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Pipes Debut 'Global' Seasonal Rate Proposal

Pipes Debut 'Global' Seasonal Rate Proposal

Interstate pipelines last week unveiled a "global" proposal on seasonal ratemaking and flexible terms and conditions of service at the fourth industry pow-wow exploring major FERC gas initiatives and possible alternatives. Seasonal ratemaking, which would enable pipes and LDCs to recover more value for capacity when it's in greatest demand, is emerging as the industry's front-runner replacement for the Commission's much-criticized auction mechanism.

Although details were sketchy, the pipelines reportedly proposed seasonal, term-differentiated rates for long- and short-term capacity contracts. However, they also would offer pipeline customers the option to be billed at annualized rates. The pipelines further proposed to make "periodic reports to verify seasonal, term-differentiated rate assumptions," which caused some to question whether or not this was a true-up.

"I don't get the same sense" that this was what the pipelines meant, remarked one industry source. "If there's going to be any meeting of the minds [on this proposal], the words have to start meaning the same things to everybody."

The proposal came under some fire for its lack of detail. "The only disappointment is that it's not detailed enough to really critique quite frankly, which puts the burden on the people at the ask the right questions," the source said.

Seasonal ratemaking would get LDCs "out of the ditch" by allowing them to recover higher prices for their capacity when it's most in demand, and it would provide pipelines with "greater assurance" of revenue recovery in the winter to offset the discounts they give in the summer.

The pipelines further proposed the lifting of the price cap for secondary capacity only - not primary short-term capacity. They made abundantly clear their opposition to the mandatory auction mechanism for short-term capacity, as proposed by FERC in its mega-notice of proposed rulemaking issued last July.

Straight-fixed variable (SFV) rate design wasn't in the proposal, but the source told NGI that he expects the pipelines to "somehow, some way" address a shift away from the controversial rate design later. LDCs "clearly have been agitating" for such a change, and "I think the pipes will probably buy into try to build some consensus" on other issues.

He believes the final proposal on negotiated terms and conditions to emerge probably will be a "rehash" of the joint initiative submitted by the American Gas Association (AGA) and the Interstate Natural Gas Association of America (INGAA) to FERC last May. The only noticeable change, he added, is that pipelines have "indicated a willingness" for a Commission proceeding to determine the bounds of the terms and conditions to be negotiated.

The pipelines also put the Commission's complaint process on the table as an item for possible discussion, the source noted. This could be a tough nut to crack because although both the pipelines and LDCs favor a more expedited process at FERC, they have proposed completely different procedures for achieving this.

In addition, he said industry participants are trying to set up a meeting with FERC Chairman James Hoecker for Feb. 26th to apprise him of the status of the discussions so far. Industry representatives have been meeting in closed-door sessions every other week in an attempt to reach a consensus on key initiatives in the mega-NOPR and notice of inquiry (NOI). Industry comments are due at FERC by April 22nd.

Asked whether industry will need another extension of the comment deadline, the industry insider said, "I suspect we're not going to know the answer to that question until the last meeting on April 7th." Susan Parker

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