE.,
Washington, DC 20426.
Jennifer.Kunz@ferc.gov. (202) 502–
6102.
Michael Strzelecki, Office of Energy
Market Regulation, Federal Energy
Regulatory Commission, 888 First
Street NE., Washington, DC 20426.
Michael.Strzelecki@ferc.gov. (202)
502–6075.
SUPPLEMENTARY INFORMATION:
Table of Contents
Paragraph
No.
I. Background ............................................................................................................................................................................................
II. Need for the Rule .................................................................................................................................................................................
III. Prohibition on Multiple Affiliate Bidding in Open Seasons for Pipeline Capacity .......................................................................
IV. Prohibition on Release of Capacity ...................................................................................................................................................
V. Information Collection Statement .......................................................................................................................................................
VI. Environmental Analysis .....................................................................................................................................................................
VII. Regulatory Flexibility Act .................................................................................................................................................................
VIII. Document Availability .....................................................................................................................................................................
IX. Effective Date and Congressional Notification .................................................................................................................................
Before Commissioners: Jon Wellinghoff,
Chairman; Philip D. Moeller, John R.
Norris, and Cheryl A. LaFleur.
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(Issued November 17, 2011)
1. In this Final Rule, the Commission
revises its Part 284 regulations
governing interstate natural gas
pipelines to prohibit multiple affiliates
of the same entity from bidding in an
open season for pipeline capacity in
which the pipeline may allocate
capacity on a pro rata basis, unless each
affiliate has an independent business
reason for submitting a bid. The
Commission does not find it necessary
to adopt its proposal in the Notice of
Proposed Rulemaking 1 that if more than
one affiliate of the same entity
participates in such an open season,
then none of those affiliates may release
1 Bidding by Affiliates in Open Seasons for
Pipeline Capacity, 76 FR 20571 (Apr. 13, 2011),
FERC Stats. and Regs. ¶ 32,673 (2011) (NOPR).
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any capacity obtained in that open
season pursuant to a pro rata allocation
to any affiliate, or otherwise allow any
affiliate to obtain the use of the allowed
capacity.
I. Background
A. Open Seasons for Pipeline Capacity
2. The Commission’s policy under the
Natural Gas Act (NGA) 2 is to allocate
available interstate pipeline capacity to
the shipper that values it the most, up
to the maximum rate.3 In furtherance of
this goal, the Commission favors the use
of open seasons to allocate capacity and
permits but does not require a net
2 15
U.S.C. 717 et al. (2006).
Natural Gas Co., 108 FERC ¶ 61,044, at P 11
(2004); Texican N. La. Transport, LLC v. Southern
Natural Gas Co., 129 FERC ¶ 61,270, at P 70 (2009)
(Texican I), order on reh’g, 132 FERC ¶ 61,167, at
P 23, 26 (2010) (Texican II).
3 N.
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2
9
13
27
35
36
37
39
42
present value (NPV) evaluation as a tool
for determining the highest valued use.4
3. Some pipelines hold open seasons
to alert shippers to the availability of
capacity on the pipeline and allow the
shippers to bid for available capacity.
The pipeline’s open season process is an
open and transparent procedure that is
set forth in the pipeline’s tariff. The
pipeline notifies shippers of the
availability of capacity by posting an
open season notice on its EBB and/or
Web site for the available capacity.
During the open season, the
Commission requires pipelines to sell
all available capacity to shippers willing
to pay the pipeline’s maximum recourse
rate.5
4 Texican
II, 132 FERC ¶ 61,167 at P 26.
of a More Efficient Capacity Release
Market, Notice of Proposed Rulemaking, 72 FR
65916 (Nov. 26, 2007), FERC Stats. & Regs. ¶ 32,625,
at P 40 (2007) (citing Tenn. Gas Pipeline Co., 91
5 Promotion
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4. NPV is a method for awarding
capacity from the bids received during
the open season.6 NPV is a standard
method of evaluating bids for capacity
by using the time value of money to
determine the present value of a time
series of discounted cash flows.7 The
highest bidder, based on the NPV of the
bid, receives the capacity. Factors
determining NPV are price, volume of
gas, and duration of the contract. The
Commission has stated that a ‘‘net
present value evaluation * * * allocates
capacity to the shipper who will
produce the greatest revenue and the
least unsubscribed capacity. As such, it
is an economically efficient way of
allocating capacity and is consistent
with Commission policy.’’ 8
5. In the event that there is not
sufficient capacity to meet all equal
maximum bids, pipelines apply a
tiebreaker mechanism. One such
mechanism is the pro rata allocation
methodology. Under a pro rata
allocation tiebreaker mechanism, in the
event that there is not sufficient
capacity to meet all qualifying bids, the
capacity is allocated pro rata, i.e., based
on the ratio of each shipper’s respective
nomination to all qualifying
nominations, applied to the total
available capacity.9
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B. The NOPR
6. On April 7, 2011, the Commission
issued the NOPR, in which it proposed
to add a new section 284.15 to its
regulations prohibiting multiple
affiliates of the same entity from bidding
in an open season for pipeline capacity
conducted by any interstate pipeline
FERC ¶ 61,053 (2000), 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 (DC Cir. 2002)).
6 NPV is not the only method a pipeline could
use. Another is the ‘‘first come-first served’’
approach, where the first shipper to submit a
qualifying bid receives the capacity.
7 Saltville Gas Storage Co., L.L.C., 128 FERC
¶ 61,257, at P 2 n.3 (2009).
8 Tenn. Gas Pipeline Co., 76 FERC ¶ 61,101, at
61,522 (1996), order on reh’g, 79 FERC ¶ 61,297
(1997), order on reh’g, 82 FERC ¶ 61,008 (1998),
remanded sub nom. Process Gas Consumers Group
v. FERC, 177 F.3d 995 (DC Cir. 1999), order on
compliance, 91 FERC ¶ 61,333 (2000), order on
remand, 91 FERC ¶ 61,053 (2000), 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 (DC Cir. 2002).
9 An alternative tiebreaker mechanism for
multiple maximum bids is to award the capacity to
the earliest applicant. The Commission has stated
that ‘‘no single tiebreaker method is definitely
better than other methods; each system has
advantages and disadvantages * * *. So long as its
method is reasonable [a pipeline] may choose any
method it wishes for inclusion as the default
tiebreaker in its tariff.’’ Trailblazer Pipeline Co., 103
FERC ¶ 61,225, at 61,869 (2003), order on reh’g and
compliance filing, 108 FERC ¶ 61,049, at 61,305
(2004).
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providing service under subparts B and
G of Part 284 of the Commission’s
regulations in which the pipeline may
allocate capacity on a pro rata basis,
unless each affiliate has an independent
business reason for submitting a bid.
The Commission also proposed that if
more than one affiliate of the same
entity participates in such an open
season, then none of those affiliates may
release any capacity obtained in that
open season pursuant to a pro rata
allocation to any affiliate, or otherwise
allow any affiliate to obtain the use of
the allowed capacity. The Commission
proposed that, for purposes of the new
regulation, the term ‘‘affiliate’’ be
defined as provided in section
358.3(a)(1) and (3) of the Commission’s
existing regulations.10
7. The Commission explained that
some entities had developed and
applied a strategy of bidding with
multiple affiliates in open seasons for
available capacity in order to defeat the
pro rata allocation tiebreaker
mechanism and obtain a greater share of
the available capacity than a single
bidder could have acquired by itself.11
The Commission further explained that,
where the available capacity is finite,
the price is capped by the pipeline’s
maximum tariff rate, and the tiebreaker
is a pro rata allocation, shippers can
obtain more capacity than they would
be able to obtain themselves by bidding
multiple affiliates to defeat the pro rata
allocation mechanism.12 The
Commission stated that each affiliate
with a maximum NPV bid could then
release the capacity to a single affiliate
or otherwise allow its affiliate
effectively to obtain the use of the
allocated capacity.13 The Commission
concluded that such gaming of the pro
rata allocation mechanism has a chilling
effect on competition and permits
entities that apply a multiple affiliate
bidding strategy inappropriately to gain
a disproportionate share of available
capacity by denying a fair distribution
to all maximum rate bidders.14
C. Comments
8. Comments on the NOPR were due
on May 31, 2011. Twelve parties filed
comments.15 In general, commenters
10 18 CFR 358.3(a)(1), (3) (2010). Section
358.3(a)(1) provides that an affiliate of a specified
entity is ‘‘another person that controls, is controlled
by or is under common control with, the specified
entity. An affiliate includes a division of the
specified entity that operates as a functional unit.’’
Section 358.3(a)(3) defines the term ‘‘control.’’
11 NOPR, FERC Stats. & Regs. ¶ 32,673 at P 6.
12 Id.
13 Id. P 7.
14 Id.
15 Comments were filed by American Gas
Association (AGA); Capital Power Corporation
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support the Commission’s efforts to
prevent anticompetitive gaming of the
pro rata allocation methodology.
However, many commenters request
that the Commission modify or clarify
the proposal in various ways. We
discuss the comments below in the
context of reviewing each aspect of this
Final Rule.
II. Need for the Rule
A. The NOPR
9. In the NOPR, the Commission
explained that it has come to its
attention that some entities have
developed and applied a strategy of
bidding with multiple affiliates in open
seasons for available capacity in order to
defeat the pro rata allocation tiebreaker
mechanism and obtain a greater share of
the available capacity than a single
bidder could acquire by itself.16 The
Commission stated that such gaming of
the pro rata allocation mechanism has
a chilling effect on competition and
permits entities that apply a multiple
affiliate bidding strategy inappropriately
to gain a disproportionate share of
available capacity by denying a fair
distribution to all maximum rate
bidders. The Commission also
recognized that multiple affiliate
bidding behavior frustrates the
Commission’s policy of allocating
capacity to the shipper that values it the
most. Finally, the Commission stated
that the proposed rule would provide
clear notice to parties of prohibited
behavior.
B. Comments
10. CPC contends that the proposed
prohibition on multiple affiliate bidding
is unnecessary because the Commission
has clearly articulated its policy and
there is an enforcement mechanism in
place to ensure compliance. CPC
explains that if multiple affiliates are
awarded capacity to the detriment of a
third party, that third party may contact
the Commission’s enforcement staff. All
other commenters support adoption of a
regulation clarifying the Commission’s
rules concerning affiliate participation
(Capital Power); Southern Company Services, Inc.
(SCS); DTE Energy Company (DTE Energy); Process
Gas Consumers Group (PGC); Atmos Energy
Marketing, LLC (AEM); American Public Gas
Association (APGA); Natural Gas Supply
Association (NGSA); Interstate Natural Gas
Association of America (INGAA); National Energy
Marketers Association (NEM); Sequent Energy
Management, L.P. (Sequent); and Seminole Energy
Services, LLC (Seminole).
16 NOPR at P 6–8 (citing Tenaska Marketing
Ventures, et al., 126 FERC ¶ 61,040 (2009) (order
approving stipulations and agreements). See also
Trailblazer Pipeline Co., 101 FERC ¶ 61,405 (2002),
order on technical conference and denying reh’g,
103 FERC ¶ 61,225 (2003), order on reh’g and
compliance filing, 108 FERC ¶ 61,049 (2004)).
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in open seasons for pipeline capacity,
although most commenters request
modifications to the specific regulation
proposed in the NOPR.
C. Commission Determination
11. In the Commission’s view,
amendments to our existing regulations
are necessary to prevent an entity from
using multiple affiliates to secure a
larger allocation of capacity than it
could acquire by itself. Under
conditions where the available capacity
is limited and the value of the capacity
is high, shippers are strongly motivated
to obtain as much of that valuable
capacity as possible in order to take
advantage of the opportunity for profit.
Where the available capacity is finite,
the price is capped by the pipeline’s
maximum tariff rate, and the tiebreaker
is a pro rata allocation, shippers can
obtain more capacity than they would
be able to obtain by themselves by
bidding multiple affiliates to defeat the
pro rata allocation mechanism. Such
gaming of the pro rata allocation
mechanism has the effect of harming
entities that submit only one bid, and by
extension, harming their customers, and
has a chilling effect on competition.
12. While the Commission has
recently addressed the issue of multiple
affiliate bidding, the Commission
believes that further regulatory action is
necessary. In the Commission’s view,
amendments to the existing regulations
are needed to provide clear notice to
parties participating in open seasons for
interstate pipeline capacity that
multiple affiliate bidding is prohibited,
unless a participating affiliate has its
own independent business reason for
submitting a bid. Clarification of the
prohibited behavior should facilitate
compliance with the prohibition.
Entities may contact the Commission’s
enforcement staff in the case of a
possible violation.
III. Prohibition on Multiple Affiliate
Bidding in Open Seasons for Pipeline
Capacity
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A. The NOPR
13. In the NOPR, the Commission
proposed to revise its regulations
governing interstate natural gas
pipelines to prohibit multiple affiliates
of the same entity from bidding in an
open season for pipeline capacity in
which the pipeline may allocate
capacity on a pro rata basis, unless each
affiliate has an independent business
reason for submitting a bid. The
Commission stated that this proposed
rule is designed to ensure that an entity
cannot use multiple affiliates solely to
secure a larger allocation of capacity
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than it could acquire by itself.17 The
Commission explained that multiple
affiliate bidding lessens competition
because other bidders not engaging in
similar conduct will receive less
capacity—not because such bidders
value the capacity any less, but because
they bid only through the unit of the
company intending to use the capacity
or because they did not have multiple
affiliates.18
14. The Commission recognized that
not all multiple affiliate bidding is used
to defeat a pro rata allocation
mechanism, and that in some cases,
affiliates may have independent
business reasons for submitting their
bids.19 However, the Commission stated
that it is impossible to describe in
advance every situation that
demonstrates an independent business
reason.20 Therefore, the Commission
provided two scenarios designed to be
illustrative of situations in which a
business unit uses awarded capacity to
serve its own customers or otherwise
acts consistently with its business plan,
interests, and obligations.21 The
Commission further stated that
indications that a company is not acting
independently would be if the business
unit is used by its parent or affiliate in
a way that differs from its usual
business operations, is used to perform
transactions that an affiliate or parent
could not, or is acting as an ‘‘alter ego’’
of an affiliate or parent.
B. Comments
15. Parties generally support the
Commission’s proposed prohibition on
multiple affiliate bidding. These parties
agree that the Commission’s proposal
should provide clarity to its policies and
help to prevent anticompetitive gaming
of the pro rata allocation methodology.
16. Certain parties express concerns
over the scope and specific elements of
the proposed prohibition. CPC argues
that the prohibition is not reasonably
tailored to meet the Commission’s goals
because the rule would affect virtually
every open season, whether or not
capacity is constrained or whether or
17 Id.
P 14.
P 9.
P 11.
20 Id. P 13.
21 ‘‘For example, a marketing arm of an energy
company may bid to secure capacity for its
wholesale customers and a retail operation of the
same company may bid to secure capacity to serve
its retail customers, and each would have an
independent business reason for its bid. Or a
marketing company may have two or more affiliates
operating in different geographic areas, thus serving
distinct markets all of which may be served by
transportation on the same pipeline. When affiliates
bid in such cases, other bidders are not unduly
harmed, undue discrimination is not practiced, and
Commission policy is not violated.’’ Id. P 11.
18 Id.
19 Id.
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not any other prospective shipper is
denied access to capacity. Some parties
assert that the Commission should
provide more detailed, objective criteria
as to what constitutes an ‘‘independent
business reason’’ that would allow
affiliated entities to bid on constrained
capacity, or create safe harbors or a
bright-line test for what constitutes an
‘‘independent business reason.’’ For
example, NGSA suggests that criteria
might include whether the prospective
affiliated shippers each had separate
contracts to purchase or supply gas;
whether the capacity was bid for in
conjunction with a distinct retail
provider obligation, internal use, or
specific new supply project; or whether
affiliates bidding operate out of different
geographic locations or countries.
17. AGA argues that the proposed rule
would burden participation in pipeline
open seasons because every market
participant with affiliates would be
required to document an independent
business reason each time it bids. AGA
states that the potential number of
affiliates could be expansive, and that in
many cases a market participant would
have no way of knowing whether some
of its affiliates intended to or did submit
a bid in the same pipeline season. AGA
suggests that the Commission modify
proposed section 284.15(a) to focus
narrowly on the conduct that is
considered manipulative by prohibiting
participation in an open season ‘‘for the
purpose of obtaining a larger allocation
of capacity for one affiliate than that
affiliate could acquire for itself,’’ and
not tying the prohibition to the absence
of an independent business reason for
participation in the open season.
18. AGA further requests clarification
that entities that operate in multiple
jurisdictions either as affiliated entities
or a single corporate entity with
multiple operative divisions may submit
multiple bids on behalf of two or more
affiliates or divisions where each
affiliate or division has its own need for
the capacity. SCS requests clarification
that its practice of acting as agent for its
affiliates by submitting one bid for the
total capacity needed by its affiliates
would not trigger the proposed
prohibition on multiple affiliate
bidding. INGAA requests that the
Commission clarify that pipelines are
not required to determine whether open
season bidders or releasing shippers are
affiliated or whether bidders have
independent business reasons for their
bids.
19. APGA suggests that, if affiliates of
the same entity participate in an open
season for pipeline capacity, each be
required to identify itself as such in its
bid and that any award of open season
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capacity likewise note that fact. APGA
asserts that an affiliation between
entities may not be self-evident from the
name of the entity, and this would put
the public on notice that the rule is
applicable and must be satisfied.
20. Finally, DTE Energy argues that
the Commission should exempt
traditional gas and electric utilities from
the definition of ‘‘affiliate’’ used in the
NOPR, as state public service
commission review of these utilities’
activities provides sufficient protection
against manipulative practices.
C. Commission Determination
21. In this Final Rule, the Commission
adopts section 284.15(a) as proposed in
the NOPR. The Commission finds that it
is appropriate to prohibit multiple
affiliates of the same entity from
participating in an open season for
pipeline capacity in which the pipeline
may allocate capacity on a pro rata
basis, unless each affiliate has an
independent business reason for
submitting a bid. This prohibition will
help to prevent shippers from using
multiple affiliates to defeat the pro rata
allocation tiebreaker mechanism and
obtain a greater share of available
capacity than a single bidder could
acquire by itself.
22. As recognized in the NOPR, not
all multiple affiliate bidding is used to
defeat a pro rata allocation mechanism.
Therefore, section 284.15(a) provides an
exception for affiliates that have
independent business reasons for
submitting their bids. For example, a
marketing arm of an energy company
may bid to secure capacity for its
wholesale customers and a retail
operation of the same company may bid
to secure capacity to serve its retail
customers, and each would have an
independent business reason for its bid.
Or a marketing company may have two
or more affiliates operating in different
geographic areas, thus serving distinct
markets all of which may be served by
transportation on the same pipeline.
The prohibition against multiple
affiliate bidding in section 284.15(a) is
reasonably tailored to the harm the
Commission is seeking to prevent, as it
only restricts the participation of
affiliates that do not have an
independent business reason for
bidding.
23. Various commenters request
further clarification of what constitutes
an independent business reason. As the
Commission explained in the NOPR, it
is impossible to describe in advance
every situation that demonstrates an
independent business reason. However,
our intent in permitting bidding by
multiple affiliates where each has its
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own independent business reason for
bidding is to allow each affiliate to
acquire capacity which will facilitate or
enhance its ability to provide service of
value to its own customers or otherwise
help accomplish its own business goals.
The phrase ‘‘independent business
reason’’ should be interpreted and
applied in specific situations consistent
with that intent.
24. The scenarios described in P 22
above illustrate situations where each
affiliate or business unit has an
independent business reason to
participate in an open season, because
each is seeking pipeline capacity in
order to transport natural gas to its own
sales customers. Commenters have
suggested various other scenarios in
which an affiliate or business unit may
use awarded capacity to accomplish its
own business objectives and thus have
an independent business reason for
participating in an open season. For
example, an affiliate may use natural gas
to operate an industrial plant, refinery,
or electric generation facility, and seek
pipeline capacity to transport natural
gas to that facility.22 A producer affiliate
may be developing a new production
field and seek pipeline capacity to
transport natural gas produced from that
field to market.23 A marketer affiliate
participating in a retail access program
may seek pipeline capacity to serve its
retail customers in that program.24 A
marketer affiliate may also seek pipeline
capacity to transport natural gas to any
other type of customer to whom it
ordinarily sells natural gas. In all of
these scenarios, the affiliate or business
unit is seeking pipeline capacity to
transport natural gas which it will
consume in its own business operations
or sell to others as part of its ordinary
course of business. In such
circumstances, the affiliate may
participate in an open season, regardless
of whether any other affiliate may
participate in the same open season.25
By contrast, indications that a company
is not acting independently would be if
the business unit is used by its parent
or affiliate in a way that differs from its
usual business operations, is used to
perform transactions that an affiliate or
parent could not, or is acting as an
‘‘alter ego’’ of an affiliate or parent.
22 NGSA
23 NGSA
at 4; PGC at 3; AGA at 7.
at 4.
24 Id.
25 As requested by SCS and AGA, the
Commission also clarifies that a group of affiliated
electric generators or gas distribution companies
operating in different geographic areas may
designate a single affiliate as their gas purchasing
agent and that affiliate may participate in an open
season to obtain pipeline capacity to serve all the
affiliates in the group.
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25. AGA argues that the proposed rule
would burden participation in pipeline
open seasons because each market
participant would be required to
document an independent business
reason each time it bids and would have
no way of knowing whether some of its
affiliates submitted a bid. We disagree.
First, the rule requires an affiliate to do
no more than any reasonably prudent
company would do when considering
whether to bid in an open season for
pipeline capacity. Before submitting a
bid, the affiliate must decide whether
and how much of the subject capacity
it needs in order to accomplish its own
business objectives, and it should
maintain some record of the basis for its
determination. The rule does not
include any specific documentation
requirement. Second, each affiliate only
need concern itself with whether it,
individually, has an independent
business reason for bidding. The rule
does not require that an entity
coordinate with its affiliates to establish
how its independent business reason
differs from the business reasons of the
other affiliates. In fact, not coordinating
with affiliates would help to avoid the
appearance of multiple affiliate bidding
behavior. Similarly, if state public
service commission review prevents gas
and electric utilities from acquiring gas
transportation for purposes not related
to serving customers, as DTE Energy
asserts, then it should not be
burdensome for these entities to
establish an independent business
purpose. We therefore do not find it
necessary to modify proposed section
284.15(a) or the proposed definition of
‘‘affiliate.’’
26. We do not find it necessary to
require that each affiliate identify itself
as such and that any award of open
season capacity note the affiliation. In
order for multiple affiliates of the same
entity to participate in an open season
for pipeline capacity in which the
pipeline may allocate capacity on a pro
rata basis, each affiliate must have an
independent business reason for
submitting a bid. Therefore, consumers
should be protected by the rule even if
each affiliate is not labeled as such. We
also note that each affiliate has the
responsibility to ensure that it has an
independent business reason for
submitting a bid, not the pipeline
conducting the open season.
IV. Prohibition on Release of Capacity
A. The NOPR
27. The Commission also proposed
that if more than one affiliate of the
same entity participates in such an open
season, then none of those affiliates may
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release any capacity obtained in that
open season pursuant to a pro rata
allocation to any affiliate, or otherwise
allow any affiliate to obtain the use of
the allowed capacity. The Commission
noted that some companies bidding
with multiple affiliates have used
capacity release as the final step in
consolidating multiple shares of
capacity for use by one of the company’s
units.26 The Commission explained
that, by releasing the capacity acquired
in the open season, affiliates are able to
transfer the capacity each acquires to a
single company that benefits by
obtaining more capacity than it could
have obtained by itself.27
B. Comments
28. Parties generally argue that the
capacity release prohibition, as drafted,
is overbroad and would have a chilling
effect on the capacity release markets.
For example, AGA argues that where an
affiliate complies with section 284.15(a)
and legitimately obtains capacity in an
open season with a pro rata allocation,
that affiliate should be permitted to
release its capacity to any entity under
the normal capacity release rules
applicable to all other shippers. It
argues that this is especially the case if
the releasing affiliate posts the release
for bidding and has no control over who
might acquire the released capacity.
AGA further states that, if the proposed
capacity release prohibition is adopted,
an affiliate legitimately obtaining
capacity in an open season may be
reluctant to offer capacity to the release
market for fear that an affiliate would be
the winning bidder for the capacity.
29. Parties argue that, if the
prohibition on capacity release is
adopted, various clarifications are
required. For example, AGA argues that
the Commission should clarify that the
prohibition on capacity release only
applies where the affiliate cannot
establish an independent business
reason for bidding, and that, if an entity
with multiple affiliates acquires
capacity in an open season with a pro
rata allocation and releases that
capacity in a competitive bidding
process where the winning bidder is an
unaffiliated third party, an affiliate
could subsequently acquire the capacity
from that party. CPC proposes
alternative language to the proposed
regulation that would clarify that a ban
on capacity release (1) Only applies to
the extent two affiliates actually receive
a pro rata award of capacity, and (2)
26 NOPR, FERC Stats. & Regs. ¶ 32,673 at P 15
(citing Tenaska Marketing Ventures, et al., 126
FERC ¶ 61,040 at P 13, 18).
27 Id.
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13:42 Nov 22, 2011
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expires after a reasonable period, such
as two years. Numerous parties state
that the Commission should clarify that
the prohibition on capacity release does
not apply to releases of pipeline
capacity to (1) Qualifying asset
managers as part of an Asset
Management Agreement or (2) marketers
participating in a state commissionregulated retail access program. PGC
urges the Commission to recognize that,
if industrial end-users decide to realign
their natural gas purchasing and
transportation practices to central
management in order to maximize
corporate efficiencies, capacity releases
between affiliates may be required.
30. Parties also express concern that
seeking waiver of the capacity release
prohibition would be overly
burdensome.
C. Commission Determination
31. In light of the comments received,
the Commission has reconsidered its
proposal and has decided not to adopt
the proposed prohibition on capacity
release. The prohibition on capacity
release, proposed as section 284.15(b) in
the NOPR, was intended to provide an
additional deterrent to affiliates bidding
for capacity for which they have no
independent use. However, any
behavior that the Commission intended
to fall under the capacity release
prohibition is covered by the
prohibition on multiple affiliate bidding
in proposed section 284.15(a).
Therefore, the Commission believes that
the prohibition on multiple affiliate
bidding in proposed section 284.15(a) is
sufficient to prohibit the subject
conduct without the additional capacity
release prohibition.
32. Furthermore, we appreciate
commenters’ concern that the capacity
release prohibition could have a chilling
effect on affiliates’ participation in the
capacity release markets. The
Commission adopted the capacity
release program in order to promote
efficient use of firm pipeline capacity
throughout the year.28 For example, the
capacity release program permits a firm
shipper to release its capacity to another
shipper during periods when the release
shipper does not need its capacity. This
allows the releasing shipper to reduce
its cost of reserving capacity and
enables other shippers who value the
capacity more to use it.
33. Upon further consideration, the
Commission has determined that an
affiliate who legitimately obtains
capacity in an open season for its own
independent business purposes should
be permitted to release that capacity to
any entity under the normal capacity
release rules applicable to all other
shippers. This will enable affiliates to
obtain the same benefits from capacity
release as other shippers. We note,
however, that the Commission may
consider what an entity does with its
awarded capacity, such as subsequently
releasing the capacity to an affiliate on
a long-term basis, as a factor in the
determination of whether the entity in
fact had an independent business reason
to obtain the capacity.
34. The Commission will therefore
promulgate the Final Rule without the
prohibition on capacity release. This
Final Rule, as amended, should prevent
anticompetitive gaming of the pro rata
allocation methodology by using
multiple affiliates of the same entity to
acquire a larger share of the available
capacity than one affiliate would be able
to acquire by itself.
V. Information Collection Statement
35. Office of Management and Budget
(OMB) regulations require OMB to
approve certain information collection
requirements imposed by agency rule.29
This rule contains no new or revised
information collections. Therefore, OMB
review of this Final Rule is not required.
VI. Environmental Analysis
36. The Commission is required to
prepare an Environmental Assessment
or an Environmental Impact Statement
for any action that may have a
significant adverse effect on the human
environment.30 The Commission has
categorically excluded certain actions
from these requirements as not having a
significant effect on the human
environment.31 The actions proposed to
be taken here fall within categorical
exclusions in the Commission’s
regulations for rules that are corrective,
clarifying or procedural, for information
gathering, analysis, and dissemination,
and for sales, exchange, and
transportation of natural gas that
requires no construction of facilities.32
Therefore an environmental review is
29 5
28 Promotion
of a More Efficient Capacity Release
Market, Order No. 712, 73 FR 37058 (June 30, 2008),
FERC Stats. & Regs. ¶ 31,271, at P 4 (2008), order
on reh’g, Order No. 712–A, 73 FR 72692 (Dec. 1,
2008), FERC Stats. & Regs. ¶ 31,284 (2008), order on
reh’g, Order No. 712–B, 74 FR 18127 (Apr. 21,
2009), 127 FERC ¶ 61,051 (2009).
PO 00000
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72305
CFR 1320.11 (2011).
Implementing the National
Environmental Policy Act of 1969, Order No. 486,
52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs.,
Regulations Preambles 1986–1990 ¶ 30,783 (1987).
31 18 CFR 380.4 (2011).
32 See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5), and
380.4(a)(27) (2011).
30 Regulations
E:\FR\FM\23NOR1.SGM
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72306
Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Rules and Regulations
unnecessary and has not been prepared
in this rulemaking.
pmangrum on DSK3VPTVN1PROD with RULES
VII. Regulatory Flexibility Act
37. The Regulatory Flexibility Act of
1980 (RFA) 33 generally requires a
description and analysis of final rules
that will have significant economic
impact on a substantial number of small
entities. The Commission is not
required to make such an analysis if
proposed regulations would not have
such an effect.34 Most companies
regulated by the Commission do not fall
within the RFA’s definition of a small
entity.35
38. This Final Rule should have no
significant negative impact on those
entities, be they large or small, subject
to the Commission’s regulatory
jurisdiction under the NGA. Most
companies to which the Final Rule
applies do not fall within the RFA’s
definition of small entities. In addition,
this Final Rule is only triggered if more
than one affiliate of the same entity
participates in an open season for
pipeline capacity in which the pipeline
may allocate capacity on a pro rata
basis, and each affiliate does not have
an independent business reason for
submitting a bid. Therefore, the rule
would only affect a limited number of
small entities. This Final Rule will not
have a significant economic effect on
these small entities. Therefore, the
Commission certifies that this Final
Rule will not have a significant
economic effect on a substantial number
of small entities.
VIII. Document Availability
39. 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
FERC’s Home Page (https://www.ferc.gov)
and in FERC’s Public Reference Room
during normal business hours (8:30 a.m.
to 5 p.m. Eastern time) at 888 First
Street NE., Room 2A, Washington, DC
20426.
40. From FERC’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
33 5
U.S.C. 601–612 (2006).
U.S.C. 605(b) (2006).
35 5 U.S.C. 601(3) (citing section 3 of the Small
Business Act, 15 U.S.C. 623 (2006)). Section 3
defines a ‘‘small-business concern’’ as a business
which is independently owned and operated and
which is not dominant in its field of operation.
34 5
VerDate Mar<15>2010
13:42 Nov 22, 2011
Jkt 226001
digits of this document in the docket
number field.
41. User assistance is available for
eLibrary and the FERC’s Web site during
normal business hours from FERC
Online Support at (202) 502–6652 (toll
free at 1–(866) 208–3676) or email at
ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. Email the
Public Reference Room at
public.referenceroom@ferc.gov.
IX. Effective Date and Congressional
Notification
42. These regulations are effective
December 23, 2011. The Commission
has determined, with the concurrence of
the Administrator of the Office of
Information and Regulatory Affairs of
OMB, that this rule is not a ‘‘major rule’’
as defined in section 351 of the Small
Business Regulatory Enforcement
Fairness Act of 1996.
List of Subjects in 18 CFR Part 284
Continental shelf, Natural gas,
Reporting and recordkeeping
requirements.
By the Commission. Commissioner Spitzer
is not participating.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
In consideration of the foregoing, the
Commission amends part 284, Chapter I,
Title 18, Code of Federal Regulations, as
follows:
PART 284—CERTAIN SALES AND
TRANSPORTATION OF NATURAL GAS
UNDER THE NATURAL GAS POLICY
ACT OF 1978 AND RELATED
AUTHORITIES
1. The authority citation for part 284
continues to read as follows:
■
Authority: 15 U.S.C. 717–717w, 3301–
3432; 42 U.S.C. 7101–7352; 43 U.S.C. 1331–
1356.
2. Section 284.15 is added to subpart
A to read as follows.
■
§ 284.15 Bidding by affiliates in open
seasons for pipeline capacity.
(a) Multiple affiliates of the same
entity may not participate in an open
season for pipeline capacity conducted
by any interstate pipeline providing
service under subparts B and G of this
part, in which the pipeline may allocate
capacity on a pro rata basis, unless each
affiliate has an independent business
reason for submitting a bid.
(b) For purposes of this section, an
affiliate is any person that satisfies the
definition of affiliate in § 358.3(a)(1) and
(3) of this chapter with respect to
another entity participating in an open
PO 00000
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Sfmt 4700
season subject to paragraph (a) of this
section.
[FR Doc. 2011–30115 Filed 11–22–11; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Part 200
[Docket No. FR–5458–F–02]
RIN 2502–AI96
Federal Housing Administration (FHA)
Appraiser Roster: Appraiser
Qualifications for Placement on the
FHA Appraiser Roster
Office of the Assistant
Secretary of Housing—Federal Housing
Commissioner, HUD.
ACTION: Final rule.
AGENCY:
On July 14, 2011, HUD
published a proposed rule to update
HUD’s regulations to conform to the
statutory requirement that appraisers
must be certified, rather than licensed,
by a state appraisal licensing board in
order to appear on the FHA Appraiser
Roster. This requirement was
established by the Housing and
Economic Recovery Act of 2008.
Although current HUD practice is in
compliance with the statutory mandate,
the regulations reflect outdated prior
policy of permitting state-licensed
appraisers to be listed on the FHA
Appraiser Roster. In addition, HUD
proposed updating the FHA Appraiser
Roster regulations by replacing the
obsolete references to the Credit Alert
Interactive Voice Response System
(CAIVRS) with references to its
successor, the online-based Credit Alert
Verification Reporting System. This
final rule follows the publication of the
July 14, 2011, proposed rule. In this
final rule, HUD is adopting the
proposed rule without change. HUD did
not receive any public comments on the
proposed rule.
DATES: Effective Date: December 23,
2011.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Karin Hill, Director, Office of Single
Family Program Development, Office of
Housing, Department of Housing and
Urban Development, 451 7th Street SW.,
Room 9278, Washington, DC 20410–
8000; telephone number (202) 708–2121
(this is not a toll-free number). Persons
with hearing or speech impairments
may access this number via TTY by
calling the Federal Relay Service at 1
(800) 877–8339.
SUPPLEMENTARY INFORMATION:
E:\FR\FM\23NOR1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 226 (Wednesday, November 23, 2011)]
[Rules and Regulations]
[Pages 72301-72306]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30115]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 /
Rules and Regulations
[[Page 72301]]
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 284
[Docket No. RM11-15-000; Order No. 894]
Bidding by Affiliates in Open Seasons for Pipeline Capacity
AGENCY: Federal Energy Regulatory Commission, Energy.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this Final Rule, the Federal Energy Regulatory Commission
revises its regulations governing interstate natural gas pipelines to
prohibit multiple affiliates of the same entity from bidding in an open
season for pipeline capacity in which the pipeline may allocate
capacity on a pro rata basis, unless each affiliate has an independent
business reason for submitting a bid. The Commission does not find it
necessary to adopt its proposal in the Notice of Proposed Rulemaking
that if more than one affiliate of the same entity participates in such
an open season, then none of those affiliates may release any capacity
obtained in that open season pursuant to a pro rata allocation to any
affiliate, or otherwise allow any affiliate to obtain the use of the
allowed capacity.
DATES: Effective Date: This rule will become effective December 23,
2011.
FOR FURTHER INFORMATION CONTACT:
Jennifer Kunz, Office of the General Counsel, Federal Energy Regulatory
Commission, 888 First Street NE., Washington, DC 20426.
Jennifer.Kunz@ferc.gov. (202) 502-6102.
Michael Strzelecki, Office of Energy Market Regulation, Federal Energy
Regulatory Commission, 888 First Street NE., Washington, DC 20426.
Michael.Strzelecki@ferc.gov. (202) 502-6075.
SUPPLEMENTARY INFORMATION:
Table of Contents
Paragraph
No.
I. Background............................................... 2
II. Need for the Rule....................................... 9
III. Prohibition on Multiple Affiliate Bidding in Open 13
Seasons for Pipeline Capacity..............................
IV. Prohibition on Release of Capacity...................... 27
V. Information Collection Statement......................... 35
VI. Environmental Analysis.................................. 36
VII. Regulatory Flexibility Act............................. 37
VIII. Document Availability................................. 39
IX. Effective Date and Congressional Notification........... 42
Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller,
John R. Norris, and Cheryl A. LaFleur.
(Issued November 17, 2011)
1. In this Final Rule, the Commission revises its Part 284
regulations governing interstate natural gas pipelines to prohibit
multiple affiliates of the same entity from bidding in an open season
for pipeline capacity in which the pipeline may allocate capacity on a
pro rata basis, unless each affiliate has an independent business
reason for submitting a bid. The Commission does not find it necessary
to adopt its proposal in the Notice of Proposed Rulemaking \1\ that if
more than one affiliate of the same entity participates in such an open
season, then none of those affiliates may release any capacity obtained
in that open season pursuant to a pro rata allocation to any affiliate,
or otherwise allow any affiliate to obtain the use of the allowed
capacity.
---------------------------------------------------------------------------
\1\ Bidding by Affiliates in Open Seasons for Pipeline Capacity,
76 FR 20571 (Apr. 13, 2011), FERC Stats. and Regs. ] 32,673 (2011)
(NOPR).
---------------------------------------------------------------------------
I. Background
A. Open Seasons for Pipeline Capacity
2. The Commission's policy under the Natural Gas Act (NGA) \2\ is
to allocate available interstate pipeline capacity to the shipper that
values it the most, up to the maximum rate.\3\ In furtherance of this
goal, the Commission favors the use of open seasons to allocate
capacity and permits but does not require a net present value (NPV)
evaluation as a tool for determining the highest valued use.\4\
---------------------------------------------------------------------------
\2\ 15 U.S.C. 717 et al. (2006).
\3\ N. Natural Gas Co., 108 FERC ] 61,044, at P 11 (2004);
Texican N. La. Transport, LLC v. Southern Natural Gas Co., 129 FERC
] 61,270, at P 70 (2009) (Texican I), order on reh'g, 132 FERC ]
61,167, at P 23, 26 (2010) (Texican II).
\4\ Texican II, 132 FERC ] 61,167 at P 26.
---------------------------------------------------------------------------
3. Some pipelines hold open seasons to alert shippers to the
availability of capacity on the pipeline and allow the shippers to bid
for available capacity. The pipeline's open season process is an open
and transparent procedure that is set forth in the pipeline's tariff.
The pipeline notifies shippers of the availability of capacity by
posting an open season notice on its EBB and/or Web site for the
available capacity. During the open season, the Commission requires
pipelines to sell all available capacity to shippers willing to pay the
pipeline's maximum recourse rate.\5\
---------------------------------------------------------------------------
\5\ Promotion of a More Efficient Capacity Release Market,
Notice of Proposed Rulemaking, 72 FR 65916 (Nov. 26, 2007), FERC
Stats. & Regs. ] 32,625, at P 40 (2007) (citing Tenn. Gas Pipeline
Co., 91 FERC ] 61,053 (2000), 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 (DC Cir. 2002)).
---------------------------------------------------------------------------
[[Page 72302]]
4. NPV is a method for awarding capacity from the bids received
during the open season.\6\ NPV is a standard method of evaluating bids
for capacity by using the time value of money to determine the present
value of a time series of discounted cash flows.\7\ The highest bidder,
based on the NPV of the bid, receives the capacity. Factors determining
NPV are price, volume of gas, and duration of the contract. The
Commission has stated that a ``net present value evaluation * * *
allocates capacity to the shipper who will produce the greatest revenue
and the least unsubscribed capacity. As such, it is an economically
efficient way of allocating capacity and is consistent with Commission
policy.'' \8\
---------------------------------------------------------------------------
\6\ NPV is not the only method a pipeline could use. Another is
the ``first come-first served'' approach, where the first shipper to
submit a qualifying bid receives the capacity.
\7\ Saltville Gas Storage Co., L.L.C., 128 FERC ] 61,257, at P 2
n.3 (2009).
\8\ Tenn. Gas Pipeline Co., 76 FERC ] 61,101, at 61,522 (1996),
order on reh'g, 79 FERC ] 61,297 (1997), order on reh'g, 82 FERC ]
61,008 (1998), remanded sub nom. Process Gas Consumers Group v.
FERC, 177 F.3d 995 (DC Cir. 1999), order on compliance, 91 FERC ]
61,333 (2000), order on remand, 91 FERC ] 61,053 (2000), 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 (DC Cir.
2002).
---------------------------------------------------------------------------
5. In the event that there is not sufficient capacity to meet all
equal maximum bids, pipelines apply a tiebreaker mechanism. One such
mechanism is the pro rata allocation methodology. Under a pro rata
allocation tiebreaker mechanism, in the event that there is not
sufficient capacity to meet all qualifying bids, the capacity is
allocated pro rata, i.e., based on the ratio of each shipper's
respective nomination to all qualifying nominations, applied to the
total available capacity.\9\
---------------------------------------------------------------------------
\9\ An alternative tiebreaker mechanism for multiple maximum
bids is to award the capacity to the earliest applicant. The
Commission has stated that ``no single tiebreaker method is
definitely better than other methods; each system has advantages and
disadvantages * * *. So long as its method is reasonable [a
pipeline] may choose any method it wishes for inclusion as the
default tiebreaker in its tariff.'' Trailblazer Pipeline Co., 103
FERC ] 61,225, at 61,869 (2003), order on reh'g and compliance
filing, 108 FERC ] 61,049, at 61,305 (2004).
---------------------------------------------------------------------------
B. The NOPR
6. On April 7, 2011, the Commission issued the NOPR, in which it
proposed to add a new section 284.15 to its regulations prohibiting
multiple affiliates of the same entity from bidding in an open season
for pipeline capacity conducted by any interstate pipeline providing
service under subparts B and G of Part 284 of the Commission's
regulations in which the pipeline may allocate capacity on a pro rata
basis, unless each affiliate has an independent business reason for
submitting a bid. The Commission also proposed that if more than one
affiliate of the same entity participates in such an open season, then
none of those affiliates may release any capacity obtained in that open
season pursuant to a pro rata allocation to any affiliate, or otherwise
allow any affiliate to obtain the use of the allowed capacity. The
Commission proposed that, for purposes of the new regulation, the term
``affiliate'' be defined as provided in section 358.3(a)(1) and (3) of
the Commission's existing regulations.\10\
---------------------------------------------------------------------------
\10\ 18 CFR 358.3(a)(1), (3) (2010). Section 358.3(a)(1)
provides that an affiliate of a specified entity is ``another person
that controls, is controlled by or is under common control with, the
specified entity. An affiliate includes a division of the specified
entity that operates as a functional unit.'' Section 358.3(a)(3)
defines the term ``control.''
---------------------------------------------------------------------------
7. The Commission explained that some entities had developed and
applied a strategy of bidding with multiple affiliates in open seasons
for available capacity in order to defeat the pro rata allocation
tiebreaker mechanism and obtain a greater share of the available
capacity than a single bidder could have acquired by itself.\11\ The
Commission further explained that, where the available capacity is
finite, the price is capped by the pipeline's maximum tariff rate, and
the tiebreaker is a pro rata allocation, shippers can obtain more
capacity than they would be able to obtain themselves by bidding
multiple affiliates to defeat the pro rata allocation mechanism.\12\
The Commission stated that each affiliate with a maximum NPV bid could
then release the capacity to a single affiliate or otherwise allow its
affiliate effectively to obtain the use of the allocated capacity.\13\
The Commission concluded that such gaming of the pro rata allocation
mechanism has a chilling effect on competition and permits entities
that apply a multiple affiliate bidding strategy inappropriately to
gain a disproportionate share of available capacity by denying a fair
distribution to all maximum rate bidders.\14\
---------------------------------------------------------------------------
\11\ NOPR, FERC Stats. & Regs. ] 32,673 at P 6.
\12\ Id.
\13\ Id. P 7.
\14\ Id.
---------------------------------------------------------------------------
C. Comments
8. Comments on the NOPR were due on May 31, 2011. Twelve parties
filed comments.\15\ In general, commenters support the Commission's
efforts to prevent anticompetitive gaming of the pro rata allocation
methodology. However, many commenters request that the Commission
modify or clarify the proposal in various ways. We discuss the comments
below in the context of reviewing each aspect of this Final Rule.
---------------------------------------------------------------------------
\15\ Comments were filed by American Gas Association (AGA);
Capital Power Corporation (Capital Power); Southern Company
Services, Inc. (SCS); DTE Energy Company (DTE Energy); Process Gas
Consumers Group (PGC); Atmos Energy Marketing, LLC (AEM); American
Public Gas Association (APGA); Natural Gas Supply Association
(NGSA); Interstate Natural Gas Association of America (INGAA);
National Energy Marketers Association (NEM); Sequent Energy
Management, L.P. (Sequent); and Seminole Energy Services, LLC
(Seminole).
---------------------------------------------------------------------------
II. Need for the Rule
A. The NOPR
9. In the NOPR, the Commission explained that it has come to its
attention that some entities have developed and applied a strategy of
bidding with multiple affiliates in open seasons for available capacity
in order to defeat the pro rata allocation tiebreaker mechanism and
obtain a greater share of the available capacity than a single bidder
could acquire by itself.\16\ The Commission stated that such gaming of
the pro rata allocation mechanism has a chilling effect on competition
and permits entities that apply a multiple affiliate bidding strategy
inappropriately to gain a disproportionate share of available capacity
by denying a fair distribution to all maximum rate bidders. The
Commission also recognized that multiple affiliate bidding behavior
frustrates the Commission's policy of allocating capacity to the
shipper that values it the most. Finally, the Commission stated that
the proposed rule would provide clear notice to parties of prohibited
behavior.
---------------------------------------------------------------------------
\16\ NOPR at P 6-8 (citing Tenaska Marketing Ventures, et al.,
126 FERC ] 61,040 (2009) (order approving stipulations and
agreements). See also Trailblazer Pipeline Co., 101 FERC ] 61,405
(2002), order on technical conference and denying reh'g, 103 FERC ]
61,225 (2003), order on reh'g and compliance filing, 108 FERC ]
61,049 (2004)).
---------------------------------------------------------------------------
B. Comments
10. CPC contends that the proposed prohibition on multiple
affiliate bidding is unnecessary because the Commission has clearly
articulated its policy and there is an enforcement mechanism in place
to ensure compliance. CPC explains that if multiple affiliates are
awarded capacity to the detriment of a third party, that third party
may contact the Commission's enforcement staff. All other commenters
support adoption of a regulation clarifying the Commission's rules
concerning affiliate participation
[[Page 72303]]
in open seasons for pipeline capacity, although most commenters request
modifications to the specific regulation proposed in the NOPR.
C. Commission Determination
11. In the Commission's view, amendments to our existing
regulations are necessary to prevent an entity from using multiple
affiliates to secure a larger allocation of capacity than it could
acquire by itself. Under conditions where the available capacity is
limited and the value of the capacity is high, shippers are strongly
motivated to obtain as much of that valuable capacity as possible in
order to take advantage of the opportunity for profit. Where the
available capacity is finite, the price is capped by the pipeline's
maximum tariff rate, and the tiebreaker is a pro rata allocation,
shippers can obtain more capacity than they would be able to obtain by
themselves by bidding multiple affiliates to defeat the pro rata
allocation mechanism. Such gaming of the pro rata allocation mechanism
has the effect of harming entities that submit only one bid, and by
extension, harming their customers, and has a chilling effect on
competition.
12. While the Commission has recently addressed the issue of
multiple affiliate bidding, the Commission believes that further
regulatory action is necessary. In the Commission's view, amendments to
the existing regulations are needed to provide clear notice to parties
participating in open seasons for interstate pipeline capacity that
multiple affiliate bidding is prohibited, unless a participating
affiliate has its own independent business reason for submitting a bid.
Clarification of the prohibited behavior should facilitate compliance
with the prohibition. Entities may contact the Commission's enforcement
staff in the case of a possible violation.
III. Prohibition on Multiple Affiliate Bidding in Open Seasons for
Pipeline Capacity
A. The NOPR
13. In the NOPR, the Commission proposed to revise its regulations
governing interstate natural gas pipelines to prohibit multiple
affiliates of the same entity from bidding in an open season for
pipeline capacity in which the pipeline may allocate capacity on a pro
rata basis, unless each affiliate has an independent business reason
for submitting a bid. The Commission stated that this proposed rule is
designed to ensure that an entity cannot use multiple affiliates solely
to secure a larger allocation of capacity than it could acquire by
itself.\17\ The Commission explained that multiple affiliate bidding
lessens competition because other bidders not engaging in similar
conduct will receive less capacity--not because such bidders value the
capacity any less, but because they bid only through the unit of the
company intending to use the capacity or because they did not have
multiple affiliates.\18\
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\17\ Id. P 14.
\18\ Id. P 9.
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14. The Commission recognized that not all multiple affiliate
bidding is used to defeat a pro rata allocation mechanism, and that in
some cases, affiliates may have independent business reasons for
submitting their bids.\19\ However, the Commission stated that it is
impossible to describe in advance every situation that demonstrates an
independent business reason.\20\ Therefore, the Commission provided two
scenarios designed to be illustrative of situations in which a business
unit uses awarded capacity to serve its own customers or otherwise acts
consistently with its business plan, interests, and obligations.\21\
The Commission further stated that indications that a company is not
acting independently would be if the business unit is used by its
parent or affiliate in a way that differs from its usual business
operations, is used to perform transactions that an affiliate or parent
could not, or is acting as an ``alter ego'' of an affiliate or parent.
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\19\ Id. P 11.
\20\ Id. P 13.
\21\ ``For example, a marketing arm of an energy company may bid
to secure capacity for its wholesale customers and a retail
operation of the same company may bid to secure capacity to serve
its retail customers, and each would have an independent business
reason for its bid. Or a marketing company may have two or more
affiliates operating in different geographic areas, thus serving
distinct markets all of which may be served by transportation on the
same pipeline. When affiliates bid in such cases, other bidders are
not unduly harmed, undue discrimination is not practiced, and
Commission policy is not violated.'' Id. P 11.
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B. Comments
15. Parties generally support the Commission's proposed prohibition
on multiple affiliate bidding. These parties agree that the
Commission's proposal should provide clarity to its policies and help
to prevent anticompetitive gaming of the pro rata allocation
methodology.
16. Certain parties express concerns over the scope and specific
elements of the proposed prohibition. CPC argues that the prohibition
is not reasonably tailored to meet the Commission's goals because the
rule would affect virtually every open season, whether or not capacity
is constrained or whether or not any other prospective shipper is
denied access to capacity. Some parties assert that the Commission
should provide more detailed, objective criteria as to what constitutes
an ``independent business reason'' that would allow affiliated entities
to bid on constrained capacity, or create safe harbors or a bright-line
test for what constitutes an ``independent business reason.'' For
example, NGSA suggests that criteria might include whether the
prospective affiliated shippers each had separate contracts to purchase
or supply gas; whether the capacity was bid for in conjunction with a
distinct retail provider obligation, internal use, or specific new
supply project; or whether affiliates bidding operate out of different
geographic locations or countries.
17. AGA argues that the proposed rule would burden participation in
pipeline open seasons because every market participant with affiliates
would be required to document an independent business reason each time
it bids. AGA states that the potential number of affiliates could be
expansive, and that in many cases a market participant would have no
way of knowing whether some of its affiliates intended to or did submit
a bid in the same pipeline season. AGA suggests that the Commission
modify proposed section 284.15(a) to focus narrowly on the conduct that
is considered manipulative by prohibiting participation in an open
season ``for the purpose of obtaining a larger allocation of capacity
for one affiliate than that affiliate could acquire for itself,'' and
not tying the prohibition to the absence of an independent business
reason for participation in the open season.
18. AGA further requests clarification that entities that operate
in multiple jurisdictions either as affiliated entities or a single
corporate entity with multiple operative divisions may submit multiple
bids on behalf of two or more affiliates or divisions where each
affiliate or division has its own need for the capacity. SCS requests
clarification that its practice of acting as agent for its affiliates
by submitting one bid for the total capacity needed by its affiliates
would not trigger the proposed prohibition on multiple affiliate
bidding. INGAA requests that the Commission clarify that pipelines are
not required to determine whether open season bidders or releasing
shippers are affiliated or whether bidders have independent business
reasons for their bids.
19. APGA suggests that, if affiliates of the same entity
participate in an open season for pipeline capacity, each be required
to identify itself as such in its bid and that any award of open season
[[Page 72304]]
capacity likewise note that fact. APGA asserts that an affiliation
between entities may not be self-evident from the name of the entity,
and this would put the public on notice that the rule is applicable and
must be satisfied.
20. Finally, DTE Energy argues that the Commission should exempt
traditional gas and electric utilities from the definition of
``affiliate'' used in the NOPR, as state public service commission
review of these utilities' activities provides sufficient protection
against manipulative practices.
C. Commission Determination
21. In this Final Rule, the Commission adopts section 284.15(a) as
proposed in the NOPR. The Commission finds that it is appropriate to
prohibit multiple affiliates of the same entity from participating in
an open season for pipeline capacity in which the pipeline may allocate
capacity on a pro rata basis, unless each affiliate has an independent
business reason for submitting a bid. This prohibition will help to
prevent shippers from using multiple affiliates to defeat the pro rata
allocation tiebreaker mechanism and obtain a greater share of available
capacity than a single bidder could acquire by itself.
22. As recognized in the NOPR, not all multiple affiliate bidding
is used to defeat a pro rata allocation mechanism. Therefore, section
284.15(a) provides an exception for affiliates that have independent
business reasons for submitting their bids. For example, a marketing
arm of an energy company may bid to secure capacity for its wholesale
customers and a retail operation of the same company may bid to secure
capacity to serve its retail customers, and each would have an
independent business reason for its bid. Or a marketing company may
have two or more affiliates operating in different geographic areas,
thus serving distinct markets all of which may be served by
transportation on the same pipeline. The prohibition against multiple
affiliate bidding in section 284.15(a) is reasonably tailored to the
harm the Commission is seeking to prevent, as it only restricts the
participation of affiliates that do not have an independent business
reason for bidding.
23. Various commenters request further clarification of what
constitutes an independent business reason. As the Commission explained
in the NOPR, it is impossible to describe in advance every situation
that demonstrates an independent business reason. However, our intent
in permitting bidding by multiple affiliates where each has its own
independent business reason for bidding is to allow each affiliate to
acquire capacity which will facilitate or enhance its ability to
provide service of value to its own customers or otherwise help
accomplish its own business goals. The phrase ``independent business
reason'' should be interpreted and applied in specific situations
consistent with that intent.
24. The scenarios described in P 22 above illustrate situations
where each affiliate or business unit has an independent business
reason to participate in an open season, because each is seeking
pipeline capacity in order to transport natural gas to its own sales
customers. Commenters have suggested various other scenarios in which
an affiliate or business unit may use awarded capacity to accomplish
its own business objectives and thus have an independent business
reason for participating in an open season. For example, an affiliate
may use natural gas to operate an industrial plant, refinery, or
electric generation facility, and seek pipeline capacity to transport
natural gas to that facility.\22\ A producer affiliate may be
developing a new production field and seek pipeline capacity to
transport natural gas produced from that field to market.\23\ A
marketer affiliate participating in a retail access program may seek
pipeline capacity to serve its retail customers in that program.\24\ A
marketer affiliate may also seek pipeline capacity to transport natural
gas to any other type of customer to whom it ordinarily sells natural
gas. In all of these scenarios, the affiliate or business unit is
seeking pipeline capacity to transport natural gas which it will
consume in its own business operations or sell to others as part of its
ordinary course of business. In such circumstances, the affiliate may
participate in an open season, regardless of whether any other
affiliate may participate in the same open season.\25\ By contrast,
indications that a company is not acting independently would be if the
business unit is used by its parent or affiliate in a way that differs
from its usual business operations, is used to perform transactions
that an affiliate or parent could not, or is acting as an ``alter ego''
of an affiliate or parent.
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\22\ NGSA at 4; PGC at 3; AGA at 7.
\23\ NGSA at 4.
\24\ Id.
\25\ As requested by SCS and AGA, the Commission also clarifies
that a group of affiliated electric generators or gas distribution
companies operating in different geographic areas may designate a
single affiliate as their gas purchasing agent and that affiliate
may participate in an open season to obtain pipeline capacity to
serve all the affiliates in the group.
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25. AGA argues that the proposed rule would burden participation in
pipeline open seasons because each market participant would be required
to document an independent business reason each time it bids and would
have no way of knowing whether some of its affiliates submitted a bid.
We disagree. First, the rule requires an affiliate to do no more than
any reasonably prudent company would do when considering whether to bid
in an open season for pipeline capacity. Before submitting a bid, the
affiliate must decide whether and how much of the subject capacity it
needs in order to accomplish its own business objectives, and it should
maintain some record of the basis for its determination. The rule does
not include any specific documentation requirement. Second, each
affiliate only need concern itself with whether it, individually, has
an independent business reason for bidding. The rule does not require
that an entity coordinate with its affiliates to establish how its
independent business reason differs from the business reasons of the
other affiliates. In fact, not coordinating with affiliates would help
to avoid the appearance of multiple affiliate bidding behavior.
Similarly, if state public service commission review prevents gas and
electric utilities from acquiring gas transportation for purposes not
related to serving customers, as DTE Energy asserts, then it should not
be burdensome for these entities to establish an independent business
purpose. We therefore do not find it necessary to modify proposed
section 284.15(a) or the proposed definition of ``affiliate.''
26. We do not find it necessary to require that each affiliate
identify itself as such and that any award of open season capacity note
the affiliation. In order for multiple affiliates of the same entity to
participate in an open season for pipeline capacity in which the
pipeline may allocate capacity on a pro rata basis, each affiliate must
have an independent business reason for submitting a bid. Therefore,
consumers should be protected by the rule even if each affiliate is not
labeled as such. We also note that each affiliate has the
responsibility to ensure that it has an independent business reason for
submitting a bid, not the pipeline conducting the open season.
IV. Prohibition on Release of Capacity
A. The NOPR
27. The Commission also proposed that if more than one affiliate of
the same entity participates in such an open season, then none of those
affiliates may
[[Page 72305]]
release any capacity obtained in that open season pursuant to a pro
rata allocation to any affiliate, or otherwise allow any affiliate to
obtain the use of the allowed capacity. The Commission noted that some
companies bidding with multiple affiliates have used capacity release
as the final step in consolidating multiple shares of capacity for use
by one of the company's units.\26\ The Commission explained that, by
releasing the capacity acquired in the open season, affiliates are able
to transfer the capacity each acquires to a single company that
benefits by obtaining more capacity than it could have obtained by
itself.\27\
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\26\ NOPR, FERC Stats. & Regs. ] 32,673 at P 15 (citing Tenaska
Marketing Ventures, et al., 126 FERC ] 61,040 at P 13, 18).
\27\ Id.
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B. Comments
28. Parties generally argue that the capacity release prohibition,
as drafted, is overbroad and would have a chilling effect on the
capacity release markets. For example, AGA argues that where an
affiliate complies with section 284.15(a) and legitimately obtains
capacity in an open season with a pro rata allocation, that affiliate
should be permitted to release its capacity to any entity under the
normal capacity release rules applicable to all other shippers. It
argues that this is especially the case if the releasing affiliate
posts the release for bidding and has no control over who might acquire
the released capacity. AGA further states that, if the proposed
capacity release prohibition is adopted, an affiliate legitimately
obtaining capacity in an open season may be reluctant to offer capacity
to the release market for fear that an affiliate would be the winning
bidder for the capacity.
29. Parties argue that, if the prohibition on capacity release is
adopted, various clarifications are required. For example, AGA argues
that the Commission should clarify that the prohibition on capacity
release only applies where the affiliate cannot establish an
independent business reason for bidding, and that, if an entity with
multiple affiliates acquires capacity in an open season with a pro rata
allocation and releases that capacity in a competitive bidding process
where the winning bidder is an unaffiliated third party, an affiliate
could subsequently acquire the capacity from that party. CPC proposes
alternative language to the proposed regulation that would clarify that
a ban on capacity release (1) Only applies to the extent two affiliates
actually receive a pro rata award of capacity, and (2) expires after a
reasonable period, such as two years. Numerous parties state that the
Commission should clarify that the prohibition on capacity release does
not apply to releases of pipeline capacity to (1) Qualifying asset
managers as part of an Asset Management Agreement or (2) marketers
participating in a state commission-regulated retail access program.
PGC urges the Commission to recognize that, if industrial end-users
decide to realign their natural gas purchasing and transportation
practices to central management in order to maximize corporate
efficiencies, capacity releases between affiliates may be required.
30. Parties also express concern that seeking waiver of the
capacity release prohibition would be overly burdensome.
C. Commission Determination
31. In light of the comments received, the Commission has
reconsidered its proposal and has decided not to adopt the proposed
prohibition on capacity release. The prohibition on capacity release,
proposed as section 284.15(b) in the NOPR, was intended to provide an
additional deterrent to affiliates bidding for capacity for which they
have no independent use. However, any behavior that the Commission
intended to fall under the capacity release prohibition is covered by
the prohibition on multiple affiliate bidding in proposed section
284.15(a). Therefore, the Commission believes that the prohibition on
multiple affiliate bidding in proposed section 284.15(a) is sufficient
to prohibit the subject conduct without the additional capacity release
prohibition.
32. Furthermore, we appreciate commenters' concern that the
capacity release prohibition could have a chilling effect on
affiliates' participation in the capacity release markets. The
Commission adopted the capacity release program in order to promote
efficient use of firm pipeline capacity throughout the year.\28\ For
example, the capacity release program permits a firm shipper to release
its capacity to another shipper during periods when the release shipper
does not need its capacity. This allows the releasing shipper to reduce
its cost of reserving capacity and enables other shippers who value the
capacity more to use it.
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\28\ Promotion of a More Efficient Capacity Release Market,
Order No. 712, 73 FR 37058 (June 30, 2008), FERC Stats. & Regs. ]
31,271, at P 4 (2008), order on reh'g, Order No. 712-A, 73 FR 72692
(Dec. 1, 2008), FERC Stats. & Regs. ] 31,284 (2008), order on reh'g,
Order No. 712-B, 74 FR 18127 (Apr. 21, 2009), 127 FERC ] 61,051
(2009).
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33. Upon further consideration, the Commission has determined that
an affiliate who legitimately obtains capacity in an open season for
its own independent business purposes should be permitted to release
that capacity to any entity under the normal capacity release rules
applicable to all other shippers. This will enable affiliates to obtain
the same benefits from capacity release as other shippers. We note,
however, that the Commission may consider what an entity does with its
awarded capacity, such as subsequently releasing the capacity to an
affiliate on a long-term basis, as a factor in the determination of
whether the entity in fact had an independent business reason to obtain
the capacity.
34. The Commission will therefore promulgate the Final Rule without
the prohibition on capacity release. This Final Rule, as amended,
should prevent anticompetitive gaming of the pro rata allocation
methodology by using multiple affiliates of the same entity to acquire
a larger share of the available capacity than one affiliate would be
able to acquire by itself.
V. Information Collection Statement
35. Office of Management and Budget (OMB) regulations require OMB
to approve certain information collection requirements imposed by
agency rule.\29\ This rule contains no new or revised information
collections. Therefore, OMB review of this Final Rule is not required.
---------------------------------------------------------------------------
\29\ 5 CFR 1320.11 (2011).
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VI. Environmental Analysis
36. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\30\ The
Commission has categorically excluded certain actions from these
requirements as not having a significant effect on the human
environment.\31\ The actions proposed to be taken here fall within
categorical exclusions in the Commission's regulations for rules that
are corrective, clarifying or procedural, for information gathering,
analysis, and dissemination, and for sales, exchange, and
transportation of natural gas that requires no construction of
facilities.\32\ Therefore an environmental review is
[[Page 72306]]
unnecessary and has not been prepared in this rulemaking.
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\30\ Regulations Implementing the National Environmental Policy
Act of 1969, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats.
& Regs., Regulations Preambles 1986-1990 ] 30,783 (1987).
\31\ 18 CFR 380.4 (2011).
\32\ See 18 CFR 380.4(a)(2)(ii), 380.4(a)(5), and 380.4(a)(27)
(2011).
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VII. Regulatory Flexibility Act
37. The Regulatory Flexibility Act of 1980 (RFA) \33\ generally
requires a description and analysis of final rules that will have
significant economic impact on a substantial number of small entities.
The Commission is not required to make such an analysis if proposed
regulations would not have such an effect.\34\ Most companies regulated
by the Commission do not fall within the RFA's definition of a small
entity.\35\
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\33\ 5 U.S.C. 601-612 (2006).
\34\ 5 U.S.C. 605(b) (2006).
\35\ 5 U.S.C. 601(3) (citing section 3 of the Small Business
Act, 15 U.S.C. 623 (2006)). Section 3 defines a ``small-business
concern'' as a business which is independently owned and operated
and which is not dominant in its field of operation.
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38. This Final Rule should have no significant negative impact on
those entities, be they large or small, subject to the Commission's
regulatory jurisdiction under the NGA. Most companies to which the
Final Rule applies do not fall within the RFA's definition of small
entities. In addition, this Final Rule is only triggered if more than
one affiliate of the same entity participates in an open season for
pipeline capacity in which the pipeline may allocate capacity on a pro
rata basis, and each affiliate does not have an independent business
reason for submitting a bid. Therefore, the rule would only affect a
limited number of small entities. This Final Rule will not have a
significant economic effect on these small entities. Therefore, the
Commission certifies that this Final Rule will not have a significant
economic effect on a substantial number of small entities.
VIII. Document Availability
39. 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 FERC's Home Page (https://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street NE., Room 2A, Washington, DC 20426.
40. From FERC'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.
41. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at (202)
502-6652 (toll free at 1-(866) 208-3676) or email at
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at
public.referenceroom@ferc.gov.
IX. Effective Date and Congressional Notification
42. These regulations are effective December 23, 2011. The
Commission has determined, with the concurrence of the Administrator of
the Office of Information and Regulatory Affairs of OMB, that this rule
is not a ``major rule'' as defined in section 351 of the Small Business
Regulatory Enforcement Fairness Act of 1996.
List of Subjects in 18 CFR Part 284
Continental shelf, Natural gas, Reporting and recordkeeping
requirements.
By the Commission. Commissioner Spitzer is not participating.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
In consideration of the foregoing, the Commission amends part 284,
Chapter I, Title 18, Code of Federal Regulations, as follows:
PART 284--CERTAIN SALES AND TRANSPORTATION OF NATURAL GAS UNDER THE
NATURAL GAS POLICY ACT OF 1978 AND RELATED AUTHORITIES
0
1. The authority citation for part 284 continues to read as follows:
Authority: 15 U.S.C. 717-717w, 3301-3432; 42 U.S.C. 7101-7352;
43 U.S.C. 1331-1356.
0
2. Section 284.15 is added to subpart A to read as follows.
Sec. 284.15 Bidding by affiliates in open seasons for pipeline
capacity.
(a) Multiple affiliates of the same entity may not participate in
an open season for pipeline capacity conducted by any interstate
pipeline providing service under subparts B and G of this part, in
which the pipeline may allocate capacity on a pro rata basis, unless
each affiliate has an independent business reason for submitting a bid.
(b) For purposes of this section, an affiliate is any person that
satisfies the definition of affiliate in Sec. 358.3(a)(1) and (3) of
this chapter with respect to another entity participating in an open
season subject to paragraph (a) of this section.
[FR Doc. 2011-30115 Filed 11-22-11; 8:45 am]
BILLING CODE 6717-01-P
