Interstate pipelines last week unveiled a “global” proposal onseasonal ratemaking and flexible terms and conditions of service atthe fourth industry pow-wow exploring major FERC gas initiativesand possible alternatives. Seasonal ratemaking, which would enablepipes and LDCs to recover more value for capacity when it’s ingreatest demand, is emerging as the industry’s front-runnerreplacement for the Commission’s much-criticized auction mechanism.

Although details were sketchy, the pipelines reportedly proposedseasonal, term-differentiated rates for long- and short-termcapacity contracts. However, they also would offer pipelinecustomers the option to be billed at annualized rates. Thepipelines further proposed to make “periodic reports to verifyseasonal, term-differentiated rate assumptions,” which caused someto question whether or not this was a true-up.

“I don’t get the same sense” that this was what the pipelinesmeant, remarked one industry source. “If there’s going to be anymeeting of the minds [on this proposal], the words have to startmeaning the same things to everybody.”

The proposal came under some fire for its lack of detail. “Theonly disappointment is that it’s not detailed enough to reallycritique quite frankly, which puts the burden on the people at themeetings…to ask the right questions,” the source said.

Seasonal ratemaking would get LDCs “out of the ditch” byallowing them to recover higher prices for their capacity when it’smost in demand, and it would provide pipelines with “greaterassurance” of revenue recovery in the winter to offset thediscounts they give in the summer.

The pipelines further proposed the lifting of the price cap forsecondary capacity only – not primary short-term capacity. Theymade abundantly clear their opposition to the mandatory auctionmechanism for short-term capacity, as proposed by FERC in itsmega-notice of proposed rulemaking issued last July.

Straight-fixed variable (SFV) rate design wasn’t in theproposal, but the source told NGI that he expects the pipelines to”somehow, some way” address a shift away from the controversialrate design later. LDCs “clearly have been agitating” for such achange, and “I think the pipes will probably buy into it…to tryto build some consensus” on other issues.

He believes the final proposal on negotiated terms andconditions to emerge probably will be a “rehash” of the jointinitiative submitted by the American Gas Association (AGA) and theInterstate Natural Gas Association of America (INGAA) to FERC lastMay. The only noticeable change, he added, is that pipelines have”indicated a willingness” for a Commission proceeding to determinethe bounds of the terms and conditions to be negotiated.

The pipelines also put the Commission’s complaint process on thetable as an item for possible discussion, the source noted. Thiscould be a tough nut to crack because although both the pipelinesand LDCs favor a more expedited process at FERC, they have proposedcompletely different procedures for achieving this.

In addition, he said industry participants are trying to set upa meeting with FERC Chairman James Hoecker for Feb. 26th to apprisehim of the status of the discussions so far. Industryrepresentatives have been meeting in closed-door sessions everyother week in an attempt to reach a consensus on key initiatives inthe mega-NOPR and notice of inquiry (NOI). Industry comments aredue at FERC by April 22nd.

Asked whether industry will need another extension of thecomment deadline, the industry insider said, “I suspect we’re notgoing to know the answer to that question until the last meeting onApril 7th.”Susan Parker

©Copyright 1999 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.