Enron Corp.’s Northern Natural Gas has proposed an optionalone-part volumetric firm throughput service (VFT) under whichcustomers would only pay for the service they use and would sharethe risk of weather-related volatility with the pipeline.

The proposed service would be available to existing and newcustomers that contract for long-term firm service on NorthernNatural, and would have the same terms and conditions as thepipeline’s existing TF and FTX rate schedules, it told FERC.

The VFT service would offer customers “a new flexible billingoption for the pricing of firm service, i.e. a ‘pay-as-you-go’approach,” according to Northern Natural. Also, it would permitcustomers to “fix the per-unit cost of transportation servicepurchased from Northern and insulate themselves and their customersfrom weather-driven cost volatility.”

Northern Natural believes the VFT service would be a vastimprovement over the current two-part firm billing structure, where”a shipper pays for firm service whether it uses the service ornot, and thus takes the risk of weather volatility common duringNorthern’s winter seasons.” This risk would be shared under theproposed VFT service, with Northern Natural assuming the risk of awarmer-than-normal winter and the VFT customer assuming the risk ofa colder-than-normal winter, it said.

“VFT service is another tool to meet Northern’s customers’needs. Such tools are critical to improve Northern’s customerresponsiveness, help obtain contract extensions from existingcustomers thereby reducing capacity turnback, and attract newcustomers to Northern’s system,” the Enron pipeline said in itsfiling at FERC. Natural said its proposal is similar to the firm,volumetric services that the Commission already has approved forseveral offshore pipelines.

For existing customers seeking to convert to the VFT service,Northern Natural said the maximum volumetric rate for both summerand winter will be based on the customer’s three-year averagehistorical load factor, between 1997-1999. For new customers,Northern noted a projected load factor would be used to determinethe applicable maximum VFT rate.

The pipeline has proposed “three alternative usage parameters”for the proposed service that would apply to customers that havemore than one pipeline supplier, and to electric generationcustomers that have the option of alternate fuels or purchasingpower off-system rather than taking gas from Northern Natural

“The VFT proposal and specifically the usage parameters will notpermit such customers to switch to volumetric rates and then reducetheir takes on Northern’s system by making Northern their swingsupplier…..The usage parameters are necessary to prevent gamingof Northern’s system,” and to ensure that Northern only assumesweather-related risks and no other types of risks, it told theCommission.

Northern’s proposed VFT service would have a “minimum one-yearterm with the right to extend such service year-to-yearthereafter;” would only apply to long-term contracts due to thedifficulty of measuring and hedging short-term weather risk; andshippers would have the ability to release their capacity.

Northern believes its proposal is in line with the Commission’spolicy of encouraging pipelines to offer innovative services. Iturged FERC to hold a technical conference so that it can “furtherexplain” its rate proposal to the Commission staff and pipelinecustomers.

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