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Pipes Accused of Subverting Order 637 Penalty Restriction

Pipes Accused of Subverting Order 637 Penalty Restriction

A coalition of pipeline customers has accused interstate gas pipelines of attempting to bypass the FERC Order 637's limits on the use of penalties by offering their customers new services that include penalties masked in "sheep's clothing."

"We are disappointed by these developments and strongly urge the Commission to hew to the course it established in Order 637 for evaluating pipeline penalties, OFOs and other mechanisms that restrict operational flexibility," the Pipeline Transportation Customer Coalition, a group of key pipeline customers, wrote to Chairman James J. Hoecker last Tuesday. It called for the new service offerings and tariff changes of pipelines to be "closely scrutinized" by FERC.

The coalition contends some pipelines have used their Order 637 compliance filings as an opportunity to "strip" firm shippers of service rights now included in existing pipeline tariff structures. They are replacing them with new, separately priced services that are "more restrictive," with "new penalties (re-labeled 'charges' or 'fees' to be kept by the pipeline) and tighter tolerances," it charged.

These "new, high-priced service offerings" of some pipelines "do little more than put the penalty 'wolf' in the 'sheep's clothing' of new services," the coalition said. "The pipelines predictably structured the new services to send the resulting revenues directly to themselves, rather than to the customers. As a result, many pipelines' proposed tariff provisions regarding penalties and imbalance management services combine to degrade, not upgrade, the quality of services available to shippers."

Certain pipelines have resisted the temptation to make their tariffs "less flexible and more punitive," the coalition acknowledged, but it contends they "have nonetheless strayed" from Order 637 by making "unsubstantiated claims" that their current tariffs comply with the new Commission standards.

In their compliance filings, "we believe that, by and large, pipelines have rebuffed the Commission" Order 637 mandate calling for limited use of penalties by pipes. Order 637 enacted a policy that limits the use of punitive penalty measures against customers to situations where system integrity is threatened and increased the options available to shippers to manage their supplies, according to the coalition.

The group said it expected a "more fluid and competitive interstate grid" as a result. "Unfortunately, it appears that many pipelines have managed to read Order 637 differently than we do. Rather than submitting compliance filings that benefit their shippers, many pipelines have submitted compliance filings proposing tariff and operational changes that inure to the sole benefit of the pipeline."

The members of the coalition include the Independent Petroleum Association of America, the Natural Gas Supply Association, the Domestic Petroleum Council, the Process Gas Consumers Group, the American Iron and Steel Institute, the Georgia Industrial Group, the American Forest & Paper Association, Dynegy Marketing and Trade, and the American Public Gas Association.

Susan Parker

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