In keeping with FERC’s recent policy statement on capacitypricing, Viking Gas Transmission has become the first pipeline toseek authority to charge higher incremental rates for previouslylower-priced capacity that becomes available on its system.

Specifically, Viking Gas wants the ability to price capacitythat becomes available either through capacity turnback, permanentcapacity release, contract renewal or right-of-first-refusal at thesame level as its incremental rate for FT-D service, which is thehighest rate on the pipeline’s system now. The FT-D rate of 45.01cents is being paid by firm shippers served by Viking’s expansionthat went into service in September. In the event Viking shouldfurther expand its system, the FT-D rate could be superseded by ahigher incremental rate.

If approved by FERC, Viking’s proposal could mean anywhere froma doubling to a four-fold rate hike for available capacity forexisting firm shippers either served by Viking’s original system,which was built in the 1960s, or served by two other expansionsthat were constructed in the late 1990s. Viking also is seekingincremental pricing of capacity that becomes available throughtemporary releases, and under its interruptible and AOT rateschedules.

“Viking believes that adoption of this pricing mechanism willprovide better price signals to the market. Shippers will contractfor capacity as it becomes available at rates capped at theincremental rates…This will have the effect of ‘rolling-up’ therates over time and will encourage longer term contracts” on thepipeline,” it told FERC [RP35-00].

FERC’s new pricing policy, which allows for incremental pricingof available capacity, is of “special importance to Viking and itsshippers” given that contracts covering more than one-half of thepipeline’s capacity are scheduled to expire in the upcoming year,according to the pipeline. “Such capacity may be sought by shippersthat are new to Viking’s system or by existing shippers that wantto increase their contract demand. Current capacity-holders mayalso seek to retain such capacity through right-of-first-refusal.”Viking said it is seeking permission to price available capacityat its current FT-D rate “to avoid shipper confusion” in thefuture.

“The Commission’s policy rational is that a price foundreasonable for one set of customers (the incremental shippers) isreasonable for all subsequent shippers receiving the sameservices,” said Viking Gas, which applauded the new policy. Itconceded that it is “by no means certain” that it will be able tosubscribe all of the available capacity at the higher rates. As aresult, it has asked FERC to allow it to discount.

As part of its filing, Viking Gas is seeking a revision to itstariff to allow it to credit to all firm expansion customers 90% ofthe revenues stemming from the higher incremental rate that itseeks to charge. This, however, would not apply to Viking’s FT-Acustomers who pay the lowest rates for service on the pipeline’soriginal system.

The pipeline proposes to boost maximum rates for its IT and AOTservices to reflect “a 100% load factor derivative” of its FT-Drate schedule, thus making firm, IT and capacity releasescompetitive, it said. Viking asked for the interim rate change tobe adopted until it files its next Section 4 rate case, which isdue by Dec. 31, 2001. “Moreover, Viking is proposing to refund 90%of revenues resulting from the interim change to its rate scheduleIT and rate schedule AOT maximum rates to prevent anyovercollecting of revenues.”

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.