A rash of protests has been lodged at FERC against a Columbia Gulf Transmission tariff filing that seeks to impose strict scheduling penalties and establish a monthly cash-out process that would penalize shippers for imbalances regardless of whether their actions threatened the reliability of the natural gas pipeline system.

Many of the protesting shippers, who included industrial customers, marketers, distributors and utilities, called on the Federal Energy Regulatory Commission to either deny the Columbia Gulf tariff proposal outright, amend it and/or set it for a technical conference.

Columbia Gulf's proposal "should be rejected because it fails to provide evidence that the proposed penalties and punitive cash-out provisions are necessary to protect its system or prevent under-recovery of costs. The support [Columbia Gulf] provides in the filing shows only that imbalances exist on Gulf's system; Gulf has provided no evidence that these imbalances approach levels that place the system in jeopardy," said the Process Gas Consumers Group (PGC), which represents industrial end-users [RP07-174].

Columbia Gulf is proposing to implement a daily delivery point scheduling penalty for each dekatherm of gas that the pipeline delivers to a shipper at the shipper's delivery point that is 5% or more over or under scheduled quantities, or -- if a critical notice is in effect -- is 2% or more over or under scheduled quantities. This proposal is "unjust and unreasonable," PGC said.

"Although the Commission has recently approved increasingly harsh penalties, PGC continues to oppose the use of penalties that are excessively punitive and penalties used to enforce contractual obligations rather than to protect system integrity and prevent under-recovery," the industrial customer group noted. "PGC supports the Commission's policy...in Order 637 against the use of penalties except where required to protect system integrity or prevent under-recovery. Gulf has not demonstrated a reason to impose the proposed penalties that satisfies the requirements of Order 637."

In the event FERC should approve Columbia Gulf's proposal, PGC asked the agency to require the pipeline to amend its tariff to provide for shipper protections. "First, PGC requests that the Commission require Gulf to revise its tariff sheets to provide for penalties only when the shipper is at fault...Second, to the extent that a shipper is subject to an already existing penalty, such as an overrun penalty, Gulf should be required to waive such penalties to prevent penalizing shippers for the same volumes twice. Third, PGC requests that the Commission require any penalties applicable under Gulf's proposal be waived if they result in no impact on system integrity," the group said.

As part of its proposal, Columbia Gulf also is seeking to replace its existing in-kind mechanism for resolving imbalances with a tiered cash-out mechanism. The new mechanism would require shippers with proportionally larger imbalances to pay greater prices for negative imbalances (when a shipper takes more than its scheduled amount) and receive lower prices for positive imbalances (less than scheduled amount), PGC said. The group called on FERC to reject this proposal.

Enbridge Marketing LP said that "conceptually" it did not oppose Columbia Gulf's proposal to replace its in-kind imbalance resolution system with a cash-out mechanism, but it added that it was "quite concerned" about the proposed daily scheduling penalty.

Like PGC, it contends that Columbia Gulf has failed to make a case for a daily scheduling penalty. "Columbia has not provided any evidence that the variances [between scheduled quantities and actual flows] are the result of any conscious strategy of shippers to game Columbia Gulf's operations or otherwise obtain any improper commercial advantage," the marketer said.

Moreover, "Columbia Gulf does not provide any evidence correlating these variances to any actual operational consequences for the system, such as forced operational purchases and sales to maintain line-pack, or scheduling cuts for firm or interruptible services, as explicitly required by the Commission's regulations requiring pipelines to demonstrate that new penalties are 'necessary to prevent the impairment of reliable service,'" Enbridge Marketing noted.

"It is not surprising then that Columbia Gulf can manage only the most shopworn platitudes in defense of its proposal." For these reasons, Enbridge Marketing urged FERC to deny the pipeline's proposed scheduling penalty.

"Columbia Gulf has provided some evidence that some users of its gas transmission system do not take the obligation to schedule accurate nominations seriously. Columbia Gulf, however, has not provided evidence of operational problems on its system," agreed Lafayette Utilities System, a municipal utility located in Lafayette, LA.

"Lafayette makes a concerted effort to make accurate nominations. But Lafayette, like all electric utilities, can experience events not within their control that force significant deviations from scheduled nominations," the municipal said. "In the absence of harm to the system, the Commission should not approve a penalty system that punishes Lafayette for actions that are in the higher public interest -- there are few public interests as important as keeping the lights on."

Lafayette Utilities asked FERC to reject the pipeline's proposal for daily scheduling penalty. In the event the agency should act otherwise, it urged the Commission to grant a waiver to shippers in emergency situations, such as hurricanes.

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