The Federal Energy Regulatory Commission has approved 5-0 its Order 636, a pipeline rate restructuring rule it says will complete transition to a decontrolled natural gas transportation market.
FERC Chairman Martin Allday said, "The commission is very optimistic Order 636 will help fulfill our mandate to ensure consumers have an adequate supply of natural gas at reasonable prices for the foreseeable future."
The rule is intended to ensure pipelines provide equal transportation service for all gas supplies, whether the customer buys the gas from the pipeline or from another supplier.
FERC said the rule will "improve the access of gas buyers to a variety of gas sellers so as to maximize the benefits of the competitive wellhead gas market."
RATES, UNBUNDLING
Order 636 requires use of the straight fixed variable cost classification method, unless FERC approves another method.
Small producers had complained the current use of the modified fixed variable rate method shifts a significant portion of a U.S. pipeline's fixed costs into the commodity cost rate component, making it hard for them to compete with Canadian gas imports.
Canada uses a fixed variable rate design, which keeps the fixed costs on the demand charge component.
Order 636 requires interstate pipelines to unbundle their charges, providing separate charges for the gas and for transportation of the gas. It converts existing FERC sales certificates to blanket certificates so interstate pipelines can sell gas on a basis similar to that of unregulated sellers, at market based rates.
The pipelines, as gas merchants, would be subject to the same standards of conduct and reporting requirements as are their marketing affiliates.
TRANSITION, ACCESS
Currently pipeline sales customers are given a transition period in which they can lower or terminate purchases from a pipeline in order to switch to another gas seller.
Order 636 requires pipelines to offer a new "no-notice" firm transportation service, under which local distribution companies can receive their firm daily entitlement of gas even if they did not previously order that amount of gas. That will ensure LDCs receive adequate gas supplies during peak periods.
The order prohibits pipelines from using tariffs that inhibit the development of market centers, places where pipelines interconnect and sales occur. Lines would have to give all shippers equal and timely access to sales information through the use of computerized bulletin boards.
Order 636 requires pipelines to provide customers with open access to gas storage on a contract basis.
The rule requires open access pipelines to provide firm shippers on their downstream pipeline segments with access to capacity on upstream segments. Firm shippers could release unwanted pipeline capacity on a temporary or permanent basis.
CONTRACTS, COST RECOVERY
Order 636 allows pipelines to abandon sales and interruptible transportation service to existing customers upon expiration or termination of a contract without FERC approval. The same would be true for service under firm transportation contracts of a year or less duration.
If conversion to Order 636 increases a pipelines' costs 10% or more, FERC will allow the costs to be phased in over a 4-year period.
Pipelines could direct bill any unrecovered balances in their purchased gas accounts. They also can recover all costs of realigning their gas supply contracts through a surcharge on firm transportation reservation fees.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
