The concept of negotiated rates and conditions of service wentfrom being a mere pipe dream to a solid vision last week with thefiling of a major proposal by Columbia Energy Group’s two pipelineaffiliates.

Columbia Gas Transmission and Columbia Gulf Transmissionfollowed through on a long-standing promise to provide FERC with anew regulatory model. The proposal, which came in the form of proforma tariff sheets, is the first comprehensive proposal toestablish more flexible terms and services for customers withchanging transportation needs. Columbia called it the “next logicalstep in the evolution of pipeline regulation and natural gasmarkets.”

With a significant number of pipeline transportation contractsexpiring at a time when retail gas unbundling is picking up speedand electric restructuring is proceeding, there’s a large degree ofuncertainty about the requirements of future transportationcustomers, a Columbia official noted.

“Retail unbundling is affecting the customer base of interstatepipelines and changing the types of services customers require,”said Glenn Kettering, Columbia Gas Transmission senior vicepresident. “In response, we need the ability to offer more diverseand customized transportation services.designed to better fit aparticular customer’s operational requirements and provide a neededmechanism to effectively respond to changing competitive markets.”

Columbia’s filing is the second proposal for negotiated termsand services since the Commission issued its “Statement of Policyand Request for Comments” on the issue in January 1996. NorthernNatural recently filed a general rate case that included a requestfor authority to negotiate specific provisions of its tariff,including right of first refusal, flow rights and pressures, andlower quality of service. Columbia’s filing is more comprehensivein that it specifies all the terms and conditions that shouldremain non-negotiable in its own pipeline tariffs.

It essentially follows the guidelines for continued recourseservice and public disclosure of negotiated service offerings setout in a proposal sent to the Commission last month by the AmericanGas Association and endorsed by the Interstate Natural GasAssociation of America.

“[T]here’s been a lot of effort [taken] in this filing” byColumbia to assure that the recourse customers “would not be harmedby the offering of new services” and products under negotiatedterms and conditions, said Catherine G. Abbott, president and CEOof Columbia Gas Transmission and Columbia Gulf Transmission, at theProcess Gas Consumers’ third annual conference in Baltimore, MD,last Thursday.

“As a company who knows what it means to be in the doghouse withrespect to our customers…we have absolutely no desire to returnto the doghouse,” she added.

By filing pro forma tariff sheets, the pipelines are requestingthat the Commission begin a technical conference to provide a forumfor all stakeholders to discuss the proposal and only much laterissue an order allowing the pipelines to move the tariff sheetsinto effect.

The Columbia proposal would give its two pipeline affiliates theflexibility to “negotiate up and down” from a standard, recourserate service.

“…We’re coming in with a framework for the service that’sgoing to continue to be available, what should be off the table.Our feeling is once you’ve got those pieces in place you ought tobe able to negotiate anything else,” said Carl Levander, Columbia’smanager of regulatory analysis.

The areas that should remain in the non-negotiable category fallinto two main groups, according to Columbia: “things that could[interfere with] the service of other customers and things thatcould interfere with Commission policy,” Levander said.

One area is capacity rights. “If you were to be able tonegotiate a higher quality of [firm] service, you would bydefinition hurt somebody else. For example, if you could buy yourway into a higher priority for capacity or a better allocation ofcapacity, or pay more not to be interrupted, or not to have OFOsimposed, those are situations where your additional service couldcome at the expense of another customer,” he noted.

“The other category is where you’re running afoul of FERCpolicy… We think that the GISB terms ought to remainnon-negotiable so that the benefits of standardization aren’tundone through negotiation. Also taking capacity release rights offthe table makes some sense to us so you don’t open the door tothings that could interfere with the competitive market.”

With the non-negotiable provisions of the tariff specified, “Itkind of leaves the door open for creativity,” said Levander.

Abbott conceded that many of the products and services thatColumbia hopes to offer if it gets the authority to negotiate termsand conditions haven’t been “invented” yet. To flesh these out willrequire the Columbia pipelines to enter into a “more inventive kindof process with our customers.”

One possibility would be “certain electric utility customers andindependent power generators might be willing to pay [more] to beable to get surges of gas within a time frame to ramp up…theirfacilities,” Abbott noted. The downside of this, however, is thatthe quality of the standard, recourse service would be affected,she said. However, “there may be places on your system where youcould 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 beingallowed to acquire the rights to capacity on an options basis.”Wouldn’t it be nice if you had the option to buy capacity forstorage” and transportation in this manner? “It might be veryuseful for you, thinking about an expansion of your facilities sayin 2002, to have the right” to additional capacity then, but not tobe under any obligation to buy it, she said.

In order to offer more “flexible” products and services, Abbottsaid the Columbia pipelines may need to change the time framewithin which they operate. And, “we need to get much better atshort-term transactions than we’ve been in the past,” she noted.”…[W]e’re perhaps not the biggest pipeline out there, but we’dlike to be the fastest and the most flexible with respect tomeeting customer needs.”

Without this flexibility, Columbia pipelines could lose existingand potential customers, many of whom are turning to the secondarymarket and other short-term agreements to satisfy at least aportion of their capacity needs, the company said.

Columbia’s proposal already has the support from some of itscustomers, including Baltimore Gas &amp Electric and Allied Signal.”We believe that service flexibility will be a key to success inaddressing retail unbundling and other changes in our market,” saidBob Fleishman, BG&ampE’s general counsel and vice president. “Thiswill provide an important tool to help distribution companiesmanage the changes occurring in our environment.”

Kettering said, it’s going to be a “continuing priority” atColumbia not to degrade recourse service of existing customers.”We’re not looking to provide more by providing less to thecustomer that brought us to the dance.”

The company proposes to file any customized-service agreementsat FERC 10 days before they go into effect, giving parties a chanceto voice their concerns. If a complaint should arise, it noted theColumbia pipelines’ tariffs would require that they respond to theshipper within two days, and appoint a committee to review thecomplaint. Once a customized agreement is reached with a customer,Columbia said it would agree to provide the same service to othercustomers if it is operationally possible. Lastly, it said it wouldsubmit a comprehensive report to FERC one year after it has begunoffering negotiated terms and conditions.

Rocco Canonica; Susan Parker, Baltimore, MD

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