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Pipes, Producers Weigh Costs of Reporting Actual Flows to FERC

FERC's proposed rule that would require interstate and certain major intrastate pipelines to post actual flows is not winning any plaudits from the pipeline sector, and even producers have asked the agency to scale back the scope of the proposed rule to limit the costs to pipelines, which would more than likely flow to shippers and producers.

In comments filed last Thursday, interstate pipelines argued that the Federal Energy Regulatory Commission (FERC) proposal for pipes to post actual flow data would do nothing to increase transparency in the market, and, in fact, might be an "impediment" to it. They further said the proposal would require pipelines to install new metering equipment that could cost millions of dollars, which would be borne by shippers.

Intrastate pipelines contend that FERC lacks the authority to subject the nonjurisdictional lines to the proposed reporting requirements.

"Actual flow data from interstate pipelines is not 'necessary'...because, at the interstate level, price transparency has been fully and ably served by currently reported data, i.e. capacities and scheduled quantities," the Interstate Natural Gas Association of America (INGAA), which represents interstate gas pipes, told the Commission [RM08-2].

"As a conceptual matter, actual flow data would not facilitate market transparency. In fact, for several reasons, such reporting may pose an impediment to market transparency. First, actual flows reflect a number of nonmarket factors related to pipeline operations, rather than reflecting market supply and demand fundamentals. Second, actual flows are often adjuncts to past transactions that were already reported," INGAA said.

Moreover, FERC's notice of proposed rulemaking (NOPR), which was issued in December 2007, "could impose compliance costs totaling tens if not hundreds of millions of dollars for metering and information technology that serve no statutorily authorized purpose," the pipeline group noted.

Kinder Morgan Interstate Pipelines estimates that its pipelines would incur costs of $300 million to install additional measurement equipment, hire more personnel to operate and maintain the equipment, and to make significant modifications to its computer system. "The Commission's proposal is an extremely expensive proposition for the Kinder Morgan Interstate Pipelines especially since the value of the additional information that would be provided for transparency purposes is, at best, questionable," Kinder Morgan said.

Spectra Energy Transmission LLC projected it would spend at least $100 million to install metering equipment at approximately 100 mainline locations, given that many of these mainline locations have multiple pipelines requiring the installation of equipment to each line.

The NOPR would require interstate pipelines and certain "major" intrastate pipelines to post daily capacity information, scheduled flows and actual flows that affect the wholesale interstate market (see NGI, Dec. 24, 2007). Interstate pipes already post capacity and schedule flow volumes; the proposed rule would add a third requirement -- the posting of actual flows. Intrastate pipes, however, would be required for the first time to post all three categories of data -- capacity, scheduled flows and actual flows.

If FERC adopts a final rule to force the reporting of gas flows, INGAA asked the agency to make several stipulations, including:

"Greater insight into regional, real-time supply and demand fundamentals does not require the sweeping approach that the Commission proposed," said the Natural Gas Supply Association (NGSA), which represents major gas producers. As for intrastate pipelines, the flow posting requirement should be limited to intrastates serving the 13 major hubs that are identified in the NOPR, it recommended.

"This approach would allow the natural gas flows of [intrastate] pipelines which can physically enter the interstate wholesale natural gas market to be viewed by the market and regulators on a near, real-time basis. Together with the position of interstate pipeline flows, this approach ensures that the Commission's new requirement captures only the relevant 'information about the availability and prices of natural gas at wholesale and in interstate commerce,'" the group said.

As an alternative, NGSA suggested that the Commission could apply the posting requirement to intrastate pipeline that flow 50 Bcf per year or more. "The Commission's [currently] proposed 10 MMBtu threshold is unnecessarily low and the benefits derived from it are not commensurate with implementation costs." Raising the throughput threshold to 50 Bcf per year captures about 90% of the intrastate pipeline volumes and applies to only 57 intrastate pipelines, it said.

With respect to interstate pipelines, NGSA believes that the flow posting requirement should be applied at all mainline check meters, at points where telemetering already exists, and at all receipt and delivery meters that have a flowing volume of more than 15 MMcf/d. It believes this approach would be less burdensome for pipelines and would significantly reduce the cost of implementing the rule for pipes, while providing FERC and the gas market with sufficient flowing gas information to adequately monitor interstate wholesale markets.

The rule's requirement also should include an exemption to protect proprietary information if it is deemed necessary by a pipeline, impacted shippers, producers or customers, according to NGSA. "NGSA believes that limiting the flow posting threshold to current points on interstate pipelines, to the [intrastates] serving the 13 major hubs, or alternatively to [intrastates] with throughput of 50 Bcf or more annually with individual meter thresholds will go a long way to mitigate concerns regarding proprietary data."

Pipelines also should be allowed to include an acknowledgment or disclaimer indicating the their posted flow data "is a best estimate of actual flow information used for operational purposes and that it is not billing quality data," NGSA said.

The Independent Petroleum Association of America (IPAA), which represents independent producers, said it supports the posting of flow data from intrastate pipelines, "but with a close watch on the costs of compliance, as the producer is likely to end up bearing much of those costs." It urged FERC to limit its final rule to the 15-20 largest intrastate pipelines, rather than the 102 intrastates estimated by FERC.

"The need for more and better information must be balanced with the costs that the interstate and [intrastate] pipelines will incur. Particularly with the [intrastate] pipelines, these costs most likely will be passed through to the shippers and, ultimately, to the natural gas producers. Therefore, the universe of pipelines to be included in a final rule, as well as the quantity of information to be reported, must be circumscribed," the group said.

SEMCO Energy called on FERC to exempt major intrastate pipelines that sell and transport natural gas in Alaska. "Requiring reporting by those major [intrastate] pipelines operating solely within the State of Alaska would not help illuminate the functioning of interstate natural gas markets," said SEMCO, which owns small pipe facilities that transport gas in Alaska.

The Process Gas Consumers Group (PGC), which represents industrial gas consumers, believes the NOPR "strikes an appropriate balance between the need for reliable market information and the need to minimize the burdens placed on market participants." However, the group expressed one concern.

"Including small receipt and delivery points with only a few customers [in a final rule] would threaten competition by exposing the daily natural gas volumes of large end-users and would be inconsistent with the Commission's mandate for fair competition and protection of customers," the PGC said. It asked FERC to specify in its final rule that "major' receipt and delivery points on major intrastate pipelines do not include points serving private pipelines and local distribution company bypass lines.

The America Public Gas Association (APGA), which represents municipal gas utilities, gave FERC high marks for the NOPR. "Regarding interstate pipelines, there is no argument about the Commission's jurisdiction to require the added information about actual flows, nor would opponents of such requirement have much of a case regarding the need for such information given the disparity often seen between scheduled and actual flow data," the APGA said.

"Nor would the interstate pipelines seem to have any basis for making a case against the proposed new rule on the grounds of undue burden since the actual flow information is readily available, and hence it is simply a matter of creating the necessary procedures for reporting such data in a timely and accessible fashion," the group noted.

While intrastate pipelines are challenging FERC's authority to require them to post actual flow data, the APGA believes the Commission is "dead-on accurate" in its arguments supporting the agency's action.

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