The Federal Energy Regulatory Commission has set the Commission staff to report on the viability of replacement price index formulas to be used in a negotiated rate transaction between Natural Gas Pipeline Co. of America (NGPL) and Occidental Energy Marketing (RP99-176-089).

In an order issued earlier this month the Commission allowed the tariff sheet containing the new formulas to go into effect July 1, subject to further proceedings — but not to refunds. The Commission staff has 180 days to file its report pursuant to an investigation as to whether the proposed index meets the criteria in the Commission’s recent policy statement on published price indexes (see NGI, July 28). There will be a 15-day comment period following issuance of the report.

The NGPL case is the third one set by FERC to investigate the use of published prices in a Commission-approved tariff. The first two appeared in separate orders for Northern Natural Gas Co. and Transcontinental Gas Pipe Line Corp. last week. Those cases involved substitutions or alternatives for a cash-out formula and a monthly pipeline index, where published prices for the original formulas either have not been published recently or may not be published in the future due to the downturn in market and reporting activity (see NGI, Aug. 11).

The staff is to report on whether the indexes proposed by the pipelines in their tariffs comply with the policy statement standards for price reporting, and have “adequate liquidity at the referenced locations to be reliable.”

The latest order issued Aug. 8 noted that while FERC recently banned the use of price differentials in negotiated rate contracts, those contracts still in force that use indexes may continue to use them until the contract runs out. In this case NGPL seeks to add alternative indexes because one component of one of its current formulas — NGPL Amarillo — was not published in the July bidweek price table in the referenced Inside FERC’s Gas Market Report (IFGMR) due to sparse reporting

The negotiated rate for the deal had been set at the greater of a set price of $0.1450/Dth or a formula based on a spread between two monthly indices — Chicago and NGPL Amarillo — plus $0.04/Dth, minus a commodity rate applicable to the Amarillo line. NGPL has proposed a back-up for that formula, as well as two others, for different points, contained in the contract.

When NGPL discovered it had no quote for the Amarillo formula in July, it also realized it didn’t have back-ups for the other points. The new formulas were negotiated with Occidental, Bruce Newsome, NGPL vice president, said. “We have tried to use indices that will continue to be published. We used the pluses and minuses to try to get back as close as possible to the original formulas.”

NGPL proposes that in any month when one or more of the components in the original formulas are not published, alternative formulas with multiple pricing points would be used. These would include an NGPL Midcontinent index, an NGPL Texok index and an NGPL South Texas index, as follows:

NGPL Midcontinent — arithmetic average of ANR-Oklahoma less $0.02; Williams Gas Pipelines Central, Texas, Oklahoma, Kansas less $0.03; and Panhandle Eastern, Oklahoma less $0.01

NGPL Texok — arithmetic average of Texas Eastern, East Texas Zone plus $0.01; and Reliant Energy East

NGPL South Texas — arithmetic average of Tennessee Zone 0; Texas Eastern, South Texas Zone; and Transco, Zone 1.

All the quotes would come from IFGMR. The filing states that in any month when any of the components in one of the formulas above are not published, the formula will be calculated based on the arithmetic average of the elements remaining. The last fall-back is the set floor rate.

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