The Federal Energy Regulatory Commission (FERC) has announced two policy changes in its first final order on negotiated rates under its policy statement on Alternatives to Traditional Cost-of-Service Ratemaking. The FERC will now require pipelines to file either negotiated rate contracts or tariff sheets that reflect the essential elements of their negotiated rate agreements. In addition, pipelines will no longer be permitted discounted adjustments to their recourse rates.
The case involved NorAm Gas Transmission Co. (Docket No. RP96-200-001).
NorAm's tariff sheets, filed April 1, provided that 1) shippers may elect existing, FERC-approved tariff rates rather than negotiating rates; 2) shippers may not exceed the maximum FERC-approved recourse rate in NorAm's tariff; 3) for capacity-allocation purposes, shippers willing to pay more than the maximum recourse rate will be considered to have paid the maximum recourse rate; and 4) NorAm will not alter its recovery and treatment of various costs, such as transition and Gas Research Institute costs, through surcharges for shippers that pay negotiated rates.
Shippers had argued that the FERC erred in not requiring NorAm to file its negotiated contracts, including provisions specifying volumes, receipt and delivery obligations, and receipt and delivery points. They said customers would not be able to determine how their situation compares to that of customers with negotiated rates, and whether they merit the same or similar terms.
Petitioners also questioned the economic impact of negotiated rates on NorAm's traditional customers, arguing that the FERC erred in failing to require NorAm to assume the risks associated with negotiated rates, and in failing to prohibit the company from shifting the cost of negotiated rates to its other customers in future rate cases.
The FERC agreed on both counts, rejecting the statement in NorAm's April 1 filing that its negotiated rate filing does not prejudice its right to employ a discount adjustment in establishing the level of future recourse rates. To rectify matters, the FERC has prohibited NorAm from making a discounted adjustment to its recourse rates in its next rate case, thus ensuring that costs associated with negotiated-rate shippers are not shifted to NorAm's recourse-rate shippers.
Commissioner James J. Hoecker dissented in part because the FERC will not allow negotiated rates to serve as a price cap. He added that the NorAm order does not permit confidentiality, which might be needed in a competitive market.
Commissioner Donald F. Santa, Jr. said that the policy statement raises many questions, and that pipelines need more guidance. He agreed with rejecting NorAm's discount adjustment, which could place recourse shippers at risk in the future. He also noted that NorAm has made specific deals under index rates, which can lie above or below maximum rates in any given month, causing asymmetry (em something the FERC cannot endorse. Santa suggested that the evolving situation might discourage negotiated rates, and vowed to concur separately on allowing discounts in negotiated rates.
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