Williams Sees SFV Fix for Transportation
With overloads of turned-back capacity and a bottoming market for long-term
pipeline transportation contracts, distributors have finally picked up
some pipeline support for a "generic" departure from straight
fixed variable (SFV) rates.
In comments submitted to FERC recently Williams acknowledged that loading
all the fixed costs into the demand charge "increases the unavoidable
costs of reserving capacity, contributing to customers' reluctance to contract
for long-term transportation services, and thereby limiting the number
of participants in the long-term market for transportation."
Williams said that in addition to supporting current policies allowing
negotiated rates using other rate designs, it "is not opposed to a
Commission-sponsored move away from SFV rate design as part of a generic
policy applied simultaneously to all pipelines and if pipelines are provided
the tools necessary to mitigate the increased risks posed by non-SFV rates."
Thus did one of the leading pipeline companies acknowledge the market's
undermining of the pipelines' religiously-held and oft-defended belief
in their right to collect all fixed costs in the demand charge. That works
only if customers sign up for firm service and agree to pay a demand charge.
The Customer Coalition, made up of distributors and utilities in the
Northeast, was more aggressive in its campaign to break the back of the
SFV policy, saying FERC should specify that 35% of a pipeline's fixed costs
should be shifted to the usage or commodity portion of the rate. "SFV
rate design rewards inefficiency and fails to adequately reward efficient
pipelines...A change to a rate design that recovers more costs volumetrically
would expose more costs to competition."
The customers pointed out that because they are able to make very little
on capacity release, the high fixed costs in SFV rates makes holding long
term capacity a much riskier proposition than holding short term capacity.
Responding the Federal Energy Regulatory Commission's request for ideas
for the next round of fine-tuning the gas market, Williams also said the
Commission "should immediately remove price caps on all short-term
natural gas transportation transactions, including short-term pipeline
Regarding new and expansion projects "if a pipeline and its expansion
shippers are willing to proceed on the basis of the arrangements that have
been struck, then the Commission should approve such arrangements provided
existing shippers are protected operationally and financially and all required
environmental conditions are met."
Williams also repeated its support for negotiated terms and conditions
and urged the Commission to re-examine the need for the 'shipper-must-have-title'
The comments were filed in response the FERC's Notice of Proposed Rulemaking
(RM98-10) and Notice of Inquiry (RM98-12). They follow on a public conference
held by the Commission in September to discuss possible market changes
(see NGI, Sept. 25).
Meanwhile, producers were concerned that FERC needs to pay attention
to how its latest Order 637 rules are enforced before it starts thinking
about next generation changes.
Particularly in the realm of penalties, Order 637 pipeline compliance
filings "propose few substantive changes designed to meet the Commission's
directives and provide meager justification, if any, for existing operational
restrictions and penalties. Where pipelines do propose to modify their
existing penalty structures, they generally propose new penalty mechanisms,
increased penalty levels, or tighter tolerance levels," the producers
Having delivered that opening shot, producers honed in on calls, particularly
from LDC members of the American Gas Association (AGA), for repeal of the
"shipper must have title" policy, which requires shippers to
own the gas they ship through the pipeline. Producers believe elimination
of the title policy "would seriously undermine the ability of the
Commission to ensure compliance with its open access and non-discrimination
policies." The rule protects against illegal capacity brokering and
ensures a competitive capacity release market, the producers said. The
comments were filed as part of the ongoing discussion FERC initiated with
a public conference last month (see Daily GPI, Sept. 20 & Oct. 24)
AGA argues that removing the rule would "work to increase liquidity
in natural gas markets by taking away an impediment to transferring gas.
For instance, the shipper must have title policy may prevent storage customers
from providing imbalance services." AGA maintains that new Order 637
reporting requirements will replace the information lost by eliminating
capacity release postings. The group would like to continue the dialogue
to determine what information is necessary and when.
Producers and AGA likewise disagree as to whether the title policy interferes
with state unbundling initiatives because it impedes LDCs' utilization
of their capacity for the benefit of third parties. Producers point out
the Commission has the ability to grant limited waivers of the shipper
title policy to the extent necessary to facilitate state unbundling initiatives.
AGA also focused on the rash of new pipeline services and how they are
impacting service to existing customers. "AGA sees that pipelines
have already begun to provide new services, which employ assets historically
used to provide critical operational attributes of LDCs' firm services,
thereby incrementally degrading the reliability of existing firm services."
The LDCs' "flexibility is being reduced as pipelines sell that flexibility
under new service offerings and thereby enhance their revenue without recognizing
any cost reallocations."
The group particularly noted the new flexible services being offered
to generators. "This is a serious problem because it is this flexibility
that translates into service reliability at the burnertip." Going
forward, AGA pointed to testimony at FERC's conference last month on next
generation rules by an Enron representative who suggested the unbundling
of services such as options on future capacity, alternate rights (a/k/a
flexible receipt and delivery points), hourly takes (a/k/a traditionally
allowed flexible hourly overruns) and delivery pressures. "The services
pipelines seek to unbundle for their values are part of the service attributes
LDCs consider critical for continued reliable service to burnertip customers."