FERC yesterday 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, including incrementalsegmentation quantity charges if it wants to segment certaincapacity. FERC believes such charges or “penalties” would provideAquila with a disincentive to release its capacity.

“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 Section 5 of the negotiated deal doesn’t clash with theCommission’s rules and regulations with respect to capacity releasetransactions [RP99-176-007].

Aside from this concern, the Commission said the negotiatedarrangement was “generally in accordance with [its] negotiated-ratepolicies.” It noted that Natural’s statement of negotiated rates,along with the negotiated service agreement, provides recourse-rateshippers with “sufficient information” to do rate comparisons.

The negotiated deal with Aquila is crucial to Natural. Under theagreement, Aquila has contracted for 500,000 Dth/d of firm capacityon the pipeline over a two-year period. And assuming the contractglitches are worked out, this will mark the first time in more thana year the pipeline will be 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 says that once theminimum reservation charge is met, Aquila will either a) not bebilled for the next specified amount of reservation charges that itincurs; or b) be billed for a specified percentage of thereservation charges incurred.

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).

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.