Phillips subsidiary GPM Gas Corp. and a number of other NorthernNatural shippers are befuddled by a complex negotiated ratetransaction between Northern Natural and its affiliate Enron NorthAmerica Corp. that covers 295,000 MMBtu/d of firm transportationspace, or about one-third of Northern’s pipeline capacity. Thecontract was filed at FERC on Oct. 29 (Docket No. RP96-272).

GPM has filed a protest and request for technical conferencewith FERC on the matter, saying the transaction is large, complexand may discriminate against other shippers. It said thedescription of the transaction leaves a lot of questionsunanswered. It’s not clear what the fuel charge is. There’s nominimum price level, and Northern provided no description of howthe transaction would work in practice. The reservation charge isbased on multiple alternate pricing methodologies involving complexpricing calculations with various options for Enron on fuelcharges.

“If the economic effect of Northern’s proposed negotiated ratedis to provide a discount below variable cost (i.e. below the valueof the fuel required for the transaction) that would constitute anundue preference for Northern’s affiliate,” GPM said, indicatingthe fuel calculations in the deal are suspect.

“While Northern states that it will comply with the Commissionaccounting requirements for negotiated rate transactions, it is notclear that those requirements contemplated a transaction as complexas that proposed here. For example, given the interrelationshipbetween pricing of the reservation fee and the fuel calculation,the Commission should require Northern to clearly and separatelyaccount for fuel prices and volumes under the negotiatedtransaction so that parties can verify that fuel reimbursementoperates in accordance with Northern’s tariff and with nocross-subsidies from other customers,” GPM said.

GPM said the description of the negotiated rate deal “appears tostray beyond a negotiated rate into the area of negotiated termsand conditions, contrary to Commission policy. For example, therevised tariff sheets include an arbitration clause, as well as aterm or condition which requires the shipper to submit informationto Northern about the shipper’s financial derivative activity.”

Rocco Canonica

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