On November 16, 2007, the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) under Docket No. RM08-1-000 that would change the way holders of capacity on interstate natural gas pipelines are permitted to release that capacity. Specifically, FERC is proposing to permit market-based pricing for short-term capacity releases and to facilitate asset management arrangements by relaxing FERC's prohibition on tying and on its bidding requirements for certain capacity releases.

According to FERC Chairman Joseph T. Kelliher, "[t]he proposed rule should strengthen competition in the secondary capacity release market and improve access to the interstate natural gas pipeline system. As a result, shippers will have more options for how they obtain natural gas supplies, which should benefit customers." If adopted, the proposals in the NOPR will certainly provide shippers with more flexibility when releasing capacity than exists under the current regime.

Removal of Maximum Rate Ceiling for Short-Term Capacity Release. While pipelines are now able to sell their own capacity at prices exceeding the maximum tariff rate through negotiated rate transactions utilizing pricing mechanisms such as basis differentials, releasing shippers remain subject to the price ceiling contained in the pipeline's tariffs. The NOPR proposes to allow shippers to release their capacity at market-based rates that exceed the rate cap for releases of one year or less. Long-term capacity releases would remain subject to the rate cap.

Facilitate Asset Management Arrangements (AMA). Under an AMA, a shipper releases some or all of its capacity to an asset manager who agrees to manage gas supply and delivery arrangements, including transportation and storage capacity, on behalf of the shipper. FERC proposes two revisions to its capacity release policy and regulations to facilitate the use of AMAs. Presently, FERC's prohibition against tying arrangements does not allow a releasing shipper to attach stipulations to a capacity release; therefore, a shipper cannot enter an AMA under which it releases its capacity to the asset manager and requires the asset manager to take assignment of the releasing shipper's gas requirements and various gas supply arrangements in addition to the released capacity. The NOPR proposes to exempt AMAs from the prohibition on tying arrangements. Second, FERC proposes to eliminate the competitive bidding requirement imposed under Section 284.8 of the Commission's regulations for both short-term and long-term capacity releases made pursuant to AMAs.

Comment Deadline. Comments are due 45 days after publication in the Federal Register, which is expected to occur in the coming week.