TGT's Novel Rate Plan Gets Booed by Shippers
Shippers on Texas Gas Transmission Corp. have called on FERC to
proceed cautiously with the pipeline's proposed Section 4 general
rate filing that seeks to increase its total cost of service by
19%, or $48 million, and boost annual rates for jurisdictional
pipeline and storage services by about $81 million.
Texas Gas cited increases in its utility rate base, depreciation
expenses and rate of return when justifying its request to raise
the cost of service to $304.8 million from the $256.8 million
approved in its 1997 rate case. It asked for the rate increase to
become effective June 1.
If Texas Gas's rate proposal is permitted to take effect as is,
New Jersey Natural Gas said it would have to pay about $1.47
million more each year to receive service on the pipeline, which is
nearly double what it is paying now.
The "most troublesome aspect" of the filing, most shippers
agreed, was Texas Gas's proposal to establish a new short-term firm
service (STF), which would combine the seasonal and
term-differentiated rate concepts approved by the Commission in
Because Texas Gas is "one of the first pipelines (and perhaps
the very first)" to file for such rate authority as part of a
Section 4 rate case, the Process Gas Consumers Group (PGC) and
other shippers urged the Commission to - at the very least ---
suspend the pipeline's entire filing for the maximum five-month
period, establish a hearing and condition acceptance of the
proposed tariff sheets on the availability of refunds [RP00-260].
The PGC group, which represents industrial gas shippers, said it
would prefer the Commission to "summarily reject," in part, Texas
Gas's proposal to implement term-differentiated rates as part of
the STF service given that the pipeline lacks the authority to
negotiate rates with customers. Also, it noted Texas Gas failed to
establish a revenue-sharing mechanism in its proposal for seasonal
and term-differentiated rates as required in Order 637.
Under the seasonal-rate concept in Order 637, interstate
pipelines can ask the Commission for the authority to charge higher
rates during the peak winter season, and lower rates during the
off-peak season. And with term-differentiated rates, pipelines can
offer a break in rates to customers who contract for longer terms,
and charge a premium for shorter-term service.
In its STF filing, Texas Gas proposes an off-peak base rate of
around 15 cents/MMBtu and a peak base rate of slightly more than 76
cents/MMBtu. The term-differentiated rate, as proposed by Texas
Gas, would be added to the base rate. For example, during the
winter, Texas Gas seeks to add 25 cents to the peak base rate for
service of one to five days in duration. In the summer, it would
add up to about 76 cents to the off-peak base rate for service of
the same contract duration. This latter term-differentiated premium
would be equal to the maximum base winter rate.
Texas Gas's proposal for seasonal rates and term-differentiated
rates raises "significant policy considerations," PGC said. For
one, it pointed out Texas Gas doesn't possess the authority needed
to negotiate the premiums associated with term-differentiated
rates. Nor does the pipeline's proposal provide a "basis and
justification" for charging the term-differentiated premiums.
Lastly, Texas Gas hasn't created a mechanism so that it can share
with its customers any revenues collected in excess of its costs
under seasonal rates.
Moreover, the PGC contends Texas Gas's term-differentiated rate
proposal doesn't offer shippers "a reduced rate to compensate
[them] for the risk associated with entering into a longer term
contract,." as required under Order 637. Also, it insists long-term
shippers would bear an "unfair portion" of the costs under Texas
Gas's proposal. "For example, rate schedule FT shippers would be
assessed approximately $150 million in costs while rate schedule
STF shippers would bear only $1 million. This is unduly
discriminatory to long-term shippers..."
In its rate filing, Texas Gas is in effect proposing to remove
the price caps on certain pipeline capacity transactions
(short-term firm), "thus completely undercutting one linchpin of
the Commission's rationale for lifting the cap in the short-term
release market in the first place," industrial shippers told FERC.