Northern Volumetric Rates Subject to Detailed Review
Northern Natural's innovative volumetric rate proposal, which
could provide customers with a method of better managing weather
risk, is headed to a technical conference and further FERC and
The Federal Energy Regulatory Commission last week accepted and
suspended for the full five months the tariff sheets related to the
proposed optional volumetric firm throughput service (Docket No.
RP00-264) subject to refund and the outcome of the technical
conference (see NGI, May 15).
The service would allow customers to only pay for the service
they use and 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.
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 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.
Some intervenors lauded Northern's goal of giving shippers a
hedge against weather risk an said the pipeline should be commended
for it innovation and efforts to design new rates and services
desired by existing and potential customers. A number of
intervenors, however, still wanted a technical conference because
of some serious flaws in the proposal. Protesters argued that the
proposal was contrary to FERC policy and regulations mandating the
use of straight fixed-variable rate design. Others said that
Northern's proposed load factor calculation needed to be filed
because it could slant the economic benefits to Northern if based
on the last three warmer than normal winters.
FERC said the proposal "presents many difficulties, such as how
to effectively allocate capacity and whether there is undue
discrimination and cross-subsidization present in a volumetric
rate. These issues need further development and exploration prior
FERC also said the filing did not comply with its regulations
because Northern did not discuss the impact on existing customers,
provide the basis for the rate schedule, the workpapers that
develop the proposed load factor calculations nor any cost and
"Northern's proposal also institutes a seasonality in its rates
that Northern has not explained," FERC said. "The proposal is not
consistent with Order No. 637 in that (1) the tariff sheets were
not filed as pro forma sheets and (2) it applies peak/off peak
rates to long term, contracts but does not propose a revenue
crediting mechanism, a cost and revenue study in fifteen months,
nor a full section 4 proceeding." As a result a technical
conference is necessary, FERC said.
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