On October 15, 2015, FERC issued a declaratory order stating that asset management agreements (AMAs) entered into by natural gas suppliers are exempt from the prohibition on buy-sell transactions (http://www.ferc.gov/whats-new/comm-meet/2015/101515/G-4.pdf).  The Commission issued the order in response to a request for declaratory order filed by Rice Energy Marketing, LLC, which asserted that the Commission’s previous orders regarding AMAs could be construed to exempt delivery AMAs from the buy-sell prohibition, but continue to apply that prohibition to supply AMAs.

More than 20 years ago, when developing its capacity release program, FERC prohibited buy-sell transactions.  A buy-sell is a transaction pursuant to which a shipper holding firm pipeline capacity purchases gas in the production area from a third party, transport the gas over the shipper’s firm capacity, and re-sell the same gas to the same third party at the delivery point.  FERC found that buy-sell transactions were likely to circumvent its capacity release program.

Subsequently, in Order No. 712, FERC revised its capacity release policies to accommodate the use of AMAs.  Order No. 712 describes delivery AMAs as contracts entered into by entities that use gas in their businesses and hold firm pipeline capacity to transport that gas to their facilities for such use.  In contrast, Order No. 712 describes supply AMAs as contracts entered into by producers or marketers of natural gas that hold firm pipeline capacity, but wish to engage an asset manager for the purpose of selling the gas they produce to third parties in the market area.  Order No. 712 made clear that the prohibition on buy-sell transactions no longer applies to delivery AMAs.

Rice Energy’s petition for declaratory order sought either (1) clarification that the language in Order No. 712 exempting delivery AMAs from the buy-sell prohibition is also applicable to supply AMAs, or (2) an order extending the exemption to supply AMAs, if Order No. 712’s language was not meant to apply.

FERC’s order holds that the language in Order No. 712 regarding the exemption from the buy-sell prohibition addressed only delivery AMAs.  Nonetheless, FERC grants Rice Energy’s petition, finding that the same logic applies to supply AMAs.  Specifically, FERC concludes that parties entering into supply AMAs are not attempting to evade the capacity release regulations.  A producer or marketer holding firm pipeline capacity that enters into a supply AMA is not releasing unneeded capacity, but instead will continue to use that capacity for the same purpose as prior to entering into the AMA – “to transport its natural gas to market.”  Declaratory Order at p. 32.  The buy-sells prohibited by FERC policy, in contrast, are designed to further the business objectives of a third party rather than the firm capacity holder.  Thus, the declaratory order makes clear that the prohibition on buy-sells is inapplicable to both delivery and supply AMAs.