Northern Proposes New Volumetric Firm Service
Enron Corp.'s Northern Natural Gas has proposed an optional one-part
volumetric firm throughput service (VFT) under which customers would only
pay for the service they use and would share the risk of weather-related
volatility with the pipeline.
The proposed service would be available to existing and new customers
that contract for long-term firm service on Northern Natural, and would
have the same terms and conditions as the pipeline's existing firm rate
schedules, it told FERC.
The VFT service would offer customers "a new flexible billing option
for the pricing of firm service, i.e. a 'pay-as-you-go' approach,"
according to Northern Natural. Also, it would permit customers to "fix
the per-unit cost of transportation service purchased from Northern and
insulate themselves and their customers from weather-driven cost volatility."
Northern's new service was one of two innovative filings at FERC last
week. Reliant Energy also filed for an automatic nomination service for
'just in time' deliveries (see separate report,
Northern Natural believes the VFT service would be a vast improvement
over the current two-part firm billing structure, where "a shipper
pays for firm service whether it uses the service or not, and thus takes
the risk of weather volatility common during Northern's winter seasons."
This risk would be shared under the proposed VFT service, with Northern
Natural assuming the risk of a warmer-than-normal winter and the VFT customer
assuming the risk of a colder-than-normal winter, it said.
"VFT service is another tool to meet Northern's customers' needs.
Such tools are critical to improve Northern's customer responsiveness,
help obtain contract extensions from existing customers thereby reducing
capacity turnback, and attract new customers to Northern's system,"
the Enron pipeline said in its filing at FERC. Natural said its proposal
is similar to the firm, volumetric services that the Commission already
has approved for several offshore pipelines.
For existing customers seeking to convert to the VFT service, Northern
Natural said the maximum volumetric rate for both summer and winter will
be based on the customer's three-year average historical load factor, between
1997-1999. For new customers, Northern noted a projected load factor would
be used to determine the applicable maximum VFT rate.
The pipeline has proposed "three alternative usage parameters"
for the proposed service that would apply to customers that have more than
one pipeline supplier, and to electric generation customers that have the
option of using alternate fuels or purchasing power off-system rather than
taking gas from Northern Natural.
"The VFT proposal and specifically the usage parameters will not
permit such customers to switch to volumetric rates and then reduce their
takes on Northern's system by making Northern their swing supplier.....The
usage parameters are necessary to prevent gaming of Northern's system,"
and to ensure that Northern is held liable for weather-related risks only,
it told the Commission.
The first usage parameter calls for VFT shippers that are full requirements
customers (no alternate pipeline suppliers or alternate fuel capabilities)
to fulfill their market commitments using the VFT service. The second usage
parameter requires Northern and the VFT customer to identify Northern's
current or projected market share of that shipper's total load. As for
the third usage parameter, a customer would commit to a certain level of
usage on Northern's system for each season in the market and field area.
All other terms and conditions would mirror Northern's existing firm
services. For instance, Northern's proposed VFT service would have a "minimum
one-year term with the right to extend such service year-to-year thereafter;"
would only apply to long-term contracts due to the difficulty of measuring
and hedging short-term weather risk; and shippers would have the ability
to release their capacity.
Northern believes its proposal is in line with the Commission's policy
of encouraging pipelines to offer innovative services. It urged FERC to
hold a technical conference so that it can "further explain"
its rate proposal to the Commission staff and pipeline customers.