November 20, 2013 Articles

FERC's Capacity-Release Program: Financial Indifference and Reasonableness

Increasing pipeline efficiency by allowing shippers to use interstate capacity that would otherwise sit idle.

By John Hutchings and Bret Reich – November 20, 2013

Interstate pipelines and shippers often enter into long-term firm transportation-services agreements (TSA). These contracts benefit both parties: Firm TSAs guarantee shippers capacity on the pipeline to serve their customers, and pipelines secure predictable revenues through reservation charges, regardless of whether gas is actually shipped on the pipeline. Firm TSAs typically range from 5 to 15 years. As can be expected, as a result of changing market conditions and other factors, shippers often cease to need the capacity secured by the firm TSA. The shipper has a remedy in as the capacity-release program administered by the Federal Energy Regulatory Commission (FERC). The capacity-release program allows the transfer of interstate pipeline capacity from a shipper who no longer needs or wants the capacity on a long- or short-term basis to the shipper who places the greatest value on the capacity. Nw. Pipeline Corp., 111 FERC ¶ 61,231, ¶ 62,048 (May 20, 2005). The program increases the efficiency of the national pipeline system by allowing shippers to use interstate capacity that would otherwise sit idle. Promotion of a More Efficient Capacity Release Market, 73 Fed. Reg. 37,072, 37,059–61 (June 30, 2008) (codified at 18 C.F.R. § 284).


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