Although several shippers empathized with the plight of thenorthern Nevada industrial gas users, they said they couldn’tsupport their request to be excused from the continual must-flowoperational flow orders (OFOs) that Northwest Pipeline has beenissuing since mid-November.

IGI Resources Inc., a marketer and representative for industrialand LDC customers in the Pacific Northwest, was the exception,however. It called on FERC to expand the complaint brought by theindustrial customers into a “general investigation of the adverseimpacts on shippers” resulting from the alleged misuse of must-flowOFOs by Northwest.

It also urged the Commission to use the proceeding as a “vehiclefor remedial action to cure the injustices” on the Northwestsystem, and to provide “interim relief” to affected shippers.

The must-flow OFOs require shippers flowing gas southward onNorthwest’s system, such as IGI Resources, to purchase high-pricedCanadian-produced gas rather than lower priced Rocky Mountain gasto be in compliance. IGI Resources estimates that it has lost about$7 million to date as a result of the costs of these mandatorypurchases under the OFOs.

“It is time for the Commission to step in and halt the economiclosses borne by those shippers with southbound transportationcontracts on Northwest’s system who are being unfairly harmed byNorthwest’s continual use of ‘must flow’ OFOs to maintain systemintegrity,” it said in a statement.

While “must-flow OFOs or variations on such OFOs have recentlybeen facts of life on Northwest [and] have been economicallydetrimental to many, if not most, of the firm shippers on theNorthwest system,” Sierra Pacific Power Co. said it opposedindustrials’ requested relief because it would benefit them to the”unfair detriment” of other shippers on the pipeline.

Sierra Pacific called on FERC to reject the Section 5 complaintfiled by the industrial users in mid-December, or hold additionalprocedures to give “full ventilation of the arguments of allparties.”

In their complaint, the Nevada industrial customers accusedNorthwest of violating its tariff by holding them hostage to thesedaily must-flow orders. They called on FERC to direct the pipelineto “cease and desist” the alleged violation of its tariff, whichthey claim is forcing them and other customers at the northern endof the pipeline to subsidize the gas acquisition and transportationcosts of customers on the southern end of Northwest’s system[RP01-189].

The effect of the must-flow OFOs is to compel shippers to makeup the capacity shortfall on Northwest’s system via displacement,the industrials said. Northwest’s firm contract demand is 720,000Dth/d, but its physical capacity is only 474,000 Dth/d. Pan-AlbertaGas (U.S.) Inc. (PAGUS) provides 144,000 Dth/d through adisplacement arrangement, while certain shippers — those flowinggas from north to south on Northwest — are left to make up theremaining 102,000 Dth/d.

The industrial users contend they shouldn’t be penalized if theyshould fail to comply with the must-flow OFOs, provided they havemade “good faith efforts” to try to obtain gas supply to meetNorthwest’s order. They point out that Northwest’s tariff exemptssuch shippers.

But in its response, Northwest countered that the mere fact thenorthern Nevada industrial customers “[have] been physicallyobtaining and nominating gas at the primary receipt and primarydelivery points needed to meet their OFO obligations is irrefutableevidence that [they have] been able to comply with the OFO…”

PAGUS is the first to admit that it is under a “substantial andonerous” OFO obligation on the Northwest system, which causes it”substantial economic hardship.” It remained neutral on the “legaland factual issues” in the industrial customers’ complaint. ButPAGUS noted it was “quite concerned” by their request to requirethe costs for displacement capacity — which currently are borneby northern shippers for the benefit of southern shippers — to beshouldered either by the shippers that benefit or by all shipperson Northwest.

It “would obviously be grossly unfair to impose additionaldisplacement capacity costs upon PAGUS. PAGUS is already providing58% of Northwest’s maximum displacement needs (i.e. 144,000 MMBtusof the maximum required 250,000 MMBtus) on its own, with no supportor contribution from Northwest or any other shipper,” it told FERC.If PAGUS is not exempted from such a requirement, “then theconsiderable costs being incurred by PAGUS to comply with its144,000 MMBtu/d flow obligation should be added to the pot as well,and similarly shared by all.”

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