Columbia Pipelines File Landmark Regulatory Proposal
The concept of negotiated rates and conditions of service went
from being a mere pipe dream to a solid vision last week with the
filing of a major proposal by Columbia Energy Group's two pipeline
Columbia Gas Transmission and Columbia Gulf Transmission
followed through on a long-standing promise to provide FERC with a
new regulatory model. The proposal, which came in the form of pro
forma tariff sheets, is the first comprehensive proposal to
establish more flexible terms and services for customers with
changing transportation needs. Columbia called it the "next logical
step in the evolution of pipeline regulation and natural gas
With a significant number of pipeline transportation contracts
expiring at a time when retail gas unbundling is picking up speed
and electric restructuring is proceeding, there's a large degree of
uncertainty about the requirements of future transportation
customers, a Columbia official noted.
"Retail unbundling is affecting the customer base of interstate
pipelines and changing the types of services customers require,"
said Glenn Kettering, Columbia Gas Transmission senior vice
president. "In response, we need the ability to offer more diverse
and customized transportation services.designed to better fit a
particular customer's operational requirements and provide a needed
mechanism to effectively respond to changing competitive markets."
Columbia's filing is the second proposal for negotiated terms
and services since the Commission issued its "Statement of Policy
and Request for Comments" on the issue in January 1996. Northern
Natural recently filed a general rate case that included a request
for authority to negotiate specific provisions of its tariff,
including right of first refusal, flow rights and pressures, and
lower quality of service. Columbia's filing is more comprehensive
in that it specifies all the terms and conditions that should
remain non-negotiable in its own pipeline tariffs.
It essentially follows the guidelines for continued recourse
service and public disclosure of negotiated service offerings set
out in a proposal sent to the Commission last month by the American
Gas Association and endorsed by the Interstate Natural Gas
Association of America.
"[T]here's been a lot of effort [taken] in this filing" by
Columbia to assure that the recourse customers "would not be harmed
by the offering of new services" and products under negotiated
terms and conditions, said Catherine G. Abbott, president and CEO
of Columbia Gas Transmission and Columbia Gulf Transmission, at the
Process Gas Consumers' third annual conference in Baltimore, MD,
"As a company who knows what it means to be in the doghouse with
respect to our customers...we have absolutely no desire to return
to the doghouse," she added.
By filing pro forma tariff sheets, the pipelines are requesting
that the Commission begin a technical conference to provide a forum
for all stakeholders to discuss the proposal and only much later
issue an order allowing the pipelines to move the tariff sheets
The Columbia proposal would give its two pipeline affiliates the
flexibility to "negotiate up and down" from a standard, recourse
"...We're coming in with a framework for the service that's
going to continue to be available, what should be off the table.
Our feeling is once you've got those pieces in place you ought to
be able to negotiate anything else," said Carl Levander, Columbia's
manager of regulatory analysis.
The areas that should remain in the non-negotiable category fall
into two main groups, according to Columbia: "things that could
[interfere with] the service of other customers and things that
could interfere with Commission policy," Levander said.
One area is capacity rights. "If you were to be able to
negotiate a higher quality of [firm] service, you would by
definition hurt somebody else. For example, if you could buy your
way into a higher priority for capacity or a better allocation of
capacity, or pay more not to be interrupted, or not to have OFOs
imposed, those are situations where your additional service could
come at the expense of another customer," he noted.
"The other category is where you're running afoul of FERC
policy... We think that the GISB terms ought to remain
non-negotiable so that the benefits of standardization aren't
undone through negotiation. Also taking capacity release rights off
the table makes some sense to us so you don't open the door to
things that could interfere with the competitive market."
With the non-negotiable provisions of the tariff specified, "It
kind of leaves the door open for creativity," said Levander.
Abbott conceded that many of the products and services that
Columbia hopes to offer if it gets the authority to negotiate terms
and conditions haven't been "invented" yet. To flesh these out will
require the Columbia pipelines to enter into a "more inventive kind
of process with our customers."
One possibility would be "certain electric utility customers and
independent power generators might be willing to pay [more] to be
able to get surges of gas within a time frame to ramp up...their
facilities," Abbott noted. The downside of this, however, is that
the quality of the standard, recourse service would be affected,
she said. However, "there may be places on your system where you
could go ahead and offer that and not affect anybody else's
[service]." She referred to these as the "niche" areas.
Suggests Capacity Options
Abbott also advocated the idea of pipeline customers being
allowed to acquire the rights to capacity on an options basis.
"Wouldn't it be nice if you had the option to buy capacity for
storage" and transportation in this manner? "It might be very
useful for you, thinking about an expansion of your facilities say
in 2002, to have the right" to additional capacity then, but not to
be under any obligation to buy it, she said.
In order to offer more "flexible" products and services, Abbott
said the Columbia pipelines may need to change the time frame
within which they operate. And, "we need to get much better at
short-term transactions than we've been in the past," she noted.
"...[W]e're perhaps not the biggest pipeline out there, but we'd
like to be the fastest and the most flexible with respect to
meeting customer needs."
Without this flexibility, Columbia pipelines could lose existing
and potential customers, many of whom are turning to the secondary
market and other short-term agreements to satisfy at least a
portion of their capacity needs, the company said.
Columbia's proposal already has the support from some of its
customers, including Baltimore Gas & Electric and Allied Signal.
"We believe that service flexibility will be a key to success in
addressing retail unbundling and other changes in our market," said
Bob Fleishman, BG&E's general counsel and vice president. "This
will provide an important tool to help distribution companies
manage the changes occurring in our environment."
Kettering said, it's going to be a "continuing priority" at
Columbia not to degrade recourse service of existing customers.
"We're not looking to provide more by providing less to the
customer that brought us to the dance."
The company proposes to file any customized-service agreements
at FERC 10 days before they go into effect, giving parties a chance
to voice their concerns. If a complaint should arise, it noted the
Columbia pipelines' tariffs would require that they respond to the
shipper within two days, and appoint a committee to review the
complaint. Once a customized agreement is reached with a customer,
Columbia said it would agree to provide the same service to other
customers if it is operationally possible. Lastly, it said it would
submit a comprehensive report to FERC one year after it has begun
offering negotiated terms and conditions.
Rocco Canonica; Susan Parker, Baltimore, MD