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Columbia's New Penalties Rate Proposal Riles Shippers, Marketers

A proposal by Columbia Gas Transmission LLC to change the way it levies penalties for “takes” in excess of total firm entitlements (TFE), failure to interrupt service (FTI), and failure to comply with operational flow orders (OFO) has raised the ire of natural gas shippers and marketers.

According to documents filed with FERC on Oct. 1, Columbia proposes to revise the general terms and conditions of its gas tariff (Docket No. RP15-6). Specifically, the company wants to revise the index-based penalty levels in Sections 19.1, 19.2 and 19.3 of the tariff, to the higher of:

  • Price/Dth equal to 300% of the midpoint of the range of prices reported at the Columbia Gas point as published for all such quantities in excess of its TFE; or
  • Price/Dth equal to 150% of the highest midpoint posting for either: MichCon Citygate, Transco Zone 6 non-NY, or Texas Eastern M-2 Receipts as published.

Eight affected shippers -- Anadarko Energy Services Co., ConocoPhillips Co., Cross Timbers Energy Services Inc., Direct Energy Business Marketing LLC, Interstate Gas Supply Inc., Noble Energy Inc., Shell Energy North America (U.S.) and SWEPI LP -- said Columbia's proposal "could result in the imposition of penalties that are unjust and unreasonable,” according to comments filed with the Federal Energy Regulatory Commission (FERC).

"Columbia's proposal to apply a single off-system price index for all penalties system-wide does not match its stated purpose to act as an effective deterrent to conduct that may threaten operational integrity," the shippers said. They added that even if FERC accepts "the premise of Columbia's argument that off-system prices higher than Columbia's current penalty level could provide an incentive for noncompliance, Columbia's proposal fails to reflect the geographic extent of the Columbia system and the differences in off-system markets.

"Columbia's facilities traverse 11 states. As a reticulated system, it does not provide capacity paths under its firm service agreements. The very fact that Columbia has proposed three different indices in three different regions of its system is an implicit acknowledgement by Columbia itself that different portions of its system could be affected by different regional markets."

The shippers submitted that "the off-system price index utilized to determine the alternative OFO, TFE and FTI penalties should only apply to transportation in the corresponding geographic region."

The shippers proposed using Michigan-MichCon Index: Operating Areas 5 and 7; Transco Zone 6 non-NY: Operating Areas 1, 2, 4 and 10; and Texas Eastern M-2: Operating Areas 3, 6 and 8.

In a separate filing, Atmos Energy Marketing LLC filed a motion to intervene and protest.

"Simply applying the highest of the three indices may be administratively easy, but is inappropriate for a pipeline system that is comprised of 40 market areas spread out over seven states," Atmos said. "While it might make sense for a shipper failing to comply with an OFO to pay a penalty associated with one (or more) of these three indices, simply applying the highest of the three indices may not send appropriate price signals.

"For example, imposing a penalty based at 150% of the MichCon Citygate index on a market area in Virginia would not make sense. Gas prices in Virginia typically do not bear any relation to the MichCon Citygate index price. To the extent that the MichCon Citygate index price was higher than the Texas Eastern M-2 Receipts price, that difference in price that flowed through the penalty mechanism would be, in [our] view, punitive."

Atmos agreed with the shippers that Columbia's penalties should be based geographically based and "appropriately tailored for each of its market areas."

Others filing motions to intervene with FERC included Vectren Energy Delivery of Ohio, Inc.; National Fuel Gas Distribution Corp.; UGI Distribution Cos.; Duke Energy Corp.; Exelon Corp.; National Grid; Piedmont Natural Gas Co. Inc.; Calpine Energy Services, LP; NiSource Distribution Cos.; Orange and Rockland Utilities Inc.; NJR Energy Services Co.; Old Dominion Electric Cooperative; Public Service Co. of North Carolina; Chevron U.S.A. Inc.; New York State Electric & Gas Corp.; New Jersey Natural Gas Co.; PSEG Energy Resources & Trade LLC; Honeywell International Inc.; IOGA of West Virginia; Cabot Oil & Gas Corp.; Antero Resources Corp.; Range Resources-Appalachia LLC; and Statoil Natural Gas LLC.

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