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Columbia Pipelines File Landmark Regulatory Proposal

Columbia Pipelines File Landmark Regulatory Proposal

The concept of negotiated rates and conditions of service went from being a mere pipe dream to a solid vision last week with the filing of a major proposal by Columbia Energy Group's two pipeline affiliates.

Columbia Gas Transmission and Columbia Gulf Transmission followed through on a long-standing promise to provide FERC with a new regulatory model. The proposal, which came in the form of pro forma tariff sheets, is the first comprehensive proposal to establish more flexible terms and services for customers with changing transportation needs. Columbia called it the "next logical step in the evolution of pipeline regulation and natural gas markets."

With a significant number of pipeline transportation contracts expiring at a time when retail gas unbundling is picking up speed and electric restructuring is proceeding, there's a large degree of uncertainty about the requirements of future transportation customers, a Columbia official noted.

"Retail unbundling is affecting the customer base of interstate pipelines and changing the types of services customers require," said Glenn Kettering, Columbia Gas Transmission senior vice president. "In response, we need the ability to offer more diverse and customized transportation services.designed to better fit a particular customer's operational requirements and provide a needed mechanism to effectively respond to changing competitive markets."

Columbia's filing is the second proposal for negotiated terms and services since the Commission issued its "Statement of Policy and Request for Comments" on the issue in January 1996. Northern Natural recently filed a general rate case that included a request for authority to negotiate specific provisions of its tariff, including right of first refusal, flow rights and pressures, and lower quality of service. Columbia's filing is more comprehensive in that it specifies all the terms and conditions that should remain non-negotiable in its own pipeline tariffs.

It essentially follows the guidelines for continued recourse service and public disclosure of negotiated service offerings set out in a proposal sent to the Commission last month by the American Gas Association and endorsed by the Interstate Natural Gas Association of America.

"[T]here's been a lot of effort [taken] in this filing" by Columbia to assure that the recourse customers "would not be harmed by the offering of new services" and products under negotiated terms and conditions, said Catherine G. Abbott, president and CEO of Columbia Gas Transmission and Columbia Gulf Transmission, at the Process Gas Consumers' third annual conference in Baltimore, MD, last Thursday.

"As a company who knows what it means to be in the doghouse with respect to our customers...we have absolutely no desire to return to the doghouse," she added.

By filing pro forma tariff sheets, the pipelines are requesting that the Commission begin a technical conference to provide a forum for all stakeholders to discuss the proposal and only much later issue an order allowing the pipelines to move the tariff sheets into effect.

The Columbia proposal would give its two pipeline affiliates the flexibility to "negotiate up and down" from a standard, recourse rate service.

"...We're coming in with a framework for the service that's going to continue to be available, what should be off the table. Our feeling is once you've got those pieces in place you ought to be able to negotiate anything else," said Carl Levander, Columbia's manager of regulatory analysis.

The areas that should remain in the non-negotiable category fall into two main groups, according to Columbia: "things that could [interfere with] the service of other customers and things that could interfere with Commission policy," Levander said.

One area is capacity rights. "If you were to be able to negotiate a higher quality of [firm] service, you would by definition hurt somebody else. For example, if you could buy your way into a higher priority for capacity or a better allocation of capacity, or pay more not to be interrupted, or not to have OFOs imposed, those are situations where your additional service could come at the expense of another customer," he noted.

"The other category is where you're running afoul of FERC policy... We think that the GISB terms ought to remain non-negotiable so that the benefits of standardization aren't undone through negotiation. Also taking capacity release rights off the table makes some sense to us so you don't open the door to things that could interfere with the competitive market."

With the non-negotiable provisions of the tariff specified, "It kind of leaves the door open for creativity," said Levander.

Abbott conceded that many of the products and services that Columbia hopes to offer if it gets the authority to negotiate terms and conditions haven't been "invented" yet. To flesh these out will require the Columbia pipelines to enter into a "more inventive kind of process with our customers."

One possibility would be "certain electric utility customers and independent power generators might be willing to pay [more] to be able to get surges of gas within a time frame to ramp up...their facilities," Abbott noted. The downside of this, however, is that the quality of the standard, recourse service would be affected, she said. However, "there may be places on your system where you could go ahead and offer that and not affect anybody else's [service]." She referred to these as the "niche" areas.

Suggests Capacity Options

Abbott also advocated the idea of pipeline customers being allowed to acquire the rights to capacity on an options basis. "Wouldn't it be nice if you had the option to buy capacity for storage" and transportation in this manner? "It might be very useful for you, thinking about an expansion of your facilities say in 2002, to have the right" to additional capacity then, but not to be under any obligation to buy it, she said.

In order to offer more "flexible" products and services, Abbott said the Columbia pipelines may need to change the time frame within which they operate. And, "we need to get much better at short-term transactions than we've been in the past," she noted. "...[W]e're perhaps not the biggest pipeline out there, but we'd like to be the fastest and the most flexible with respect to meeting customer needs."

Without this flexibility, Columbia pipelines could lose existing and potential customers, many of whom are turning to the secondary market and other short-term agreements to satisfy at least a portion of their capacity needs, the company said.

Columbia's proposal already has the support from some of its customers, including Baltimore Gas &amp Electric and Allied Signal. "We believe that service flexibility will be a key to success in addressing retail unbundling and other changes in our market," said Bob Fleishman, BG&ampE's general counsel and vice president. "This will provide an important tool to help distribution companies manage the changes occurring in our environment."

Kettering said, it's going to be a "continuing priority" at Columbia not to degrade recourse service of existing customers. "We're not looking to provide more by providing less to the customer that brought us to the dance."

The company proposes to file any customized-service agreements at FERC 10 days before they go into effect, giving parties a chance to voice their concerns. If a complaint should arise, it noted the Columbia pipelines' tariffs would require that they respond to the shipper within two days, and appoint a committee to review the complaint. Once a customized agreement is reached with a customer, Columbia said it would agree to provide the same service to other customers if it is operationally possible. Lastly, it said it would submit a comprehensive report to FERC one year after it has begun offering negotiated terms and conditions.

Rocco Canonica; Susan Parker, Baltimore, MD

©Copyright 1998 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1266
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