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FERC Eyes Selective Discounting for Gas-On-Gas Competition

FERC Eyes Selective Discounting for Gas-On-Gas Competition

FERC last Thursday issued a notice of inquiry (NOI) in which it asks for comments on whether it should change its policy on selective discounting to include discounts aimed at enhancing competition between natural gas pipelines.

Specifically, the NOI asks whether the Commission's existing policy of permitting interstate gas pipelines to adjust their throughput downward in rate cases to reflect discounts given to compete with alternate fuels is "appropriate" in cases where a discount deepens competition between two gas pipelines, often referred to as gas-on-gas competition.

Under its current policy, the Federal Energy Regulatory Commission allows pipelines to engage in selective discounting to compete with other energy fuels. For instance, if a shipper were able to obtain an alternate fuel at a cost less than the cost of natural gas, including the transportation rate, the Commission's policy permits a pipeline to discount the rate to compete with the alternate fuel. The current policy, however, does not apply to gas-on-gas competition.

FERC is now exploring whether selective discounting should extend to competition between gas pipelines.

The current policy is based on the rationale that selective discounting benefits all customers, including captive customers who do not receive discounts, because the discounts would allow the pipeline to maximize throughput and spread its fixed costs over more units of service, a FERC staff member said.

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