With overloads of turned-back capacity and a bottoming marketfor long-term pipeline transportation contracts, distributors havefinally picked up some pipeline support for a “generic” departurefrom straight fixed variable (SFV) rates.

In comments submitted to FERC last week Williams acknowledgedthat loading all the fixed costs into the demand charge “increasesthe unavoidable costs of reserving capacity, contributing tocustomers’ reluctance to contract for long-term transportationservices, and thereby limiting the number of participants in thelong-term market for transportation.”

Williams said that in addition to supporting current policiesallowing negotiated rates using other rate designs, it “is notopposed to a Commission-sponsored move away from SFV rate design aspart of a generic policy applied simultaneously to all pipelinesand if pipelines are provided the tools necessary to mitigate theincreased risks posed by non-SFV rates.” Thus did one of theleading pipeline companies acknowledge the market’s undermining ofthe pipelines’ religiously-held and oft-defended belief in theirright to collect all fixed costs in the demand charge. That worksonly if customers sign up for firm service and agree to pay ademand charge.

The Customer Coalition, made up of distributors and utilities inthe Northeast, was more demanding in its campaign to break the backof the SFV policy, saying FERC should specify that 35% of apipeline’s fixed costs should be shifted to the usage or commodityportion of the rate. “SFV rate design rewards inefficiency andfails to adequately reward efficient pipelines…A change to a ratedesign that recovers more costs volumetrically would expose morecosts to competition.”

The customers pointed out that because customers are able tomake very little on capacity release, the high fixed costs in SFVrates makes holding long term capacity a much riskier propositionthan holding short term capacity.

Responding the Federal Energy Regulatory Commission’s requestfor ideas for the next round of fine-tuning the gas market,Williams also said the Commission “should immediately remove pricecaps on all short-term natural gas transportation transactions,including short-term pipeline services.”

Regarding new and expansion projects “if a pipeline and itsexpansion shippers are willing to proceed on the basis of thearrangements that have been struck, then the Commission shouldapprove such arrangements provided existing shippers are protectedoperationally and financially and all required environmentalconditions are met.”

Williams also repeated its support for negotiated terms andconditions and urged the Commission to re-examine the need for the’shipper-must-have-title’ policy.

The comments were filed in response the FERC’s Notice of ProposedRulemaking (RM98-10) and Notice of Inquiry (RM98-12). They follow on apublic conference held by the Commission in September to discusspossible market changes (see Daily GPI, Sept. 20).

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