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Decontracting: Stranded Costs for Interstate Pipelines?

Fortnightly Magazine - April 1 1996

pipeline must have an incentive to recover the costs of its unsubscribed capacity from new markets."

-Natural Gas Pipeline Co. of America, Dkt. Nos. RP95-326-000 et al., Oct. 11, 1995, 73 FERC (pp 61,050.

But risk-sharing may qualify:

FERC OKs settlement for cost-sharing through 2001 of some $51 million from capacity turnback by Southern California Gas Co. (457 MMBtu/day, relinquished effective Nov. 1, 1996). Says settlement, which also protects certain customers from rate hikes for 10 years, "is crafted so as to fairly share the costs and burdens."

-Transwestern Pipeline Co., Dkt. Nos. RP95-271-000, July 27, 1995, 72 FERC (pp 61,085.

Recent Proposals-Flexible Pricing

The FERC acknowledges that gas pipelines need more pricing flexibility in today's market. In January, it asked for comment on three proposals:

Market-based Rates:

. Eligibility depends on antitrust analysis, showing no market dominance

. Pipeline must not be able to maintain a 10-percent price increase without losing market share

. "Closer scrutiny" applies when HHI exceeds 0.18 (1,800)

. FERC will rule case by case

Incentive (performance-based) rates:

. Pipelines eligible despite market power

. Rates divorced from cost; no cap

. Prospective and voluntary

. Efficiency gains shared between consumers and stockholders

. Benefits need not be quantified

Negotiated rates with recourse to default rate:

. Mutual agreement between pipeline and individual shipper

. Shippers have access to cost-of-service-based recourse rate as alternative to negotiated contracts

. Pipelines must allocate capacity to recourse shippers during constraints

. Recourse shippers not solely responsible for cost of unsubscribed capacity

-Alternatives to Trad. Cost-of-Service Ratemaking for Nat. Gas Pipelines, Dkt. No. RM95-6-000, Jan. 31, 1996; Regulation of Negotiated Transp. Services of Nat. Gas Pipelines, Dkt. No. RM96-7-000, Jan. 31, 1996.

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