The Federal Energy Regulatory Commission continues to fine tune its natural gas rules under Order 636, which restructured gas pipeline rates.
In a talk to the American Public Gas Association, FERC Commissioner Donald Santa Jr. offered his interpretations of several post-636 issues.
He said FERC's May 31 policy on new pipeline construction addressed the long running "rolled in vs. incremental'' debate.
"The commission adopted a pricing policy with two major features. First, in order to afford the industry with as much upfront assurance as possible with respect to the rate design for an expansion project, the commission will determine an appropriate rate design in a pipeline's certificate proceeding.
"Second, when a pipeline seeks rolled in pricing, the commission will base its pricing decision on an evaluation of the system-wide benefits of the project and the rate impact on existing customers."
Rate shock
FERC plans to pay special attention to efforts to minimize any major rate shock that existing shippers would experience from rolling in the costs of expensive projects.
"To reduce uncertainty," Santa said, "the commission established a presumption for rolled in rates when the rate effect on existing customers is 5% or less and the pipeline makes a showing that the new facilities provide benefits to the whole system."
Customers opposing rolled in rates then will have the burden of showing that the benefits are so insignificant that rolled in rates are not justified.
When rate effects exceed the 5% threshold, the presumption will not apply and the pipeline will need to show that benefits are proportionate to rate effect.
The commission also admonished pipelines not to break projects into small segments solely for purposes of qualifying for the 5% presumption for each project.
"Finally," Santa said, "the decision made in the certificate order will apply to the pricing of facilities in the first rate cases after the facilities go into operation."
Pipeline tariffs
FERC still is considering whether to allow alternative ratemaking methods for pipeline tariffs. In February it asked for comments on whether it ought to consider market based and incentive based ratemaking approaches to the traditional cost of service methodology.
Santa said FERC has no intention of implementing market based rates without first requiring the pipeline to show it does not wield undue market power.
"It appears unlikely to me -- and to many others -- that a traditional mainline interstate pipeline easily could make such a showing. I expect such cases to be few and far between."
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