A hotly protested Texas Gas Transmission rate proposal will besubject to increased regulatory and industry scrutiny in the comingmonths. The Federal Energy Regulatory Commission (FERC) sided witha number of protesters in accepting and suspending the bulk of theproposed tariff changes until Nov. 1 subject to hearing andpotential refund. FERC also rejected Texas Gas’ postage stamp ratedesign for a new cutting-edge, short-term firm service and orderedthe pipeline come up with distance-based rates for the service. Inaddition, it ordered the pipeline to provide detailed explanationson a host of issues related to its new rate design within the next30 days.

Aside from increasing rates $81 million, the general rate casealso requested Commission authorization to implement a variety ofseason and term-differentiated rate ideas put forth in theCommission’s recent Order 637. Other than those proposals and somerevisions to Texas Gas’ storage service, the Commission set thetariff changes for hearing and requested that the presidingadministrative law judge hold the hearing in abeyance to allowinterested parties time to pursue a settlement.

The tariff filing seeks to increase Texas Gas’ total cost ofservice by 19%, or $48 million, and boost annual rates forjurisdictional pipeline and storage services by about $81 million.Texas Gas cited increases in its utility rate base, depreciationexpenses and rate of return in asking the Commission to raise itscost of service to $304.8 million from the $256.8 million approvedin its 1997 rate case. It proposed that the increase becomeeffective June 1.

The filing was protested strongly by New Jersey Natural Gas,which said its costs on the pipeline would nearly double. But the”most troublesome aspect” of the filing, most shippers agreed, wasTexas Gas’s proposal to establish a new short-term firm service(STF). The service would be available starting Nov. 1 and wouldhave terms between one day and one year with “value-based” ratesbased on the term and the time of year. It would have rates forfour different terms in the summer and winter seasons and wouldinclude certain premiums based on timing. There would be anoff-peak base rate of 15 cents/MMBtu and a peak base rate of 76.17cents/MMBtu. During the winter, Texas Gas could add up to 25 centsto the peak base rate for service of one to five days in duration.And in the summer, it could add up to 10 cents to the off-peak baserate for service of the same contract duration. Texas Gas alsoproposes a mutually agreed upon one-day rate for the summer andwinter seasons.

The Process Gas Consumers Group (PGC), which represents industrialgas shippers, said it would prefer the Commission “summarily reject,”in part, Texas Gas’s proposal to implement term-differentiated ratesas part of the STF service given that the pipeline lacked theauthority to negotiate such rates with customers. Also, it noted TexasGas failed to establish a revenue-sharing mechanism in its proposalfor seasonal and term-differentiated rates as required in Order 637(see Daily GPI, May 16).

While it said it was “encouraged” by the filing, which showssupport for its new policies, the Commission concluded that furtherclarification by the pipeline company is required, particularlyregarding the basis for the premiums to be charged. FERC said thereseems to be a likelihood for over-recovery of costs, and ittherefore directed Texas Gas to explain its justification for thepremiums within 30 days. The Commission also ordered Texas Gas toexplain why it has not designed seasonal rates for interruptibleservice or long-term service.

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