Northern Natural Gas pipeline called on FERC last week to close the agency’s show-cause proceeding and dismiss a related complaint case brought against it by two Midwest cogenerators, claiming that the transportation letter agreements negotiated with the cogenerators were lawful and did not restrict competition.

The Commission issued the show-cause order in December in response to a complaint filed by LSP-Cottage Grove LP and LSP-Whitewater Ltd. Partnership, which alleged that Northern Natural had billed them for $1.7 million in unwarranted surcharges between January and March 2003 for transporting gas to combined-cycle generation facilities in Minnesota and Wisconsin.

The billing feud prompted FERC to question the propriety of provisions in the letter agreements (i.e., discount rates), which were negotiated in 1995 [RP03-604].

In its response to the show-cause order, Northern Natural reported that it was in “serious discussions” with Cottage Grove and Whitewater to resolve the complaint case, and it expected the negotiations to be completed in the “very near future.”

As to the issue of legality, the MidAmerican Energy pipeline argued that the discount rates charged to Cottage Grove and Whitewater under the letter agreements “were contractually limited by the maximum and minimum rates set forth in [its] tariff.”

Northern Natural said the LSP projects were the first cogeneration facilities served by its pipeline system. The discount rates at issue were offered to the two cogenerators specifically to secure their transportation volumes on Northern Natural, which it noted “have benefited” both the pipeline and its customers.

The agreements with Cottage Grove and Whitewater were entered into in 1995, before FERC gave interstate gas pipelines the ability to negotiate rates above the maximum rate levels in their tariffs and before the Commission issued a series of orders clarifying what it meant by “contract material deviation,” according to Northern Natural.

Prior to these orders, “it was Northern’s understanding that 1) a pipeline could not charge a rate greater than its maximum nor less than its minimum tariff rates, and 2) as long as a provision did not materially deviate from the provisions in the pipeline’s tariff or the form of service agreement, the provisions were lawful and did not need to be filed,” the pipeline said.

This was the thinking that guided Northern Natural in negotiating the discount rates with the cogenerators, the pipeline said. “As long as the discounted rate was given to meet competitive conditions, was within the minimum and maximum tariff rates, and the pipeline did not unduly discriminate in the granting of the discount, the provision was lawful.”

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.