FERC TO VOTE ON RULES FOR GAS LINE SERVICES

The Federal Energy Regulatory Commission plans to vote this week on a large rulemaking that will set standards for U.S. gas pipeline services. The rules will be designed to ensure equal pipeline services for customers buying natural gas from the lines and for those buying only transportation of natural gas, in the wake of industry's deregulation to open access transportation (OGJ, May 27, p. 31). A staff summary of the new rules said they will apply in case-specific proceedings for each

July 29, 1991

4 min read

The Federal Energy Regulatory Commission plans to vote this week on a large rulemaking that will set standards for U.S. gas pipeline services.

The rules will be designed to ensure equal pipeline services for customers buying natural gas from the lines and for those buying only transportation of natural gas, in the wake of industry's deregulation to open access transportation (OGJ, May 27, p. 31).

A staff summary of the new rules said they will apply in case-specific proceedings for each pipeline.

The summary said, "In these proceedings, the pipeline's customers, shippers, and other affected parties will be required to meet and negotiate the specific terms for restructuring the pipeline's services to implement the new rules."

RESTRUCTURING

Under the proposed procedure, restructuring negotiations, which would begin within 30 days after the effective date of the FERC rule, would culminate in a tariff filing by the pipeline to implement the new rules.

The rulemaking would require pipelines to restructure pipeline services and, except for small customers, to unbundle their sales services from their transportation services upstream around production.

The draft rule proposed that FERC declare the national gas market competitive enough to support market based pricing for unbundled pipeline sales and would require them only to report on sales.

"Once this is established, pipelines making sales would be regulated like other entities selling natural gas in the market," the draft rule pointed out.

The draft also proposed to grant a pipeline with an open access transportation certificate a blanket certificate for unbundled firm and interruptible sales, which includes a one time sales contract demand reduction right and pregranted abandonment for unbundled sales.

The draft rule proposed to retain pregranted abandonment in its current form only for interruptible and short term-1 year or less-firm transportation. During the first restructuring proceeding triggered by the final rule, all holders of firm capacity could exercise right of first refusal to retain their capacity by giving notice and agreeing to pay the maximum rate and match the most favorable terms offered by others seeking firm capacity.

Thereafter, pregranted abandonment would be allowed for long term firm transportation if the shipper gave adequate notice to retain service and agreed to pay the maximum rate and match the most favorable terms and conditions of others in the queue for firm capacity.

The draft proposed to eliminate the current city gate capacity brokering program and replace it with other capacity assignment and releasing programs that would be adequate substitutes.

It also would require that releasing and assignment be accomplished through the pipeline, allowing FERC to retain authority over all aspects of interstate transportation.

And the draft proposed to require service comparability, including upstream capacity rights for customers of downstream pipelines.

The proposal also would adopt open access contract storage by subjecting storage contract to the same open access rules that govern transportation.

The rulemaking would permit pipelines to recover transition costs associated with changes needed to comply with the new rule.

Finally, the draft proposed that FERC design transportation rates under the straight fixed variable method, taking into consideration measures that would mitigate the shifting of costs.

SIGNIFICANT STEP

The Independent Petroleum Association of America, which has been protesting differences between Canadian and U.S. rate structures, said FERC's endorsement of straight fixed variable rate design for U.S. pipelines is a significant step.

"This policy should be implemented as soon as possible to reduce marginal transportation costs," IPAA said. "it will promote market growth by making gas more competitive with alternative fuels. It also will benefit consumers by increasing competition among U.S. producers and suppliers of imported gas.