Northern Natural Gas has initiated a new rate case directed at increasing revenues by $55 million and changing its methods of operation to better fit in with the competitive market (RP03-398).

In its May 1 filing, Northern said it is asking the Federal Energy Regulatory Commission to consider cost-based rate design methods which take into account seasonal usage patterns and to permit short-term contracts to have different maximum rate levels than longer-term contracts.

“The traditional rate structure is no longer valid in a more competitive market with shorter-term contracts,” the pipeline said. “Northern has proposed changes that give customers additional options, simplify billing procedures and provide rates that better align with the cost of providing service and its market value.”

Northern has divided its case into two parts with the new rates and some tariff modifications (primary case) effective June 1, 2003, plus prospective rate design changes to become effective after a settlement or Commission order on the merits. Northern expects the Commission to postpone the effective date of its filing, as is usual, for five months, which means the rates would go into effect subject to refund Nov. 1, 2003.

Northern said its test period cost of service would produce $518 million revenue compared to $447 million in the base period, which equals a $71 million or 16% revenue increase. However, the pipeline has proposed lower rates which would produce a $55 million or 12% increase. The filing calls for a 10.37% overall rate of return.

Northern is proposing making two modifications to security required under its creditworthiness provisions (1) to add the value of imbalance gas to the definition of security required from non-creditworthy shippers; and (2) to adjust the level of security required each month to reflect changing gas prices when it loans gas to shippers. For imbalance gas, Northern would require non-creditworthy shippers that want continued service to provide security equal to three months of service charges, plus an amount equal to the three highest cashout payments made to Northern by the shipper. The pipeline points out that without this provision shippers that cannot meet their suppliers’ credit requirements simply take gas from Northern’s system, without any gas being put in. “This negatively impacts the level of imbalances on Northern’s system and places additional pressures on Northern in managing its system.”

Northern’s tariff changes in its primary case also include:

The proposed changes in Northern secondary or Prospective Case include: (1) implementation of negative salvage rates of 0.5% for onshore transmission plant and 0.5% for storage plant; (2) enhanced rate seasonality; (3) a maximum daily quantity (MDQ) limit on the small customer DDVC tolerance level; (4) a revised methodology to recover fuel costs; (5) firm transportation rates varying by contract term; (6) a new small volume, no-notice service; (7) billing simplifications; (8) revisions to billing of overrun volumes; (9) a minimum MDQ requirement at delivery points; and (10) a provision for treating non-pipeline quality gas.

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