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Texas Gas Rate Plan Subject to Greater Scrutiny

Texas Gas Rate Plan Subject to Greater Scrutiny

A hotly protested Texas Gas Transmission rate proposal will be subject to increased regulatory and industry scrutiny in the coming months. The Federal Energy Regulatory Commission (FERC) sided with a number of protesters in accepting and suspending the bulk of the proposed tariff changes until Nov. 1 subject to hearing and potential refund.

FERC also rejected Texas Gas' postage stamp rate design for a new cutting-edge, short-term firm service and ordered the pipeline come up with distance-based rates for the service. In addition, it ordered the pipeline to provide detailed explanations on a host of issues related to its new rate design within the next 30 days.

Aside from increasing rates $81 million, the general rate case also requested Commission authorization to implement a variety of season and term-differentiated rate ideas put forth in the Commission's recent Order 637. Other than those proposals and some revisions to Texas Gas' storage service, the Commission set the tariff changes for hearing and requested that the presiding administrative law judge hold the hearing in abeyance to allow interested parties time to pursue a settlement.

The tariff filing seeks to increase Texas Gas' 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 in asking the Commission to raise its cost of service to $304.8 million from the $256.8 million approved in its 1997 rate case. It proposed that the increase become effective June 1.

The filing was protested strongly by New Jersey Natural Gas, which said its costs on the pipeline would nearly double. But the "most troublesome aspect" of the filing, most shippers agreed, was Texas Gas's proposal to establish a new short-term firm service (STF). The service would be available starting Nov. 1 and would have terms between one day and one year with "value-based" rates based on the term and the time of year. It would have rates for four different terms in the summer and winter seasons and would include certain premiums based on timing. There would be an off-peak base rate of 15 cents/MMBtu and a peak base rate of 76.17 cents/MMBtu. During the winter, Texas Gas could add up to 25 cents to the peak base rate for service of one to five days in duration. And in the summer, it could add up to 10 cents to the off-peak base rate for service of the same contract duration. Texas Gas also proposes a mutually agreed upon one-day rate for the summer and winter seasons.

The Process Gas Consumers Group (PGC), which represents industrial gas shippers, said it would prefer the Commission "summarily reject," in part, Texas Gas's proposal to implement term-differentiated rates as part of the STF service given that the pipeline lacked the authority to negotiate such 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 (see Daily GPI, May 16).

While it said it was "encouraged" by the filing, which shows support for its new policies, the Commission concluded that further clarification by the pipeline company is required, particularly regarding the basis for the premiums to be charged. FERC said there seems to be a likelihood for over-recovery of costs, and it therefore directed Texas Gas to explain its justification for the premiums within 30 days. The Commission also ordered Texas Gas to explain why it has not designed seasonal rates for interruptible service or long-term service.

Rocco Canonica

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