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FERC Rejects GTI's Bid for Continued Mandatory Surcharge to Fund Gas RD&D

FERC Rejects GTI's Bid for Continued Mandatory Surcharge to Fund Gas RD&D

In a surprising decision last Thursday, FERC rejected a bid by Gas Technology Institute (GTI), the successor to the Gas Research Institute (GRI), for a continued mandatory surcharge on natural gas volumes transported on interstate pipelines to fund new gas research, development and demonstration (RD&D) programs.

GTI requested that a 0.56-cent/Dth surcharge be added to interstate pipeline tariffs and levied on gas transportation starting on Jan. 1, 2005. It amounted to an annual funding requirement of about $48 million.

The current GRI surcharges are being phased out because of a controversial settlement agreement the industry signed in 1998. The settlement, reached after a lengthy, acrimonious and highly divisive industry battle, provided for an orderly seven-year transition to a system of completely voluntary funding for RD&D by Dec. 31 of this year. Pipeline companies argued that the mandatory surcharges were too costly and were giving competitive advantages to some pipelines. GTI contends that the much smaller surcharge -- about one-third of the GRI surcharges in 2002-2004 -- would be much easier for pipes to swallow.

Although GTI was formed by the merger of GRI and the Institute of Gas Technology (IGT), GTI argued that it was distinct from GRI, and thus was not a signatory party to the 1998 settlement. A number of industry groups, including the Independent Petroleum Association of America and the Natural Gas Supply Association, countered that GTI was a successor-in-interest to GRI and was bound by the terms of the 1998 settlement.

The Commission agreed with the industry groups. "Our review of the applicable pleadings leads us to conclude that GTI is the product of a combination of IGT and GRI and is to be treated as a successor-in-interest to GRI. As successor-in-interest to GRI, GTI must fulfill GRI's obligations under the 1998 settlement," the order said [RP04-378]. "Though GTI has filed the instant application, it is clear that GTI is nothing more than a reconstituted GRI."

GTI argued that even if the Commission should find that it is bound by the 1998 settlement, it still should allow GTI to seek RD&D funding under the agency's regulations for the period after 2004.

"We do not agree that continued reliance on mandatory funding for RD&D is necessary. If the industry and consumers demand a form of cooperative effort in RD&D, they will be accommodated without the mandatory funding GTI seeks here. Market-based RD&D would better serve the consuming public than the acrimony that has accompanied each and every GRI application since the onset of the program for mandatory funding of cooperative RD&D projects," the order noted.

"GTI has not demonstrated that there has been inadequate private capital devoted to RD&D efforts in enhancing technological improvements in efficiency or reductions in emissions, or in enhanced safety and security," FERC said. In fact, GTI in its application showed that it has obtained some $42 million annually for RD&D. It said it has raised some $17 million from local distribution companies, and has commitments of $2-$3 million per year from pipeline-oriented sources.

The order noted that individual pipelines may seek recovery in their rates for any reasonable amounts spent on RD&D purposes, whether those RD&D efforts are provided by the pipeline or by a third party, provided they meet the tests of Section 4 of the Natural Gas Act.

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