Today the Commission resolves a serious matter that the American Gas Association, American Public Gas Association, Process Gas Consumers Group, and Natural Gas Supply Association brought to us in 2022. I write separately to underscore that declining to issue an industry-wide rule reflects our view of the appropriate avenue for potential relief based on the current record—not tacit, full approval of the practices petitioners allege. As today’s order ably explains, where occurring and substantiated, “junk and jewel” pipeline capacity packaging may well trigger the Commission’s obligation to ensure that pipeline practices remain just, reasonable, and not unduly discriminatory. Open-season processes affect many sectors whose operations—and the customers they serve—depend on reliable access to natural gas. Especially given ongoing infrastructure constraints and affordability challenges across the power sector, the Commission’s job is even more important to ensure fair and reasonable access to essential gas infrastructure for all market participants.
To level-set: When a natural gas pipeline has firm capacity available, it posts it on its electronic bulletin board or informational posting website. The pipeline may sell the capacity in several non-discriminatory ways, including by holding an open season using the procedures in the pipeline’s tariff. That open season process is designed to notify shippers of available capacity in a non-discriminatory and transparent way. Consistent with Order No. 636’s open access transportation goals,[1] all interested shippers then have an equal opportunity to submit bids.
In evaluating bids, the Commission allows pipelines to use a net present value (NPV) metric as a way to allocate scarce pipeline capacity.[2] Pipelines can aggregate two or more bids and award capacity based on the highest bid or combinations of bids yielding the highest NPV, [3] and many pipeline tariffs explicitly allow this kind of bid aggregation in their evaluation processes. The Commission’s policy here aims at getting capacity to the shippers who value it most. Importantly, though, the ultimate price cannot be higher than the maximum recourse rate.[4]
These long-standing, Commission-approved practices make sense as a way to allot infrastructure access to the highest value use in periods of scarce capacity. Most relevant here, this rationale has buttressed our related policy of letting pipelines offer non-contiguous or operationally unrelated capacity segments in an open season as long as shippers are not required to bid on all the offered segments.[5] In some cases, pairing non-contiguous, operationally distinct capacity can have benefits for all parties.
But not always. These practices can also become a tool to extract higher bids that do not reflect higher value. As today’s order explains, sometimes packaging high-value capacity with segments that have little or no value may lead to results at odds with our mandate to ensure just and reasonable rates. A pipeline segment could have no or low standalone value based on, for instance, where it’s located on the pipeline’s system or the fact it flows toward a production area instead of away from it.[6] That segment might attract no bidders if offered alone. Yet if it’s paired with highly valued capacity, a shipper could be effectively constrained into bidding on the “junk” segment it has no use for if it wants to have a chance at winning the “jewel” capacity it actually needs. Offering the segments together and aggregating resulting bids, then, could create an NPV for the full package that’s above the recourse-rate maximum the pipeline would be legally entitled to charge for the “jewel” capacity alone.
Examples in the petition showed exactly this—pipelines offering capacity packages in open seasons that contained segments of seemingly negligible value together with indisputably high value capacity. Take one pipeline, where the record shows shippers paid approximately $20 million for short-term capacity in 2023. Roughly $12 million of that total—60%—was for backhaul capacity. As indicated in the record, the pipeline didn’t flow any gas backhaul in 2023.[7] In other words, shippers paid $12 million for capacity they did not use. And the pipeline was able to earn premiums above the maximum recourse rates that would have applied had they sold the valuable forward-haul capacity on its own. Similarly, the record discusses instances of pairing segments with market values above what the tariff would otherwise allow with segments flowing gas toward the supply region (that is, away from demand),[8] as well as open seasons stating that shippers could increase their bid’s NPV, and thus up their chances of winning highly desired segments, by bidding on other undefined segments, too.[9]
Situations like these are why I fully agree with today’s order that although packaging non-contiguous, operationally distinct capacity may be appropriate in the main, the practice may become unjust and unreasonable in cases involving low- or no-value segments. I also agree that—troubling as they very much are—these individual examples do not show a sufficiently pronounced pattern to require industry-wide rulemaking relief. So at this time, our findings about the appropriateness of a particular pipeline’s practices should be proven on the record in an NGA section 5 complaint.
But to be clear, if proven on the record in a specific case, allegations like those in this record could very well require Commission relief. Especially where a capacity package’s winning bid equals the high-value capacity’s market value, that evidence could show the pipeline is using its market power to circumvent the important customer protections that our cost-based recourse rates are meant to provide. Today’s order lays a framework for what conduct the Commission would weigh seriously in any future section 5 proceedings.
Finally, this all matters in large part because of the real-world consequences “junk and jewel” open seasons can have on affordable and reliable gas infrastructure. Bids for no-value capacity that are necessary (functionally if not formally) to secure dearly needed capacity come at the ratepayers’ expense. Shippers, gas utilities, manufacturers, electric generators, and end-line consumers pay that increased cost. I’m also concerned that some municipal gas systems and local distribution companies have limited authority to bid for packages that include capacity outside their service needs.[10] As a practical matter, they may be forced out of Commission-regulated open seasons and into the secondary market to get the high-value capacity their customers need. And when it comes to reliability, our nation needs more pipeline capacity, and we need the right incentives in place to get it built where it’s needed most. Yet if widespread and unchecked, “junk and jewel” pricing could decrease those incentives by allowing pipelines to capture above-rate-based prices for underutilized segments of their system instead of investing in new capacity in areas of too-short supply.
So I urge shippers to bring section 5 complaints where circumstances may warrant them. I also urge pipelines to consider today’s order when setting the structure of their open seasons. Though I am not persuaded today to close the door on a practice that may be beneficial and that can operate in a just and reasonable way, I remain cautious of the potential for abuse that can stymie infrastructure development and inflate prices beyond Commission-approved rates. And to my mind, if a pattern of section 5 complaints or the record in a future petition shows that the practice has become widespread, the Commission may do well to reconsider taking generic action.
For these reasons, I join today’s order in full and respectfully concur.
[1] Pipeline Serv. Obligations & Revisions to Requisitions to Reguls. Concerning Self-Implementing Transp. Under Part 284 of the Comm’n’s Regul., Order No. 636, FERC Stats. & Regs. 30,939, at 30,392 (1992) (cross-referenced 59 FERC ¶ 61,030), reh’g granted in part & denied in part & clarified, Order No. 636-A, FERC Stats. & Regs. ¶ 30,950, at 30,521 (1992) (cross-referenced 60 FERC ¶ 61,102), reh’g denied, Order No. 636-A, 60 FERC ¶ 61,102 (1992), order on reh’g & clarification, Order No. 636-B, 61 FERC ¶ 61,272 (1992) (expanding the open access program), reh’g denied, Order No. 636-C, 62 FERC ¶ 61,007, at 61,014 (1993).
[2] Northern Natural Gas Co., 115 FERC ¶ 61,146, at P 13 (2006).
[3] Northern Border Pipeline Co., 164 FERC ¶ 61,150 (2018); Transcontinental Gas Pipe Line Co., LLC, 172 FERC ¶ 61,258 (2020).
[4] See, e.g., Texican N. La. Transport, LLC v. Southern Natural Gas Co., 129 FERC ¶ 61,270 (2009); ANR Pipeline Co., 116 FERC ¶ 61,201 (2006); Northern Natural Gas Co., 108 FERC ¶ 61,044 (2004); Natural Gas Pipeline Co. of America, 82 FERC ¶ 61,036 (1998).
[5] See Indicated Shippers v. Natural Gas Pipeline Co. of America, 89 FERC ¶ 61,142, at 61,417 (1999).
[6] The economic difference in the value of natural gas at the receipt and delivery points for capacity is the market spread or differential. The low or no value capacity could have minimal standalone value in the market due to a lack of demand for the particular capacity segment based on its location or region, the direction the natural gas flows, or simply changed market dynamics. Any of those factors could lead to a price differential between the receipt point and delivery point that disappears or reverses (goes negative), which in turn could support labeling the capacity “no or low value.”
[7] American Gas Association, American Public Gas Association, Process Gas Consumers Group, and Natural Gas Supply Association Notice of Inquiry Initial Comments at 62-64, Affidavit of Elizabeth Crowe at 2-4.
[8] Id. at 82-85, Appendix A at 3-6.
[9] Id. at 30-33, Affidavit of Tina Smith at 6-9.
[10] Petition for Rulemaking to Update Commission Regulations Regarding Allocation of Interstate Pipeline Capacity, 194 FERC ¶ 61,188 at P 3 (2025).