Pipes Accused of Subverting Order 637 Penalty Restriction
A coalition of pipeline customers has accused interstate gas
pipelines of attempting to bypass the FERC Order 637's limits on
the use of penalties by offering their customers new services that
include penalties masked in "sheep's clothing."
"We are disappointed by these developments and strongly urge the
Commission to hew to the course it established in Order 637 for
evaluating pipeline penalties, OFOs and other mechanisms that
restrict operational flexibility," the Pipeline Transportation
Customer Coalition, a group of key pipeline customers, wrote to
Chairman James J. Hoecker last Tuesday. It called for the new
service offerings and tariff changes of pipelines to be "closely
scrutinized" by FERC.
The coalition contends some pipelines have used their Order 637
compliance filings as an opportunity to "strip" firm shippers of
service rights now included in existing pipeline tariff structures.
They are replacing them with new, separately priced services that
are "more restrictive," with "new penalties (re-labeled 'charges'
or 'fees' to be kept by the pipeline) and tighter tolerances," it
These "new, high-priced service offerings" of some pipelines "do
little more than put the penalty 'wolf' in the 'sheep's clothing'
of new services," the coalition said. "The pipelines predictably
structured the new services to send the resulting revenues directly
to themselves, rather than to the customers. As a result, many
pipelines' proposed tariff provisions regarding penalties and
imbalance management services combine to degrade, not upgrade, the
quality of services available to shippers."
Certain pipelines have resisted the temptation to make their
tariffs "less flexible and more punitive," the coalition
acknowledged, but it contends they "have nonetheless strayed" from
Order 637 by making "unsubstantiated claims" that their current
tariffs comply with the new Commission standards.
In their compliance filings, "we believe that, by and large,
pipelines have rebuffed the Commission" Order 637 mandate calling
for limited use of penalties by pipes. Order 637 enacted a policy
that limits the use of punitive penalty measures against customers
to situations where system integrity is threatened and increased
the options available to shippers to manage their supplies,
according to the coalition.
The group said it expected a "more fluid and competitive
interstate grid" as a result. "Unfortunately, it appears that many
pipelines have managed to read Order 637 differently than we do.
Rather than submitting compliance filings that benefit their
shippers, many pipelines have submitted compliance filings
proposing tariff and operational changes that inure to the sole
benefit of the pipeline."
The members of the coalition include the Independent Petroleum
Association of America, the Natural Gas Supply Association, the
Domestic Petroleum Council, the Process Gas Consumers Group, the
American Iron and Steel Institute, the Georgia Industrial Group,
the American Forest & Paper Association, Dynegy Marketing and
Trade, and the American Public Gas Association.