Before the Federal Energy Regulatory Commission starts thinkingabout the next generation of natural gas transportation rules, itshould pay attention to how its latest Order 637 rules areenforced, Indicated Producers said in comments submitted to theCommission this week.

Particularly in the realm of penalties, Order 637 pipelinecompliance filings “propose few substantive changes designed tomeet the Commission’s directives and provide meager justification,if any, for existing operational restrictions and penalties. Wherepipelines do propose to modify their existing penalty structures,they generally propose new penalty mechanisms, increased penaltylevels, or tighter tolerance levels,” the producers said.

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 requiresshippers to own the gas they ship through the pipeline. Producersbelieve elimination of the title policy “would seriously undermine theability of the Commission to ensure compliance with its open accessand non-discrimination policies.” The rule protects against illegalcapacity brokering and ensures a competitive capacity release market,the producers said. The comments were filed as part of the ongoingdiscussion FERC initiated with a public conference last month (seeDaily GPI, Sept. 20 & Oct. 24)

AGA argues that removing the rule would “work to increaseliquidity in natural gas markets by taking away an impediment totransferring gas. For instance, the shipper must have title policymay prevent storage customers from providing imbalance services.”AGA maintains that new Order 637 reporting requirements willreplace the information lost by eliminating capacity releasepostings. The group would like to continue the dialogue todetermine what information is necessary and when.

Producers and AGA likewise disagree as to whether the titlepolicy interferes with state unbundling initiatives because itimpedes LDCs’ utilization of their capacity for the benefit ofthird parties. Producers point out the Commission has the abilityto grant limited waivers of the shipper title policy to the extentnecessary to facilitate state unbundling initiatives.

AGA also focused on the rash of new pipeline services and howthey are impacting service to existing customers. “AGA sees thatpipelines have already begun to provide new services, which employassets historically used to provide critical operational attributesof LDCs’ firm services, thereby incrementally degrading thereliability of existing firm services.” The LDCs’ “flexibility isbeing reduced as pipelines sell that flexibility under new serviceofferings and thereby enhance their revenue without recognizing anycost reallocations.”

The group particularly noted the new flexible services beingoffered to generators. “This is a seriousl problem because it isthis flexibility that translates into service reliability at theburnertip.” Going forward, AGA pointed to testimony at FERC’sconference last month on next generation rules by an Enronrepresentative who suggested the unbundling of services such asoptions on future capacity, alternate rights (a/k/a flexiblereceipt and delivery points), hourly takes (a/k/a traditionallyallowed flexible hourly overruns) and delivery pressures. “Theservices pipelines seek to unbundle for their values are part ofthe service attributes LDCs consider critical for continuedreliable service to burnertip customers.”

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