CAPACITY TURNBACKS CONCERN U.S. GAS PIPELINES

May 29, 1995
A rate case filing expected June I by Natural Gas Pipeline Co. of America (NGPC) will signal how U.S. gas pipelines are adjusting to the emerging trend of transmission capacity turnbacks by local distribution companies (LDCs). The rate case, in addition to a separate filing this spring, shows how NGPC is restructuring its services. The aim is to adjust to LDCs that want to book less firm capacity and instead pay on an as-needed basis, says NGPC Executive Vice Pres. Gary Bartlett.

A rate case filing expected June I by Natural Gas Pipeline Co. of America (NGPC) will signal how U.S. gas pipelines are adjusting to the emerging trend of transmission capacity turnbacks by local distribution companies (LDCs).

The rate case, in addition to a separate filing this spring, shows how NGPC is restructuring its services. The aim is to adjust to LDCs that want to book less firm capacity and instead pay on an as-needed basis, says NGPC Executive Vice Pres. Gary Bartlett.

NGPC is considered a key pipeline because it serves the highly competitive Chicago area market, and its long term contracts are coming up for renegotiation sooner than most others.

So far, few pipelines are directly affected by capacity turnbacks.

In addition to NGPC in the Midwest, because of a growing capacity surplus in California, El Paso Natural Gas Co. and Transwestern Pipeline Co. have been flagged as other major lines that will be among the first to watch for their adjustments to a world of still greater competition.

INDUSTRY VIEWS

"So far, so good," Bartlett said of NGPC's progress in adjusting to market changes. He referred to changes that have occurred since expiration of the initial provisions of the Federal Energy Regulatory Commission's Order 636 that had helped keep pipeline capacity booked.

Now, LDCs are free to take whatever level of capacity they need in the short term, and pipelines are free to negotiate for other services that meet customers' needs.

Anticipating this problem years ago, NGPC sought new markets to serve. Among them are the Gulf Coast, Central Texas, and the U.S. East Coast. In addition, NGPC is working to enhance services it offers customers, such as more flexible transportation terms and storage.

Bartlett said it is too early to tell how sharply pipelines will be affected by capacity turnbacks, but the most severe effects will be in markets similar to NGPC's-those where there are multiple carriers with combined capacity that exceeds demand.

Bartlett contends the means are in place at least for now-for pipelines to respond to such market changes. But if the problem of idle capacity becomes severe after other pipelines have finished negotiations with LDCS, regulators may be forced to deal with the means to recoup stranded investments in idle facilities.

Skip Horvath, senior vice-president of rates and policy for the Interstate Natural Gas Association of America, predicts that the number of capacity turnbacks will prove manageable for pipelines. "Contracts have always expired," he pointed out.

Pipelines will have to be creative about providing new options and finding new gas buyers, including independent power producers, Horvath said. Under current law, pipelines have the opportunity to recover prudently incurred costs, he noted.

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