Daily GPI / NGI All News Access

Gas Industry Lacks Harmony in NOPR, NOI Comments

Gas Industry Lacks Harmony in NOPR, NOI Comments

FERC Chairman James Hoecker said recently he didn't expect to see much "consensus" from the natural gas industry on the major initiatives in the notice of proposed rulemaking (NOPR) and notice of inquiry (NOI). Judging from some of the comments that flooded into the Commission yesterday, he was right on target.

This lack of harmony was apparent in the comments of the Natural Gas Supply Association (NGSA), the American Gas Association (AGA) and the American Public Gas Association (APGA) - the only major gas trade groups that had their NOPR and NOI comments available at press time [RM98-10, RM98-12].

In a nutshell, the AGA, a major LDC group, was the only one of the three that favored giving interstate pipelines the authority to negotiate terms and conditions of service, while the NGSA - which represents producers - stood alone in its support of auctioning of short-term capacity in the event the price caps on the capacity are lifted. AGA was the lone proponent of lifting the price cap on capacity-release transactions, which - together with short-term firm and interruptible - make up the short-term capacity market.

The natural gas LDCs conditioned their support for negotiated authority for pipelines on the availability of a "high-quality recourse service" and the implementation of the Commission's expedited complaint rule. The recourse service/rate must "appropriately reflect cost reductions" and protect recourse shippers from "subsidizing the market-responsive services offered under negotiated rate policies."

Producers, however, were dead set against awarding such authority to pipelines - unless a showing is made that the short-term market is sufficiently competitive. They insist the negotiation of terms and conditions "will inevitably result in preferential contracts, especially for contracts between the pipelines and their affiliates, whether they be in the business of producing, processing, gathering, marketing, distribution of gas or the generation of electricity."

The APGA municipal distributors agreed, saying negotiated terms and conditions would be "nothing less than Commission approval of unduly discriminatory and preferential transportation services," and would be "inimical to all major regulatory reforms embraced by the Commission in the last decade."

The group contends that empowering pipelines with negotiated authority "is fundamentally a zero sum game that can only adversely affect captive customers," such as municipal distributors. Moreover, the APGA insists such authority would "unfairly" devalue their released capacity by "slant[ing] the playing field in favor" of interstate pipelines selling capacity. "The pipeline can, if it chooses, sell premium capacity at the same price that the captive customer can sell its inferior tariff capacity."

If the Commission should remove the rate cap in the short-term market, which NGSA opposes, it believes all available uncapped pipeline capacity should be competitively auctioned. The auction should be mandatory and standardized across all pipelines, the producer group said. "To optimize the effectiveness of the auction, prearranged capacity-release transactions should be disallowed for periods of one calendar month or less."

In AGA's estimation, however, "an auction would be a step in the wrong direction because it would add costs and constraints to the market." Furthermore, it said auctioning of released capacity isn't necessary to act as a check against potential abuses of market power "because the secondary market in capacity is robustly competitive."

The municipal customers contested the auction mainly because of its complexity. As an example, they cited the auction proposal of Natural Gas Pipeline Co., which created a matrix of reserve prices using 12 potential time periods and 15 potential markets to define the range of minimum prices that could apply to any single auction.

"Focusing on this one complexity alone - a matrix of reserve prices that may change from auction to auction - how can the Commission assure shippers, particularly small shippers, that they will be able to meaningfully understand the information that will be provided in an auction?" the APGA asked. "The absence of any description in the NOPR of how the auction of all short-term capacity will be conducted underscores the failure of the Commission to come to grips with the complexity of its auctioning proposal."

The APGA believes that moving away from straight-fixed variable (SFV) rate design would be the closest thing to a cure-all for the industry. It noted that it "wholeheartedly" endorsed a proposal submitted by a coalition of LDCs in February, which called for a mandatory shift from SFV for interstate pipelines and the adoption of a rebuttable presumption whereby 35% of pipeline fixed costs would be recovered through volumetric/commodity rates.

The coalition and APGA believe that a move away from SFV would help with the turned-back capacity situation, remove the bias in favor of short-term contracts, provide incentives to maximize pipeline throughput, reduce the risks associated with new pipeline contracts, and limit the potential for stranded costs associated with retail unbundling.

©Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1231
Comments powered by Disqus