Customer Coalition Blasts AGA/INGAA Proposal
If there ever was any indication of industry consensus on the
need for negotiated terms and conditions of pipeline transportation
service, it was quickly erased last week by a letter sent to FERC
Chairman James J. Hoecker by a broad gas industry coalition.
"I have never seen so many industry groups with historically
different interests and constituencies come together like this in
all my years in the business," said Bob Cave, executive director of
the American Public Gas Association (APGA), a coalition member. "If
this doesn't get FERC's attention, nothing will."
The ad hoc group of 33 producer, marketer and municipal
distributor associations, calling itself the Pipeline
Transportation Customer Coalition, blasted a recent FERC policy
proposal (filed May 4) by the American Gas Association and the
Interstate Natural Gas Association of America as "seriously flawed
as to undercut any purported value." The coalition includes, among
others, the Natural Gas Supply Association (NGSA), Independent
Petroleum Association of America (IPAA), APGA and the Energy
The proposal that brought so many industry groups together in
opposition recommends FERC adopt a new framework that would allow
pipelines to negotiate terms and conditions of service if their
proposals ensure there is no degradation of service. Any pipeline
filing under the new policy would have to establish a "benchmark"
or recourse service, allow for a notice and protest procedure,
agree to public posting of negotiated contracts and ensure there is
no undue discrimination among similarly situated shippers. Two
pipeline subsidiaries of Columbia Energy immediately followed up
the AGA/INGAA plan with a comprehensive test case proposal that
implements the AGA/INGAA guidelines.
But coalition members said last week pipeline services are just
fine as they are and the changes proposed actually would have a
severe negative impact on the market. "The current market is
working quite well without any known dislocations or impediments
and thus the INGAA/AGA proposal is not addressing and specific
market problem," said NGSA's Philip Budzik, director of federal
regulatory affairs. "While the INGAA/AGA proposal has some
superficial appeal as being 'customer responsive,' it could cause
serious problems. A pipeline has only so much capacity and
operational flexibility. The flexibility a pipeline gives to Peter
has to come from Paul."
The APGA, which represents public gas distributors, 95% of which
are captive to a single gas pipeline company, sees no reason why
the "pipelines and giant LDCs, both of which have tremendous market
power," will not "exercise that power in a discriminatory way" once
terms and conditions become negotiable.
In its letter, the coalition charged that in allowing pipelines
and large LDC customers to negotiate terms and conditions of
service, the Commission could do serious harm to nearly every
sector of the gas business: the commodity market, the secondary
market, the retail market, and the pipeline grid.
The coalition claims that even with recourse service and public
postings of negotiated terms and conditions, pipelines still will
be in a position to "discriminate and effectively sell a
competitive advantage to selected customers. By selectively selling
special advantage to some shippers at premium rates, pipelines will
be able to unfairly profit at the expense of other market
participants and consumers.
"Such a system of 'balkanized' pipeline services
would.seriously" inhibit their "fungiability." The coalition
further said giving advantages to some large capacity holders could
reduce competition in the commodity and transportation markets,
"weakening secondary markets and frustrating state commission
efforts to bring greater competition to retail markets."
The AGA/INGAA proposal has a long list of defects, the coalition
added. They include the "mechanics, the benchmarking process,
potential cross subsidies, the need to continuously examine the
harm to secondary markets, the likelihood of burdensome complaint
proceedings, and the constant reassessments of the quality and
ongoing viability of recourse service."
IPAA's David Sweet, vice president of natural gas, said the
AGA/INGAA proposal also "runs counter to the Commission's current
goal to enhance competition by standardizing more pipeline