A coalition of pipeline customers has accused interstate gaspipelines of attempting to bypass the FERC Order 637’s limits onthe use of penalties by offering their customers new services thatinclude penalties masked in “sheep’s clothing.”

“We are disappointed by these developments and strongly urge theCommission to hew to the course it established in Order 637 forevaluating pipeline penalties, OFOs and other mechanisms thatrestrict operational flexibility,” the Pipeline TransportationCustomer Coalition, a group of key pipeline customers, wrote toChairman James J. Hoecker last Tuesday. It called for the newservice offerings and tariff changes of pipelines to be “closelyscrutinized” by FERC.

The coalition contends some pipelines have used their Order 637compliance filings as an opportunity to “strip” firm shippers ofservice rights now included in existing pipeline tariff structures.They are replacing them with new, separately priced services thatare “more restrictive,” with “new penalties (re-labeled ‘charges’or ‘fees’ to be kept by the pipeline) and tighter tolerances,” itcharged.

These “new, high-priced service offerings” of some pipelines “dolittle more than put the penalty ‘wolf’ in the ‘sheep’s clothing’of new services,” the coalition said. “The pipelines predictablystructured the new services to send the resulting revenues directlyto themselves, rather than to the customers. As a result, manypipelines’ proposed tariff provisions regarding penalties andimbalance management services combine to degrade, not upgrade, thequality of services available to shippers.”

Certain pipelines have resisted the temptation to make theirtariffs “less flexible and more punitive,” the coalitionacknowledged, but it contends they “have nonetheless strayed” fromOrder 637 by making “unsubstantiated claims” that their currenttariffs comply with the new Commission standards.

In their compliance filings, “we believe that, by and large,pipelines have rebuffed the Commission” Order 637 mandate callingfor limited use of penalties by pipes. Order 637 enacted a policythat limits the use of punitive penalty measures against customersto situations where system integrity is threatened and increasedthe options available to shippers to manage their supplies,according to the coalition.

The group said it expected a “more fluid and competitiveinterstate grid” as a result. “Unfortunately, it appears that manypipelines have managed to read Order 637 differently than we do.Rather than submitting compliance filings that benefit theirshippers, many pipelines have submitted compliance filingsproposing tariff and operational changes that inure to the solebenefit of the pipeline.”

The members of the coalition include the Independent PetroleumAssociation of America, the Natural Gas Supply Association, theDomestic Petroleum Council, the Process Gas Consumers Group, theAmerican Iron and Steel Institute, the Georgia Industrial Group,the American Forest & Paper Association, Dynegy Marketing andTrade, and the American Public Gas Association.

Susan Parker

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