If there ever was any indication of industry consensus on theneed for negotiated terms and conditions of pipeline transportationservice, it was quickly erased last week by a letter sent to FERCChairman James J. Hoecker by a broad gas industry coalition.

“I have never seen so many industry groups with historicallydifferent interests and constituencies come together like this inall my years in the business,” said Bob Cave, executive director ofthe American Public Gas Association (APGA), a coalition member. “Ifthis doesn’t get FERC’s attention, nothing will.”

The ad hoc group of 33 producer, marketer and municipaldistributor associations, calling itself the PipelineTransportation Customer Coalition, blasted a recent FERC policyproposal (filed May 4) by the American Gas Association and theInterstate Natural Gas Association of America as “seriously flawedas to undercut any purported value.” The coalition includes, amongothers, the Natural Gas Supply Association (NGSA), IndependentPetroleum Association of America (IPAA), APGA and the EnergyManagement Association.

The proposal that brought so many industry groups together inopposition recommends FERC adopt a new framework that would allowpipelines to negotiate terms and conditions of service if theirproposals ensure there is no degradation of service. Any pipelinefiling 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 isno undue discrimination among similarly situated shippers. Twopipeline subsidiaries of Columbia Energy immediately followed upthe AGA/INGAA plan with a comprehensive test case proposal thatimplements the AGA/INGAA guidelines.

But coalition members said last week pipeline services are justfine as they are and the changes proposed actually would have asevere negative impact on the market. “The current market isworking quite well without any known dislocations or impedimentsand thus the INGAA/AGA proposal is not addressing and specificmarket problem,” said NGSA’s Philip Budzik, director of federalregulatory affairs. “While the INGAA/AGA proposal has somesuperficial appeal as being ‘customer responsive,’ it could causeserious problems. A pipeline has only so much capacity andoperational flexibility. The flexibility a pipeline gives to Peterhas to come from Paul.”

The APGA, which represents public gas distributors, 95% of whichare captive to a single gas pipeline company, sees no reason whythe “pipelines and giant LDCs, both of which have tremendous marketpower,” will not “exercise that power in a discriminatory way” onceterms and conditions become negotiable.

In its letter, the coalition charged that in allowing pipelinesand large LDC customers to negotiate terms and conditions ofservice, the Commission could do serious harm to nearly everysector of the gas business: the commodity market, the secondarymarket, the retail market, and the pipeline grid.

The coalition claims that even with recourse service and publicpostings of negotiated terms and conditions, pipelines still willbe in a position to “discriminate and effectively sell acompetitive advantage to selected customers. By selectively sellingspecial advantage to some shippers at premium rates, pipelines willbe able to unfairly profit at the expense of other marketparticipants and consumers.

“Such a system of ‘balkanized’ pipeline serviceswould.seriously” inhibit their “fungiability.” The coalitionfurther said giving advantages to some large capacity holders couldreduce competition in the commodity and transportation markets,”weakening secondary markets and frustrating state commissionefforts to bring greater competition to retail markets.”

The AGA/INGAA proposal has a long list of defects, the coalitionadded. They include the “mechanics, the benchmarking process,potential cross subsidies, the need to continuously examine theharm to secondary markets, the likelihood of burdensome complaintproceedings, and the constant reassessments of the quality andongoing viability of recourse service.”

IPAA’s David Sweet, vice president of natural gas, said theAGA/INGAA proposal also “runs counter to the Commission’s currentgoal to enhance competition by standardizing more pipelineservices.”

Rocco Canonica

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