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 when justifying its request to raisethe cost of service to $304.8 million from the $256.8 millionapproved in its 1997 rate case. It asked for the rate increase tobecome effective June 1.
If Texas Gas’s rate proposal is permitted to take effect as is,New Jersey Natural Gas said it would have to pay about $1.47million more each year to receive service on the pipeline, which isnearly 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 to – at the very least —suspend the pipeline’s entire filing for the maximum five-monthperiod, establish a hearing and condition acceptance of theproposed tariff sheets 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 lacks the authority tonegotiate rates with customers. Also, it noted Texas Gas failed toestablish a revenue-sharing mechanism in its proposal for seasonaland 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 for shorter-term service.
In its STF filing, Texas Gas proposes an off-peak base rate ofaround 15 cents/MMBtu and a peak base rate of slightly more than 76cents/MMBtu. The term-differentiated rate, as proposed by TexasGas, would be added to the base rate. For example, during thewinter, Texas Gas seeks to add 25 cents to the peak base rate forservice of one to five days in duration. In the summer, it wouldadd up to about 76 cents to the off-peak base rate for service ofthe same contract duration. This latter term-differentiated premiumwould be equal to the maximum base winter 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 doesn’t offer shippers “a reduced rate to compensate[them] for the risk associated with entering into a longer termcontract,.” as required under Order 637. Also, it insists long-termshippers would bear an “unfair portion” of the costs under TexasGas’s proposal. “For example, rate schedule FT shippers would beassessed approximately $150 million in costs while rate scheduleSTF shippers would bear only $1 million. This is undulydiscriminatory 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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