October 2009 Vol. 236 No. 10

Government

FERC Considers Changes To Posting Requirements

Although the natural gas posting requirements FERC established in Order 720 last November haven’t even gone into effect for major non-interstate pipelines, the agency is already considering revising them.

The order stimulated 24 requests – surely a FERC record or close to it–for a rehearing, from every corner of the industry, and for seemingly every reason imaginable. The Commission is still working through the complex technicalities surrounding those requests, many of which were reiterated in comments coming into FERC at the end of August.

The new requirements for posting in Order 720 stem from new authority FERC was given in the Energy Policy Act of 2005 aimed at facilitating transparency in markets for the sale or transportation of natural gas in interstate commerce. Order 720 requires major non-interstate pipelines and interstate pipelines to post certain data on their Internet websites. Specifically, the final rule requires major non-interstate pipelines, defined as those natural gas pipelines that deliver more than 50 MMBtu/yr, to post scheduled flow information for each receipt and delivery point with a design capacity greater than 15,000 MMBtu/d.

Interstate pipelines must post information regarding no-notice service. This requirement is in effect, although the Interstate Natural Gas Association of America is one of the 24 parties agitating for modifications. INGAA argues that in the clear majority of cases there is no way for the pipeline to determine a receipt point for its no-notice service. So it wants FERC to clarify that it is appropriate to report the volume of no-notice transportation at the level at which the pipeline provides no-notice service.

If an aggregate volume is what the pipeline reports to its no-notice customers, and an aggregate volume is what the pipeline uses to administer its no-notice service contracts, reporting this aggregate volume should be found to satisfy the pipeline’s new posting requirement under Order 720.

However, it does not appear, based on FERC’s request for supplemental comments on July 16, that the agency is considering INGAA’s request. The “no-notice” reporting issue is not even mentioned with regard to modifications FERC is open to making. Those basically revolve around the issue of whether major non-interstates should have to post for virtual or pooling points, as opposed to physical metered points. The Texas Pipeline Association, which has led the fight for changes to Order 720, wants the posting requirement to apply at points where scheduling occurs.

Another issue is use of design capacity as the method to determine whether a receipt or delivery point should be posted. Sometimes design capacity is unknown because a pipeline does not have access to design specifications or where the applicable point is not a physical meter, but rather a virtual or pooling receipt or delivery point. In that instance, Order 720 would allow major non-interstates to utilize the maximum flow experienced during any day within the previous three years as a proxy for design capacity. Lastly, FERC wants to establish a “de minimis” exemption for receipt points, even if such points have a design capacity above the posting threshold.

Most of the pushback on Order 720 has come from major non-interstates, generally companies which have subsidiaries, which are independent companies, in four or five states, none of them connected to one another. Larry Black, director of gas supply, Southwest Gas Corporation, appeared at a FERC technical conference in March to make that case. Southwest Gas has six operating divisions, none of whose systems connect to each other.

“Four of the six divisions are relatively small, and independently, would fall well below the 50 million dekatherm threshold,” said Black. “But, more importantly, really, because of the size and the makeup of the market demands on them, reporting data pursuant to Order 720, would not really contribute any meaningful addition to the marketplace.”

Another issue for major non-interstates is whether to include stub lines or gathering lines in the calculations. Roger Farrell, president and chief operating officer of Southern Union, says, “I believe that a gathering exemption would be warranted, but if you don’t believe that a gathering exemption is warranted, I want to be very clear that we see points upstream of a gathering system, that do not need to be reported, because they won’t provide meaningful information to the Commission or to anyone else.”

The American Gas Association would like to see local distribution companies relieved of any Order 720 requirements. “AGA continues to be concerned, however, that the posting requirements as proposed to be applied to LDCs would not only fail to accomplish the Commission’s transparency goals, but would potentially yield confusing, inconsistent, and erroneous or misleading market information.

Moreover, the AGA seems to be saying that FERC doesn’t have the authority to subject LDCs to reporting requirements since the Commission’s authority under Section 23 of the Natural Gas Act is limited to obtaining information regarding the availability and prices of natural gas sold at wholesale and in interstate commerce. An LDC’s sales and deliveries downstream of its city-gates are not at wholesale and are not in interstate commerce.