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INGAA Official, State Regulators Lay Out Winter Concerns, Issues to FERC

Pipeline representative Donald Santa told FERC Thursday that pipeline shippers will have to prepare for the possibility that higher penalties may have to be used by pipeline companies to discourage customers from using gas that isn't theirs this winter. He also said pipeline companies are going to have to work more closely with customers to find solutions to the problem of liquids in the gas stream because of the 16 processing plants that remain out of service.

"Some pipelines may choose to update their penalty provisions in order to maintain the price signals needed to discourage customers from helping themselves to someone else's gas," said Santa, president of the Interstate Natural Gas Association of America (INGAA), noting that Texas Eastern (Tetco) made such a filing last week (see NGI, Oct. 17). Tetco said in a statement Oct. 14 that its current imbalance penalty during operational flow orders is capped at $25, which may be an insufficient deterrent to discourage over usage this winter because gas prices already have approached $14.

"There may be times this winter when pipelines will be compelled to enforce their tariffs to the letter in order to maintain system integrity and prevent customers from taking more gas than has been received by the pipeline on their behalf," Santa told FERC during its regular Commission meeting.

"It will be important to safeguard the pipeline and its customers from heavy hydrocarbon dropout or from the chaos that could result if customers resort to self-help remedies during a supply shortfall," he said.

Santa said pipelines currently are looking at using portable refrigeration units to allow for more complete removal of natural gas liquids from the gas stream because some gas processing plants may not be back up to speed for as long as six months. Pipelines also have been exploring the possibility of mingling processed gas with unprocessed gas, but there are limits to that, he noted.

"The pipelines cannot facilitate greater blending or compel someone to process gas beyond what is otherwise required in the tariff." Any overprocessing would have to be arranged by shippers and processors and there "will be limits to what can be accomplished by makeshift solutions... And at some point suppliers, pipelines and customers may need to address the tolerance for accepting and delivering gas that will not be processed to the degree that it historically has been processed."

Santa said pipeline companies will be working closely with customers to "explore the options the customers have for maintaining gas quality as they manage their gas supply in storage."

However, he said he was unaware of any other imminent solutions to the Gulf processing situation, such as those submitted last week by the Discovery and Stingray pipelines. Enbridge-owned Stingray received a waiver from FERC on Friday to modify the historical operation of its system to allow shippers to divert and deliver their gas from Stingray to an offshore interconnection with GulfTerra Energy Partners' High Island Offshore System (HIOS) (see related story). And FERC recently granted Discovery Gas Transmission an emergency exemption and waivers to expedite a gas transportation project offshore in the Gulf because of damage to a Dynegy Inc. processing plant in Venice, LA (see NGI, Oct. 17).

Santa encouraged FERC to tackle other issues that would encourage capital investment in storage and pipeline infrastructure. And FERC Chairman Joseph Kelliher said the Commission is looking into storage pricing reforms that could spur the addition of storage capacity.

However, Kelliher said most of the effort to mitigate the impact of high prices this winter must come from the states. Although FERC stands ready to prevent market manipulation this winter and will quickly review any additional emergency filings from pipeline companies that are trying to restore Gulf of Mexico gas flows, Kelliher said little else can be done by the Commission other than getting the word out.

"The Commission does not have authority over retail natural gas sales," Kelliher noted. "This is the domain of the states. For that reason, we have invited our state colleagues here today to discuss various state programs to increase natural gas conservation this winter. Some states have aggressive conservation programs, which we hope to highlight today."

Michael Peevey, president of the California Public Utility Commission, said utilities in California are taking an active role in addressing the gas price problem. He highlighted a plan by Southern California Gas to reclassify 4 Bcf of cushion gas in storage as working gas and deliver it to low income customers at a cost of only 38 cents/Mcf (see Daily GPI, Oct. 10).

"SoCal Gas estimates that [low income] customers stand to gain upwards of a $50 million benefit. This translates into roughly a 20% decrease in [low income] gas costs. Combined with a 20% discount that [low income] customers already receive, there is a potential to all but eliminate any price increases to [low income] customers in Southern California this winter." Peevey said the CPUC would consider the proposal at its meeting on Nov. 18.

Paul G. Alfonso, chairman of the Massachusetts Department of Telecommunications and Energy said KeySpan will be providing $107 million to consumers this winter because of the success of its basis hedging program.

Kelliher urged state regulators from Iowa, New York, Massachusetts, California and other states that were not represented at the Commission meeting to "share best practices" in dealing with the natural gas crisis. Several of the FERC and state commissioners agreed that educating consumers on the need for conservation this winter would be key to mitigating the impact of higher prices.

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