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Pipeline Restructuring: Slicing a Shrinking Pie

Fortnightly Magazine - October 15 1997

to other firms, either by "spin-off" or "spin-down." The FERC has applauded, noting that customers will ultimately benefit by obtaining gathering services from nonjurisdictional entities." %n22%n According to the Williams Cos., however, commission policy has come to "an abrupt halt" at the shoreline of the Gulf of Mexico, where, the argument runs, the FERC has been unwilling to extend its pro-competitive policy of deregulating the gathering function.

In particular, Williams claims that a new functional test espoused in the FERC's Outercontinental Shelf Policy Statement %n23%n will tend to reclassify gathering facilities improperly as jurisdictional, based on their proximity to existing, regulated OCS infrastructure pipelines. This new "bootstrapping" policy, says Williams, will undercut a 1989 FERC decision %n24%n to adopt a primary function test to define exempt gathering facilities. (That case, according to Williams, classified as exempt gathering facilities certain offshore pipelines of "increasing lengths and diameters, in correlation to the distance from shore and [to] the water depth of the offshore production area.")

Thus, complains Williams, "offshore systems now are simply found to be of similar scale to traditional long-line interstate pipelines and thereby jurisdictional." (Williams Cos., pp. 39-44.) %n25%n


(Cost effective?)

As explained by one major pipeline system, the Coastal Cos., %n26%n there's a big difference between providing gas transportation service for a single hour versus providing hourly service under an annual or monthly contract. %n27%n Pipelines may be able to provide the latter service, says Coastal, but, depending on system operations, most cannot offer the former.

As the Industrial Gas Consumers %n28%n explain, hourly gas service and trading are "imaginable," but are attended by "significant practical difficulties." If fact, IGC notes that the under guidelines of the Gas Industry Standards Board, "streamlined" capacity release takes at least 2.5 hours to implement, indicating that hourly transactions could not occur. (IGC, p. 17, 18.) Gas Clearinghouse believe the cost of system-wide hourly trading would outweigh the benefits, but it urges the FERC to complete its standardization of procedures for intra-day nominations, to allow pipelines to respond to the needs of gas-fired power producers, as does Greg Lander at TransCapacity LP. (NGC, p. 8; TransCapacity, p. 4.)

Also, not all pipelines operate in the same manner. Concerns over compression and line-pack requirements may prohibit pipeline systems driven predominantly by weather conditions to schedule hourly transactions 24 hours a day. (Williston Basin Interstate Pipeline Co., pp. 6-7.)

Nevertheless, restructuring in the electric industry appears certain to increase the need for hourly pricing of pipeline capacity, as explained in these comments by from Columbia Gas Transmission Corp. and Columbia Gulf Transmission Co., outlining three likely scenarios:

• Off-Peak Power. Electric service penetration rises in off-peak end-use energy markets, with time-of-use pricing and demand applications;

• Btu Substitutes. Customers call on pipelines and LDCs to differentiate services and prices and to offer a meaningful Btu competition as a substitute for off-peak electricity; and

• Quick-Response Turbines. Quick ramp-up becomes more critical for electric generation, as electricity reserves tighten, transmission loading rises and gas-fired power producers rely increasingly on just-in-time gas supplies. (Columbia, p. 15.)

Operating Standards