GAS PRODUCERS PRESS FERC EFFORTS ON PIPELINE PDCS

U.S. gas producers have urged Federal Energy Regulatory Commission to continue efforts to develop producer demand charges (PDCs) for pipelines.

FERC has approved two short term PDCs for pipelines, letting them pass through to firm customers costs of gas purchased from producers on an "as billed" basis and letting pipelines pass through standby charges incurred in upstream pipeline gas costs.

FERC said PDCs are a method to allow parties to sign long term contracts and pipelines to compete with other gas purchasers at the wellhead for long term supply.

FERC's current purchased gas adjustment (PGA) regulations allow pipelines to recover changes in the cost of purchased natural gas from their customers through a PGA filing as an alternative to recovering them in a general rate filing.

It said open access transportation has made pipelines predominantly transporters rather than merchants of gas, and they may need improvements such as PDCs to remain competitive.

PRODUCERS' VIEWS

The Independent Petroleum Association of America told a FERC conference exploring PDC issues that modifying PGA rules can help maintain a level playing field in the industry, but "would be beneficial only after rate reform" is dealt with by the commission.

The Appalachian Energy Group, representing a coalition of independent Appalachian gas producers and their associations, opposes changes to PGA regulations.

"There are no standards or conditions to the proposed passthrough provisions that would prevent pipelines from using their substantial economic resources and market power to limit the marketing opportunities of captive Appalachian producers."

Amoco Production Co. said until there is evidence that true comparability has been established between pipeline and direct supplier sales, the PDC flowthrough treatment will operate "as another device by which pipelines can retain or enhance monopoly powers over their customers and monopsony powers over their suppliers."

Exxon Corp. said it generally supports the proposal since it would help reestablish the importance and necessity of long term contracts between producers and customers who need long term supply security.

But it added "The commission must not lose sight of its other objectives in establishing permanent gas inventory charges and achieving pipeline rate reform. The commission must be cautious in not allowing the PGA 'as billed' rule change to impede or undermine these other, more important objectives."