Natural gas often is called the world’s most perfect fuel. And since it can be transported as liquefied natural gas (LNG), and, as LNG, is projected to meet 20 percent of the country’s natural-gas...
ago, however, with its 1995 statement of policy on pricing for new and existing interstate pipelines (71 FERC 61,241), FERC has been moving away from the idea of rolled-in pricing for gas pipeline expansions. With its current statement of policy, issued in 1999 (88 FERC 61,227), FERC has come to embrace incremental pricing; the shippers to buy the expanded capacity pay the full cost of the expansion. Older shippers who subscribe to pre-expansion capacity don't have to pay for the new build.
In Alaska, however, we won't see but one pipeline built. And with the likelihood of much future exploration, it is underbuilding, not overbuilding, that may prove to be the real evil.
In fact, in recent years, FERC has OK'd incremental pricing for at least a couple of new pipelines designed to bring new gas fields to market, and with ongoing exploration activity, like Alaska. So says the Brattle Group, a Boston-based consulting firm working on the Alaska case on behalf of the Big 3. It cites the Kern River and the Maritimes and Northeast pipelines as examples.
According to Brattle, the M&NE pipeline, built concurrently with ongoing offshore exploration around Sable Island (another high-risk and challenging area in which to drill), and with an eye toward developing a new gas utility in Nova Scotia, exhibits policy parallels with Alaska.
By contrast, however, Canada has tended to favor rolled-in pricing for pipeline expansions, according to comments filed at FERC by certain Alaska state legislators, together with the legislature's budget and audit committee.
As they point out, Canada's National Energy Board OK'd rolled-in pricing in a 1990 order for a $2.6 billion pipe expansion designed to serve Northeast U.S. markets that doubled the cost-of-service rate base for Trans Canada. ()
The roll-in reportedly led to a 1.5 percent increase in the residential retail price of gas and a 2.9 percent increase in the retail industrial price. According to the Alaska legislators, the NEB rejected any concept that the mere payment of tolls by older established shippers conferred some sort of future right to be exempted from a toll increase. The legislators and other Alaskan interests believe that since the Alaska pipeline project will traverse Canada for long stretches, that FERC should adopt rolled-in pricing to mesh with the Canadian policy.
The Big 3 acknowledge the Canadian policy, but counter that when NEB Senior Counsel Margery Fowke testified before the Budget and Audit and Alaska state Senate Resources Committees earlier in 2004, she stated that the NEB followed no formal policy on the issue of rolled-in versus incremental rates. In fact, the Big 3 claim that Fowke testified that the board would not consider itself bound by prior decisions.
A Shot Across the Bow?
Is there cause for Alaska somehow to mistrust Big 3 oil majors?
In a decision issued in 2002, the Regulatory Commission of Alaska (the state's equivalent of a public utility commission) ruled that rates for intrastate transportation of oil on the TAPS oil pipeline had exceeded just and reasonable rates by 57 percent over the four-year period 1997-2000. ().