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Pipeline Restructuring: Slicing a Shrinking Pie

Fortnightly Magazine - October 15 1997

3) delay payment of invoices, 4) shorter notice period to exercise contract rollover rights, 5) more flexible storage withdrawal rights than provided by tariff ratchet or 6) more force majeure credits. (El Paso Energy Corp., pp. 18-22.)

Not everyone agrees. NGC Corp., better known as Natural Gas Clearinghouse, argues that if pipelines negotiate terms and conditions, "It will be impossible to police discriminatory acts." It advises the FERC to reject any pipeline proposals to "take away or reduce existing services and then add them as an extra." (NGC, pp. 5,6.)

The American Forest and Paper Association adds that any pipeline allowed to negotiate terms and conditions ought to file triennial rate cases and abide by a "most-favored-nation" clause allowing any other shipper to request the same negotiated terms. (AF&P Asso., pp. 27-28.) By contrast, NorAm offers this idea: Pipelines should be allowed to negotiate terms and conditions with any LDC that is soliciting bids for transportation service that deviate from the pipeline's tariff. (NTTG, p. 11.)

Citing a pre-636 court decision, Tejas Power Co. v. FERC, %n17%n the Pennsylvania Office of Consumer Advocates argues that the FERC must ensure comparability of service to protect captive costumers and thus must reject negotiated terms and conditions. It admits that Tejas belongs to a different era, %n18%n but finds it analogous to today's market:

In Tejas Power, captive customers were denied access ... to the critical storage and upstream pipeline capacity services which had been part of the bundled sales service. With [such] access, customers with low load factors, such as LDCs serving largely residential and small commercial populations, could not take full advantage of lower-priced gas supply. ... To allow negotiated terms and conditions of service results in a major step backwards.

Instead, the OCA suggests filed pipeline tariffs that make service flexibility available to all customers on equal terms regardless of negotiating leverage. (Penn. OCA, pp. 10-11.)


(Should FERC weigh in on state-level questions?)

A strong difference of opinion emerges from the comments regarding how far the FERC should go in "assisting" the state public utility commissions and LDCs to achieve workable retail access.

Columbia Gas Transmission Corp. and Columbia Gulf Transmission Co. (joining in one set of comments) advocate the activist view:

FERC can play a role in minimizing stranded costs associated with LDC unbundling (em as well as enabling pipelines to address capacity contracting issues (em by permitting pipelines [to exercise] flexibility in designing services required by entities serving unbundled retail customers. (Columbia Gas, p. 12.)

The key lies with stranded costs from excess pipeline capacity, which drives demand for retail choice in gas and, in a sense, is the gas equivalent of cheaper electric generation. Columbia Gas explains:

The emergence of a diverse retail customer base is coinciding to some extent with the expiration of long-term contracts between many pipelines and their LDC customers. This is requiring pipelines to examine their current contracts for firm capacity. ... Stranded costs will be created to the extent that LDCs are holding pipeline contracts which they cannot assign to those new