News Digest

Fortnightly Magazine - October 1 1998
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GAS PIPELINES. Noting a move toward shorter-term contracts since Order 636, the FERC on July 29 issued an "integrated package" of reform proposals for the natural gas pipeline industry: (1) specific measures in a notice of proposed rulemaking on short-term transportation (transactions shorter than one year); plus (2) an open-ended request for comments in a broader notice of inquiry. RM98-10-000, 84 FERC ¶61,985 [NOPR]; RM98- 12-000, 84FERC ¶61,087 NOI].

The proposals all evoke a single theme - reduce prices and risk in long-term markets, while letting prices climb for short-term deals. The FERC would correct a so-called "asymmetry of risk" - shippers signing long-term contracts face uncertainty in price and supply, but can avoid risk by turning to short-term markets, where they pay no price premium and can actually lock-in rights as long as five years through the right of first refusal.

Proposals in the 190-page NOPR:

• no price cap on released capacity;

• end cost-based regulation in short-term market;

• retain cost-based regulation in long-term market;

• new procedures on nominations and scheduling;

• more flexible receipt and delivery points;

• mandatory auctions for all sales of short-term capacity;

• more flexibility in pipeline-shipper contracts;

• review pipeline penalty provisions and operational

flow orders;

• kill five-year term-matching cap in the right of

first refusal;

• consider term-differentiated rates.

In its 40-page NOI the FERC again seeks to remove bias between short- and long-term markets. It asks whether its own policies led to price distortions in California and Chicago, forcing capacity turnbacks on some pipes, while prompting other fully booked and lower-priced pipelines to build new capacity at higher unit-average costs than for existing capacity. It seeks comments on:

• creative cost-based rates (indexed prices or rates linked to end-use commodity prices);

• mandated periodic rate review for "recourse" rates;

• preconstruction risk sharing;

• reopening the ill-fated 1996 initiative on incentive


• linking depreciation lives to contract terms;

• incremental pricing for released or turned-back capacity;

• a "nonbypassable" pipes charge to recover fixed costs.

A petition filed June 26 by the New York Public Service Commission that proposed a shift away from the straight fixed-variable rate design (RM98-11-000) will be rolled into the NOI, though at press time at least one commenter (the Process Gas Consumers Group) had already weighed in, calling the idea "recycled and unsubstantiated." Comments on the full package (NOPR & NOI) are due Nov. 9 - 90 days after the Aug. 11 publication date in the Federal Register.

COMPLAINT PROCEDURES. The FERC on July 29 proposed revisions to procedures for handling complaints, encouraging informal or alternative resolution of disputes. Docket No. RM98-13-000, July 29, 1998.

HYDROELECTRIC RELICENSING. In what FERC Chairman James Hoecker described as the "relicensing case from hell," the FERC (Commissioner Bailey dissenting) issued a 40-year license to the city of Tacoma, Wash., to continue operating the Cushman hydroelectric project on the North Fork Skokomish River in western Washington state, requiring extensive environmental restoration. Docket Nos. P-460-001 and P-460-009, July 29, 1998.

It also relicensed the Kingsley (105.9 MW) and North Platte/Keystone (26.1 MW) hydro projects on Nebraska's Platte River in unanimous settlements signed by the states