NGI The Weekly Gas Market Report / NGI All News Access

Steel Producers Say They Were Unfairly Penalized During CenterPoint Operational Alert

Two Nucor Corp. affiliates have called on FERC to refund charges that they contend were invalidly assessed by CenterPoint Energy Gas Transmission (CEGT) during an operational alert on its system last December.

In a complaint filed last week, Nucor-Yamato Steel Co. Inc. and Nucor Steel-Arkansas, both of which have steel production facilities in Arkansas, alleged that the pipeline issued "unclear and inadequate" operational alerts in December 2004 that caused them to be "unfairly penalized for over-consumption of nominations while still remaining under their contract demand."

At issue are what appear to be conflicting fax warnings during the operational alert period that on one hand instructed the Nucor shippers to "hold usage to CD (contract demand)," while on the other hand warned that excess contract quantities' (ECQ) penalties would be applied to volumes delivered in excess of 102% of scheduled quantity.

On Christmas Day, CenterPoint delivered 4,062 MMBtu to Nucor Steel-Arkansas and 12,095 MMBtu to Nucor-Yamato, according to the steel producers. "The volumes delivered exceeded the volumes scheduled by 1,562 MMBtu and 3,848 MMBtu, respectively, yet they were well below contract demand," they told FERC.

CenterPoint assessed ECQ penalties of $69,475 against Nucor Steel-Arkansas and $163,945 against Nucor-Yamato for alleged failure to comply with pipeline's critical notice.

In a letter to the two steel producers in May, CenterPoint claimed that its tariff allowed the pipeline to assess the penalties for quantities taken in excess of 102% of the daily contract limitation and that the "daily contract limitation is the daily scheduled quantity," they said.

"Complainants should not be liable for...penalty charges that were imposed for alleged violations of vague operational alerts that did not adequately or reasonably notice complainants, as firm shippers, that they would be subject to ECQ penalty charges for consuming more gas than they nominated while maintaining levels below their respective contract demands," the producers noted.

When read together, the critical notice and faxed warnings show that the Nucor shippers "were specifically instructed as firm shippers to merely hold usage to contract demand as long as pool supplies were maintained," they said.

"Complainants therefore reasonably and in good faith complied with [CenterPoint's] alert by ensuring that CEGT was aware of their daily nominations set as closely as possible to anticipated consumption. Complainants reduced nominations for several days in compliance with CEGT's instructions and kept deliveries well below contract demand" pursuant to their transportation agreements.

In addition to ordering a refund, the Nucor shippers called on FERC to require CenterPoint to revise its operational alert notice and procedures in its tariff to mirror the requirements for the issuance of operational flow orders and to ensure ECQ penalties can only be imposed in appropriate circumstances.

©Copyright 2005 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.