KOCH SEEKS MARKET-BASED PIPELINE TARIFF

Koch Gateway Pipeline Co., Houston, is seeking federal permission to charge a market-based tariff for transportation services on its U.S. gas pipeline system.

The company in a late June filing asked the Federal Energy Regulatory Commission to establish by Oct. 1, 1995, a schedule that would set the application for hearing before Oct. 1, 1996. If FERC agrees to that request, Koch agreed not to put market-based rates into effect until the hearing is complete.

Koch officials said the company needs a market-based tariff on its system because the cost-based tariff on which shippers' charges now are based does not allow enough flexibility for increases. That hampers its ability to compete with gatherers and intrastate gas pipelines offering similar options in Koch's service area.

Koch discounts its cost based transportation rate to compete in times of excess pipeline capacity But FERC's cost-based regulatory goals don't allow it to recoup those losses by hiking rates when transportation capacity is tight.

Also, because Koch serves interstate markets mainly in or relatively near gas supply areas, the company gets no benefit from FERC cost-based tariffs that reward long haul transporters.

DETAILS OF PROPOSAL

Koch proposes to charge market-based rates for firm and interruptible transportation services from each gas receipt or delivery point on its system where there is an alternative source of transportation. For receipt or delivery points without alternative sources, the company would continue charging cost-based rates for firm and interruptible services.

Koch would not charge market-based rates for no-notice service, nonotice small customer option service, or firm transportation small customer option service.

Also, the filing does not affect market-based rates the company charges for storage and would affect gathering rates depending on the type of contract or availability of alternatives.

The company would charge market-based rates from a receipt point without an alternative only for shipments to any other delivery point on its system under a firm or interruptible transportation contract.

Koch proposes to conduct an open season for firm transportation service not less than 30 days before implementing market-based rates on its system. Customers during the open season could agree to firm transportation at market-based rates on a capacity available basis from any receipt point - regardless of whether there is an alternative - to any delivery point.

FERC last February issued a staff paper covering market-based rates. It also issued notice of inquiry RM95-6 to seek comments about questions arising from earlier interstate gas pipeline applications for permission to enact market-based tariffs.

The commission this month is reviewing comments, and responses were still trickling in.

Koch's request to establish a market-based tariff is the first since the inquiry period expired in April. FERC officials couldn't say whether the company's request would be considered separately or within the scope of the commission's inquiry. Also unsettled is the timing of any FERC action affecting market-based rates.

KOCH'S ANALYSIS

To help justify its request, Koch included in its filing an analysis of 1,588 custody transfer points along its interstate pipeline system.

The company based the analysis on its computer mapping system and data purchased from Petroleum Information Corp.

Analysts used the data to determine which receipt and delivery points were within a 5 mile radius of a competing gas transportation system. If another pipeline was within the radius, Koch considered it as capable of providing a competitive source of gas transportation services.

Of the 1,588 custody transfer points examined in its analysis, Koch found shippers at only 123 points neither were connected to nor within a 5 mile radius of another pipeline.

Conversely, 1,325 receipt or delivery points had other transportation options. The number included 241 locations known to be connected to at least one other pipeline and 1,006 points within 3 miles of an alternative pipeline. Analysts identified another 140 custody transfer points as connections between Koch and another pipeline.

Koch estimates its filing, if approved without major changes, would affect 65-70% of pipeline system transportation volumes. Volumes shipped by the system in first half 1995 averaged about 2 bcfd.