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Northern Proposes New Volumetric Firm Service

Northern Proposes New Volumetric Firm Service

Enron Corp.'s Northern Natural Gas has proposed an optional one-part volumetric firm throughput service (VFT) under which customers would only pay for the service they use and would share the risk of weather-related volatility with the pipeline.

The proposed service would be available to existing and new customers that contract for long-term firm service on Northern Natural, and would have the same terms and conditions as the pipeline's existing firm rate schedules, it told FERC.

The VFT service would offer customers "a new flexible billing option for the pricing of firm service, i.e. a 'pay-as-you-go' approach," according to Northern Natural. Also, it would permit customers to "fix the per-unit cost of transportation service purchased from Northern and insulate themselves and their customers from weather-driven cost volatility."

Northern's new service was one of two innovative filings at FERC last week. Reliant Energy also filed for an automatic nomination service for 'just in time' deliveries (see separate report, this issue).

Northern Natural believes the VFT service would be a vast improvement over the current two-part firm billing structure, where "a shipper pays for firm service whether it uses the service or not, and thus takes the risk of weather volatility common during Northern's winter seasons." This risk would be shared under the proposed VFT service, with Northern Natural assuming the risk of a warmer-than-normal winter and the VFT customer assuming the risk of a colder-than-normal winter, it said.

"VFT service is another tool to meet Northern's customers' needs. Such tools are critical to improve Northern's customer responsiveness, help obtain contract extensions from existing customers thereby reducing capacity turnback, and attract new customers to Northern's system," the Enron pipeline said in its filing at FERC. Natural said its proposal is similar to the firm, volumetric services that the Commission already has approved for several offshore pipelines.

For existing customers seeking to convert to the VFT service, Northern Natural said the maximum volumetric rate for both summer and winter will be based on the customer's three-year average historical load factor, between 1997-1999. For new customers, Northern noted a projected load factor would be used to determine the applicable maximum VFT rate.

The pipeline has proposed "three alternative usage parameters" for the proposed service that would apply to customers that have more than one pipeline supplier, and to electric generation customers that have the option of using alternate fuels or purchasing power off-system rather than taking gas from Northern Natural.

"The VFT proposal and specifically the usage parameters will not permit such customers to switch to volumetric rates and then reduce their takes on Northern's system by making Northern their swing supplier.....The usage parameters are necessary to prevent gaming of Northern's system," and to ensure that Northern is held liable for weather-related risks only, it told the Commission.

The first usage parameter calls for VFT shippers that are full requirements customers (no alternate pipeline suppliers or alternate fuel capabilities) to fulfill their market commitments using the VFT service. The second usage parameter requires Northern and the VFT customer to identify Northern's current or projected market share of that shipper's total load. As for the third usage parameter, a customer would commit to a certain level of usage on Northern's system for each season in the market and field area.

All other terms and conditions would mirror Northern's existing firm services. For instance, Northern's proposed VFT service would have a "minimum one-year term with the right to extend such service year-to-year thereafter;" would only apply to long-term contracts due to the difficulty of measuring and hedging short-term weather risk; and shippers would have the ability to release their capacity.

Northern believes its proposal is in line with the Commission's policy of encouraging pipelines to offer innovative services. It urged FERC to hold a technical conference so that it can "further explain" its rate proposal to the Commission staff and pipeline customers.

Susan Parker

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ISSN © 2577-9877 | ISSN © 1532-1266
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