It wasn't the overload of Marcellus Shale supplies, but poor planning by Columbia Gas Transmission LLC that "may have created or contributed" to the storage constraints on its system in northern Ohio, Indicated Shippers said in a protest to the pipeline request for a tariff increase.
Columbia should not be permitted to recover from its shippers the costs of the third-party capacity the pipeline has contracted to resolve the problem, a group composed mainly of producers said Tuesday.
The Indicated Shippers group specifically has protested Columbia Gas Transmission's request for an additional $4.18 million to cover the costs of contracts with three different pipelines to "move" supply from the southern part of its system into northern Ohio [RP11-2253]. This is about half of the total $10 million increase in the Transportation Cost Rate Adjustment (TCRA) surcharge that Columbia Gas is seeking effective Aug. 1 (see Daily GPI, July 13).
The group called on the Federal Energy Regulatory Commission to establish "appropriate fact-finding procedures" to determine whether Columbia's proposed recovery of the costs is just and reasonable.
"Columbia's contracting practices with regard to its own services may have created or contributed to this problem, calling into question whether Columbia's expenditures on third-party transportation agreements are prudent," said Indicated Shippers, which includes BP Energy Co., BP America Production, Chevron U.S.A. Inc., ConocoPhillips Co., Delta Energy LLC, ExxonMobil Gas & Power Marketing Co., Hess Corp. and Interstate Gas Supply Inc.
"If Columbia has created congestion on its own system through its contracting for transportation of Marcellus production, such that it purportedly needs to acquire off-system capacity as a 'release valve' to relieve the congestion and allow gas flows that previously occurred without hindrance, such conduct raises legitimate issues of prudence," the group said.
A review of Columbia Gas Transmission's Index of Purchasers indicates that over the past four years the pipeline has entered into approximately 23 firm contracts accounting for 463,483 Dth/d, all of which appear to list Columbia's interconnection with its sister pipeline, Columbia Gulf Transmission, at Leach, KY, as a primary delivery point, Indicated Shippers said. However, they noted that the Leach interconnection with Columbia Gulf functions as a physical receipt point into Columbia Gas' system, not a physical delivery point.
"Consequently, it appears that by making Leach the primary delivery point under these long-term contracts for a substantial quantity of gas, Columbia may have contracted to provide firm transportation service for these quantities without any apparent ability to deliver the gas from its system and designated the Leach point as a primary delivery point on an arbitrary basis solely for administrative purposes. If so, Columbia itself may have caused the congestion for which it now seeks to recover $4 million from its shippers," the producer and marketer group said.
In seeking to hike its TCRA surcharge, Columbia Gas contends that changing market conditions have led to reduced receipts into northern Ohio that have affected its ability to fill storage. The pipeline asserts that increased supply into its system from both Marcellus Shale and other sources of production are displacing supply from ANR Pipeline Co. to Columbia's northeastern markets.
Moreover, Columbia Gas said scheduled construction on Columbia's Line 1278 and Line P necessitates the acquisition of additional third-party pipeline transportation in order to minimize disruptions on its system. Indicated Shippers said they were not objecting to Columbia's proposal to recover the costs for the purchase of the capacity related to construction on its system.
To address the storage problem in northern Ohio, Columbia has entered into contracts with three different pipelines, for which it seeks the $4 million surcharge hike, to move gas from the southern part of its system to northern Ohio. The contracts are with Columbia Gulf for 288,000 Dth/d of firm backhaul service from the interconnection at Leach to Columbia Gulf's interconnection with Regency Intrastate Gas in Louisiana; Regency Intrastate for 17,928 MDth/d of interruptible service from Columbia Gulf to its interconnection with ANR; and ANR under three FTS-1 agreements for 288,000 Dth/d of firm transportation service back to Columbia's system at a delivery point in northern Ohio.
"There appears to be a mismatch in quantities and service priorities between Columbia Gulf and ANR contracts, on one hand, and the Regency contract on the other...Columbia provides no explanation of this disparity in contract quantities. Nor does Columbia explain why it has purchased firm service on Columbia Gulf and ANR, the first and third legs of the workaround route it has devised, but has only interruptible on Regency, the second leg of the route," Indicated Shippers said.
A longtime industry expert, who asked to remain anonymous, told NGI the solution outlined by Columbia in its filing "doesn't make a lot of sense to me. It doesn't add up to me that just because they buy capacity on Columbia Gulf that that would get them gas into the northwestern part of Ohio. I'd be very interested to see what comes out of the tech. conference where they're going to try to explain this."
Indicated Shippers further said they believe Columbia Gas Transmission's "heavy reliance on off-system capacity" over the years has given the pipeline the incentive to avoid the costs of upgrading its own system to respond to changes in its supply or markets.