An administrative law judge (ALJ) recommended that FERC adopt a number of reforms to ANR Pipeline’s existing cash-out mechanism, putting an end to a way of dealing with shipper imbalances that has “perplexed” the agency and the pipeline’s shippers “for many years.”
In a long-awaited initial decision issued Monday, Commission ALJ Isaac D. Benkin proposed that the El Paso-owned pipeline’s practice of imposing surcharges on out-of-balance shippers be eliminated. “They are the bane of this program,” he said in the 30-plus page ruling. The Commission can either accept or reject the ALJ’s decision in full or part.
Instead, “an in-kind balancing option for all shippers should be instituted,” Benkin noted. “If excess ‘takes’ of gas are promptly repaid in kind, there is no reason to impose a surcharge of any kind” on ANR shippers. But shipper surcharges owed from past operations must be paid in full, as well as cash-out payments for periods preceding the effective date of the proposed in-kind option, he said.
For those shippers who reject the in-kind option and choose to resolve their negative imbalances through cash payments, “ANR should be allowed to use the high/low pricing scheme that it recommends to develop the amount of the cash payment that must be made,” Benkin noted. “This will have a tendency to over-compensate ANR, but it will also prevent shippers from attempting to ‘game’ the system by indulging in price advantage.”
Furthermore, the ALJ recommended that ANR’s system be “physically balanced at the end of each month, to the extent it is operationally feasible to do so.” Carry-over liabilities should be avoided, except in cases where (as with PTR shippers) they are unavoidable. PTR (Plant Thermal Reduction) shippers are those customers whose gas is processed after delivery to ANR, causing a loss of volume and Btu content.
Lastly, Benkin proposed that ANR play a “larger role” in keeping PTR shippers apprised of their status with respect to imbalances on the pipeline’s 10,600-mile, 6 Bcf/d system that serves key markets in the United States and Canada.
The Commission set the issue for hearing in October 2002 after identifying a “number of defects” in ANR’s cash-out mechanism. “The first was that it did not give PTR shippers an adequate opportunity to avoid paying penalties because of their tendency towards perpetual imbalance. Second, the Commission pointed out [that] the surcharge feature of the mechanism was not working the way it was supposed to work; rather than smoothing out the year-to-year changes in cash-out obligations, it was instead producing wide swings in the amounts owed by shippers for prior years’ imbalances. In addition, although the Commission mentioned it only in passing, the complexity of the mechanism did little to recommend it,” the ALJ decision noted.
“Our task, therefore, [was] to find a new methodology, or refine the existing methodology, to repair these (and perhaps other, related) defects,” Benkin said.
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