CHANGES SOUGHT IN FERC ORDER 555

A group of U.S. pipelines and producers has urged the Federal Energy Regulatory Commission to inject more flexibility into Order 555, the pending rule governing pipeline construction.

In response to industry complaints, FERC held a conference to receive suggestions for changes in the order (OGJ, Oct. 28, 1991, p. 27).

The group consisted of ANR Pipeline Co., ARCO Oil & Gas Co., Chevron U.S.A. Inc., Enron Interstate Pipeline Cos., Intercon Gas Inc., Mobil Natural Gas Inc., Natural Gas Pipeline Co. of America, Tennessee Gas Pipeline Co., and Texaco Inc.

The group recommended that FERC permit separate construction options:

Traditional certificates, under which sponsors prove gas supplies and market demand for a proposed pipeline before receiving the right of eminent domain.
A new optional certificate that would not require a market or supply showing if the applicant bears the financial risk of the project.
A blanket certificate for projects costing less than $10 million.
Construction under Natural Gas Policy Act Section 311.

The Interstate Natural Gas Pipeline Association of America also urged FERC to make its rule more flexible.

It said it would be impossible for pipeline sponsors to meet the requirement of showing 10 years' commitment for 100% of capacity in order to get a traditional certificate.

Ingaa representatives said most gas pipeline construction projects are transportation oriented now, and 10 year contracts are rare. They said FERC should simply accept a reasonable showing of supply and markets and consider short term and interruptible contracts in the process.

OTHER RECOMMENDATIONS

The American Gas Association urged FERC to provide a degree of rate certainty for project sponsors and their customers, provide procedures that allow the parties to apply for either rolled in or incremental rate treatment, and establish general criteria for rolled in rate treatment.

It said many of its members think the negotiated rate provisions in Order 555 won't work and may not protect customers against the exercise of market power by pipelines.

The Natural Gas Supply Association noted FERC intended order 535 to facilitate pipeline construction, but "it appears the proposed procedures could be more of an obstacle than an aid."

NGSA proposed that applicants choose between two basic types of new pipeline construction: an "at risk" method under which the applicant would bear the risk for a project and negotiate rates with customers and a "cost based" method under which the pipeline would accept a regulated return on its investment.

It said, "The pace of project approval would be influenced primarily by the applicant's construction proposal and its customers' reactions, not by a separate FERC analysis."

NGSA said FERC should compel existing interstate pipelines to interconnect with new construction. It said streamlining the certification process and eliminating cost of service regulation for "at risk" facilities would permit shippers an equal opportunity to build new facilities-but only if the existing interstate pipeline is compelled to interconnect with that new facility.