The Federal Energy Regulatory Commission last Wednesday approved several reforms that were accepted by an administrative law judge (ALJ) for ANR Pipeline’s cashout mechanism, but rejected other proposals.

Specifically, the Commission affirmed the ALJ’s acceptance of ANR’s proposals to modify its cashout index price to use high/low weekly prices, instead of the average price for the month, but it reversed the ALJ’s recommendation that would have required the pipeline to offer its shippers an in-kind option for resolving their imbalances. Moreover, it reversed the ALJ’s decision requiring ANR to take primary responsibility for providing “plant thermal reduction” (PTR) shippers with the necessary information to make transportation nominations.

“This decision benefits the public interest because it approves changes to ANR’s cashout imbalance mechanism that will give all shippers a fair opportunity to balance their gas accounts and avoid cashout penalties,” FERC said in its Nov. 3 order [RP02-335-002]. The Commission ordered an ALJ hearing on ANR’s cashout system in 2003 after concluding that the pipeline’s method for computing its annual cashout surcharge had become “unjust and unreasonable” over time. The ANR surcharge, which takes effect June 1 of each year, is paid by shippers who incurred imbalances during the prior year. The ALJ’s initial decision was issued in April.

The FERC order came only one day after the U.S. Court of Appeals for the District of Columbia upheld the agency’s approval of a significantly higher annual cashout surcharge for ANR to collect its 2001 cashout costs, while at the same time concluding that the pipeline’s method for calculating the surcharge had grown unjust and unreasonable (see related story).

FERC supported three reforms that were proposed by ANR and approved by the ALJ. First, the pipeline proposed to switch from a monthly average index price for cashing out imbalances to a weekly high/low index price. Under this proposal, a shipper with a negative imbalance (when it takes more gas than it has in the pipeline) would pay ANR for the excess gas it has taken based on the highest weekly spot index price for the month. ANR would pay a shipper with a positive imbalance for the gas it left on the system based on the lowest weekly spot index price during the month.

Second, the El Paso Corp.-owned pipeline proposed to eliminate the 10% carry-forward provision to address the Commission’s concern that this contributed to the wide swings in its surcharge from year to year. Lastly, ANR proposed that it would try to buy or sell gas as necessary to make up for the customers’ net overall monthly imbalance in the month following the month in which the imbalance occurred.

“The Commission concludes…that ANR’s proposal to shift to a high/low index price, together with its other proposals, should largely eliminate the need for it to impose any annual true-up surcharge to recover cost underrecoveries. Had the proposal been in effect from 1997-2002 and had the customers still incurred the same imbalances, the proposal would have produced enough revenue to recover the costs ANR incurred as a result of those imbalances, and for that reason there would have been no need for a surcharge,” the order said.

“ANR has presented evidence showing that its proposed high/low index price, together with its other two proposals…, should minimize the wide swings in its annual true-up surcharge, primarily by reducing the cost underrecoveries that are recovered through the surcharge,” it noted. FERC undertook the review of ANR’s cashout surcharge after shippers complained about a three-fold increase from $0.1508/Dth to $0.4464/Dth in 2002.

The Commission, however, rejected the ALJ’s recommendation for ANR to adopt an in-kind option for resolving imbalances on its system. “While in-kind resolution of imbalances can be just and reasonable, the Commission has not required other pipelines to offer that method to resolve imbalances, and many pipelines require shippers to cash out any imbalances that remain after netting and trading has been completed.”

In addition, “the Commission believes it best not to make too many changes at this time since the proposed changes we are accepting may be sufficient to cure the problems that rendered ANR’s mechanism unjust and unreasonable in the first place,” the order said.

FERC also “will not adopt the ALJ’s decision requiring ANR to have primary responsibility for providing estimated shipper-by-shipper plant shrinkage information to PTR shippers,” the order noted, adding that “this may cause more problems to arise.”

PTR shippers are those shippers who contract with processing plants to remove liquefiable hydrocarbons from their gas. ANR transports the PTR shippers’ gas to the processing plants, where the liquefiables are removed and the gas undergoes shrinkage, and then reinjects the gas into its pipeline system. The problem for PTR shippers is that the plants often do not provide them with estimates on shrinkage until 45 days or more after the end of the month in which processing takes place. This makes it difficult for the PTR shippers to quickly resolve any imbalances on the ANR system.

The Commission said Indicated Shippers did not show that ANR’s failure to act as an intermediary between the plant operators and the PTR shippers for the purpose of providing shrinkage information was “unjust and unreasonable.”

FERC “recognizes that the PTR shippers have an interest in obtaining on a real-time basis as accurate as possible information concerning their individual plant shrinkage percentages. However, the relevant information is possessed…by the third-party processing plants, not ANR. Thus, the issue is whether the PTR shippers should obtain the information directly from the processing plant operators or should ANR be required to act as an intermediary between the two.” The Commission ruled that it was PTR shippers’ responsibility to get the information from the plants.

It noted, however, “under the plan approved here, PTR shippers will have more time to trade after obtaining PTR data. The Commission finds that the modifications we are accepting here should be sufficient to address our concerns about PTR shippers.”

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