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AGA Would Formalize Capacity Turnback Rules

AGA Would Formalize Capacity Turnback Rules

The American Gas Association has added its voice to those who would protect the pocketbooks of current customers and require sponsors of new pipeline construction to bear the risk of the projects.

There's an $8 billion pricetag on new construction projects-announced, proposed or under construction. All told they would add about 22 Bcf/d of capacity between now and 2002, AGA said in a status report on new pipeline construction applications at the Federal Energy Regulatory Commission.

The report, "If You Build It, Will They Come?" voices AGA's concern that its distributor members who are pipeline customers not be saddled with the costs of the new capacity or "the costs of consequent unsubscribed existing capacity."

The report explores "how to make sure existing capacity is used effectively before building new capacity," said Karen Hill, staff vice president, regulatory affairs. One way to achieve this would be to formalize the process for reverse open seasons in which pipelines solicit permanent turnbacks of existing capacity that customers don't need before offering new space.

Pipeline solicitations for capacity turnbacks have been offered with varying degrees of enthusiasm, AGA observed. While some have been proactive in the process, others have simply put a short notification on their bulletin boards, or included almost impossible requirements as to what capacity they would accept.

Pipelines should hold expansive reverse open seasons without point-to-point requirements and without demanding that returned capacity maintains or improves the economics of an expansion project, AGA said. In addition, if a new project will serve an existing LDC customer directly, the LDC should be allowed to reduce its contract demand accordingly and turn back bypassed capacity.

AGA also believes FERC should revisit and tighten its presumption for rolled-in pricing on smaller projects with a less than 5% impact on rates, and limit discount adjustments so costs cannot be shifted to existing customers. Particularly, discounts to retain customers in the face of new construction competition should not be allowed if the new construction sponsors include an affiliate of the existing pipeline. This would "simply allow the pipeline to circumvent the intended effect of the 'at risk' condition on the newly constructed pipeline," AGA's report said.

The association's dollar total of new pipeline construction planned or underway has dropped from about $9 billion quoted in a January, 1998 report to $8 billion today, according to Jane Lewis, AGA's senior managing counsel, regulatory affairs, but it includes "a lot more offshore projects." Some of the projects listed originally were simply "placeholders" offered by pipelines which actually weren't sure what options they would be pursuing. The report lists projects with miles of pipe, costs, capacity and projected in-service dates.

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