A group of 27 LDCs Monday proposed eliminating thestraight-fixed variable (SFV) rate design for all interstatepipelines in favor of a rate design for base or “recourse” servicethat recovers 35% of a pipeline’s fixed costs in the usage rate.

The Customer Coalition proposed the rate design change in twomajor proceedings at FERC – the mega-notice of proposed rulemakingand notice of inquiry [RM98-10, RM98-12]. The group contends itsrate-design proposal would: 1) lower the fixed costs of holdinglong-term capacity; 2) enhance short- and long-term pipelinecompetition; 3) reduce the risk of overbuidling while maintainingthe ability and incentive to construct where and when needed; 4)share the risk of contracting for pipeline capacity betweenshippers and pipelines; 5) help alleviate the turned-back capacityproblem; 6) eliminate, or at least reduce, the need for a mandatorycapacity auction; and 7) result in more careful issuance ofoperational flow orders.

The coalition contends the high demand charges associated withSFV rate design are hindering state unbundling efforts becausemarketers are unwilling to take assignment of contracts based onsuch rates. Moreover, it asserts that SFV rate design is not marketresponsive.

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