Shippers on Texas Gas Transmission Corp. have called on FERC toproceed cautiously with the pipeline’s proposed Section 4 generalrate filing that seeks to increase its total cost of service by19%, or $48 million, and boost annual rates for jurisdictionalpipeline 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.

If Texas Gas’s rate proposal is permitted to take effect as is,New Jersey Natural Gas said the cost for it to receive service onthe pipeline would skyrocket by approximately $1.47 millionannually, nearly double what it is paying now.

The “most troublesome aspect” of the filing, most shippersagreed, was Texas Gas’s proposal to establish a new short-term firmservice (STF), which would combine the seasonal andterm-differentiated rate concepts approved by the Commission inOrder 637.

Because Texas Gas is “one of the first pipelines (and perhapsthe very first)” to file for such rate authority as part of aSection 4 rate case, the Process Gas Consumers Group (PGC) andother shippers urged the Commission at a minimum to suspend thepipeline’s entire filing for the maximum five-month period,establish a hearing and condition acceptance of the proposed tariffsheets on the availability of refunds [RP00-260].

The PGC group, which represents industrial gas shippers, said itwould prefer the Commission to “summarily reject,” in part, TexasGas’s proposal to implement term-differentiated rates as part ofthe STF service given that the pipeline lacked the authority tonegotiate such rates with customers. Also, it noted Texas Gasfailed to establish a revenue-sharing mechanism in its proposal forseasonal and term-differentiated rates as required in Order 637.

Under the seasonal-rate concept in Order 637, interstatepipelines can ask the Commission for the authority to charge higherrates during the peak winter season, and lower rates during theoff-peak season. And with term-differentiated rates, pipelines canoffer a break in rates to customers who contract for longer terms,and charge a premium to shorter-term customers.

In its STF filing, Texas Gas proposes an off-peak base rate of15 cents/MMBtu and a peak base rate of $0.7617/MMBtu. Theterm-differentiated rate, as proposed by Texas Gas, would be addedto the base rate. For example, during the winter, Texas Gas seeksto add 25 cents to the peak base rate for service of one to fivedays in duration. In the summer, it would add $0.7617 to theoff-peak base rate for service of the same contract duration. Thislatter term-differentiated premium is equal to the maximum basewinter rate.

Texas Gas’s proposal for seasonal rates and term-differentiatedrates raises “significant policy considerations,” PGC said. Forone, it pointed out Texas Gas doesn’t possess the authority neededto negotiate the premiums associated with term-differentiatedrates. Nor does the pipeline’s proposal provide a “basis andjustification” for charging the term-differentiated premiums.Lastly, Texas Gas hasn’t created a mechanism so that it can sharewith its customers any revenues collected in excess of its costsunder seasonal rates.

Moreover, the PGC contends Texas Gas’s term-differentiated rateproposal does not provide shippers with “a reduced rate tocompensate [them] for the risk associated with entering into alonger term contract,.” as required under Order 637. Also, itargues long-term shippers would bear an “unfair portion” of thecosts under Texas Gas’s proposal. “For example, rate schedule FTshippers would be assessed approximately $150 million in costswhile rate schedule STF shippers would bear only $1 million. Thisis unduly discriminatory to long-term shippers…”

In its rate filing, Texas Gas is in effect proposing to removethe price caps on certain pipeline capacity transactions(short-term firm), “thus completely undercutting one linchpin ofthe Commission’s rationale for lifting the cap in the short-termrelease market in the first place,” industrial shippers told FERC.

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