FERC last week accepted the $34.5 million mega-negotiatedcontract between Natural Gas Pipeline Co. of America (NGPL) andAquila Energy Marketing Corp., but there was a glitch. TheCommission’s acceptance was conditioned on the Midwest pipelineproviding a “satisfactory explanation” of why the transactiondoesn’t conflict with capacity-release rules and regulations, whichFERC suspects is the case.

The Commission sees Section 5 of the Natural-Aquila negotiatedagreement as a potential problem area. That section calls forAquila to pay various additional charges, such as commodity chargesand incremental segmentation quantity charges, if it wants tosegment certain capacity. FERC believes such charges or “penalties”may provide Aquila Energy with a disincentive to release itscapacity.

“The Commission is concerned that [Aquila]…..would have lessincentive to release its capacity in order to segment if it facedan economic penalty in the form of an incremental segmentationquantity charge of [one cent] for all transported volumes[that]…..exceed applicable zonal MDQs,” the order said.”Moreover, we are concerned that such a provision may deterpotential competing bidders when Natural posts this type oftransaction on its EBB for auction.”

FERC directed Natural to submit within 15 days an explanation ofwhy the agreement’s Section 5 doesn’t clash with the Commission’srules with respect to capacity release transactions [RP99-176-007].It also wants the pipeline to clarify and demonstrate “withexamples” how this particular contract section operates and how itwas “presented to bidders and treated in the auction process.”

Aside from this concern, the Commission said the arrangement was”generally in accordance with [its] negotiated-rate policies.” Itnoted that Natural’s statement of negotiated rates, along with theservice agreement, provides recourse-rate shippers with “sufficientinformation” to do rate comparisons.

The deal with Aquila is crucial to Natural. Under the agreement,Aquila has contracted for 500,000 Dth/d of firm capacity on thepipeline over a two-year period. And assuming the contract glitchesare worked out, this will mark the first time in more than a yearthe pipeline is more than 99% subscribed.

The contract calls for Aquila to pay Natural a minimum annualreservation charge of $10.5 million in the first year, and anestimated $24 million during the second year. The contract includesa “tiered revenue sharing methodology,” which provides that oncethe minimum reservation charge is met, Aquila either: a) will notbe billed for the next specified amount of reservation charges itincurs; or b) will be billed for only a specific percentage of suchreservation charges.

The capacity that Aquila has contracted for will be splitbetween NGPL’s Amarillo leg (350,000 Dth) and its Gulf Coast leg(150,000 Dth).

Susan Parker

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