Customer Coalition Blasts AGA/INGAA Proposal

If there ever was any indication of industry consensus on the need for negotiated terms and conditions of pipeline transportation service, it was quickly erased last week by a letter sent to FERC Chairman James J. Hoecker by a broad gas industry coalition.

"I have never seen so many industry groups with historically different interests and constituencies come together like this in all my years in the business," said Bob Cave, executive director of the American Public Gas Association (APGA), a coalition member. "If this doesn't get FERC's attention, nothing will."

The ad hoc group of 33 producer, marketer and municipal distributor associations, calling itself the Pipeline Transportation Customer Coalition, blasted a recent FERC policy proposal (filed May 4) by the American Gas Association and the Interstate Natural Gas Association of America as "seriously flawed as to undercut any purported value." The coalition includes, among others, the Natural Gas Supply Association (NGSA), Independent Petroleum Association of America (IPAA), APGA and the Energy Management Association.

The proposal that brought so many industry groups together in opposition recommends FERC adopt a new framework that would allow pipelines to negotiate terms and conditions of service if their proposals ensure there is no degradation of service. Any pipeline filing under the new policy would have to establish a "benchmark" or recourse service, allow for a notice and protest procedure, agree to public posting of negotiated contracts and ensure there is no undue discrimination among similarly situated shippers. Two pipeline subsidiaries of Columbia Energy immediately followed up the AGA/INGAA plan with a comprehensive test case proposal that implements the AGA/INGAA guidelines.

But coalition members said last week pipeline services are just fine as they are and the changes proposed actually would have a severe negative impact on the market. "The current market is working quite well without any known dislocations or impediments and thus the INGAA/AGA proposal is not addressing and specific market problem," said NGSA's Philip Budzik, director of federal regulatory affairs. "While the INGAA/AGA proposal has some superficial appeal as being 'customer responsive,' it could cause serious problems. A pipeline has only so much capacity and operational flexibility. The flexibility a pipeline gives to Peter has to come from Paul."

The APGA, which represents public gas distributors, 95% of which are captive to a single gas pipeline company, sees no reason why the "pipelines and giant LDCs, both of which have tremendous market power," will not "exercise that power in a discriminatory way" once terms and conditions become negotiable.

In its letter, the coalition charged that in allowing pipelines and large LDC customers to negotiate terms and conditions of service, the Commission could do serious harm to nearly every sector of the gas business: the commodity market, the secondary market, the retail market, and the pipeline grid.

The coalition claims that even with recourse service and public postings of negotiated terms and conditions, pipelines still will be in a position to "discriminate and effectively sell a competitive advantage to selected customers. By selectively selling special advantage to some shippers at premium rates, pipelines will be able to unfairly profit at the expense of other market participants and consumers.

"Such a system of 'balkanized' pipeline services would.seriously" inhibit their "fungiability." The coalition further said giving advantages to some large capacity holders could reduce competition in the commodity and transportation markets, "weakening secondary markets and frustrating state commission efforts to bring greater competition to retail markets."

The AGA/INGAA proposal has a long list of defects, the coalition added. They include the "mechanics, the benchmarking process, potential cross subsidies, the need to continuously examine the harm to secondary markets, the likelihood of burdensome complaint proceedings, and the constant reassessments of the quality and ongoing viability of recourse service."

IPAA's David Sweet, vice president of natural gas, said the AGA/INGAA proposal also "runs counter to the Commission's current goal to enhance competition by standardizing more pipeline services."

Rocco Canonica

©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.