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TGT's Novel Rate Plan Gets Booed by Shippers

TGT's Novel Rate Plan Gets Booed by Shippers

Shippers on Texas Gas Transmission Corp. have called on FERC to proceed cautiously with the pipeline's proposed Section 4 general rate filing that seeks to increase its total cost of service by 19%, or $48 million, and boost annual rates for jurisdictional pipeline and storage services by about $81 million.

Texas Gas cited increases in its utility rate base, depreciation expenses and rate of return when justifying its request to raise the cost of service to $304.8 million from the $256.8 million approved in its 1997 rate case. It asked for the rate increase to become effective June 1.

If Texas Gas's rate proposal is permitted to take effect as is, New Jersey Natural Gas said it would have to pay about $1.47 million more each year to receive service on the pipeline, which is nearly double what it is paying now.

The "most troublesome aspect" of the filing, most shippers agreed, was Texas Gas's proposal to establish a new short-term firm service (STF), which would combine the seasonal and term-differentiated rate concepts approved by the Commission in Order 637.

Because Texas Gas is "one of the first pipelines (and perhaps the very first)" to file for such rate authority as part of a Section 4 rate case, the Process Gas Consumers Group (PGC) and other shippers urged the Commission to - at the very least --- suspend the pipeline's entire filing for the maximum five-month period, establish a hearing and condition acceptance of the proposed tariff sheets on the availability of refunds [RP00-260].

The PGC group, which represents industrial gas shippers, said it would prefer the Commission to "summarily reject," in part, Texas Gas's proposal to implement term-differentiated rates as part of the STF service given that the pipeline lacks the authority to negotiate rates with customers. Also, it noted Texas Gas failed to establish a revenue-sharing mechanism in its proposal for seasonal and term-differentiated rates as required in Order 637.

Under the seasonal-rate concept in Order 637, interstate pipelines can ask the Commission for the authority to charge higher rates during the peak winter season, and lower rates during the off-peak season. And with term-differentiated rates, pipelines can offer a break in rates to customers who contract for longer terms, and charge a premium for shorter-term service.

In its STF filing, Texas Gas proposes an off-peak base rate of around 15 cents/MMBtu and a peak base rate of slightly more than 76 cents/MMBtu. The term-differentiated rate, as proposed by Texas Gas, would be added to the base rate. For example, during the winter, Texas Gas seeks to add 25 cents to the peak base rate for service of one to five days in duration. In the summer, it would add up to about 76 cents to the off-peak base rate for service of the same contract duration. This latter term-differentiated premium would be equal to the maximum base winter rate.

Texas Gas's proposal for seasonal rates and term-differentiated rates raises "significant policy considerations," PGC said. For one, it pointed out Texas Gas doesn't possess the authority needed to negotiate the premiums associated with term-differentiated rates. Nor does the pipeline's proposal provide a "basis and justification" for charging the term-differentiated premiums. Lastly, Texas Gas hasn't created a mechanism so that it can share with its customers any revenues collected in excess of its costs under seasonal rates.

Moreover, the PGC contends Texas Gas's term-differentiated rate proposal doesn't offer shippers "a reduced rate to compensate [them] for the risk associated with entering into a longer term contract,." as required under Order 637. Also, it insists long-term shippers would bear an "unfair portion" of the costs under Texas Gas's proposal. "For example, rate schedule FT shippers would be assessed approximately $150 million in costs while rate schedule STF shippers would bear only $1 million. This is unduly discriminatory to long-term shippers..."

In its rate filing, Texas Gas is in effect proposing to remove the price caps on certain pipeline capacity transactions (short-term firm), "thus completely undercutting one linchpin of the Commission's rationale for lifting the cap in the short-term release market in the first place," industrial shippers told FERC.

Susan Parker

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