A Williams Gas Pipeline executive last week broke ranks with theinterstate pipeline industry’s generally undivided support forstraight-fixed variable (SFV) rate design, advocating instead amove to a volumetric design. He believes such a rate design will beessential for gas pipelines to meet the needs of power generators,and for the industry as a whole to reach its goal of a 30 Tcfmarket

“We need to use pricing methodologies that allow powergenerators to pay [only] when they are dispatching power,” saidCuba Wadlington Jr., executive vice president and COO of WilliamsGas, at the 11th annual LDC Forum in Chicago, IL. “In essence, weneed to be able to work with power generators such that pipelinesproviding…the services can accept downside risk as well as upsideopportunities. If we can do those things, I think we [can] capturethe 30 Tcf market.”

He noted that Williams Gas has “for a long time been aproponent” of moving away from the SFV design under which pipelinecustomers pay a reservation charge to cover pipeline fixed costsand a usage charge for the actual volumes shipped. “We believe thata volumetric rate design is the appropriate rate design for anindustry that is [as] mature as the natural gas industry in NorthAmerica because…[it] encourages efficient pipelines,” Wadlingtontold the Forum, which was sponsored by the Interchange EnergyGroup. Under volumetric rates, pipeline customers would pay a unitcharge only for the volumes shipped.

“I think they [volumetric rates] certainly have the potential toincrease pipeline efficiency,” agreed FERC Commissioner LindaBreathitt, who also spoke in Chicago. But she said Williams Gas andother pipelines currently can achieve volumetric rates only one way- through individually negotiated agreements with customers. Theycan’t do it on a system-wide basis, she noted.

A volumetric rate design would be most beneficial to pipelinesthat run nearly full year-round, and could be disastrous for thosethat have low usage levels. Most pipelines still favor SFV ratedesign because it allows them to recover their fixed costs fromcustomers even when their capacity isn’t being used.

Susan Parker, Chicago

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