Why does FERC want to limit pipeline discounts?
Bruce W. Radford is editor-in-chief at Public Utilities Fortnightly. Contact him at Radford@pur.com.
It's certainly puzzling, if not downright peculiar.
That's the feeling one gets after studying the notice of inquiry (NOI) that the Federal Energy Regulatory Commission (FERC) launched late last year, after nearly 10 years of dragging its feet, to re-examine the wisdom of encouraging the practice of rate discounting by interstate natural gas pipelines.
Since 1985, and with the blessing of the courts coming two years later, the commission has allowed pipelines to go off the tariff and cut deals for customers for gas transportation, a service still treated under federal statutes as a natural monopoly governed by regulated rates tied to cost. It has even allowed the pipelines can recover the shortfall in a succeeding rate case, by deliberately understating throughput.
The current policy arose from FERC Order Nos. 436 and 636-as a natural outgrowth of the commission's highly successful effort, begun in the early 1980s to force the unbundling pipeline transportation from the underlying commodity markets. Under this unbundling regime, pipelines would sell only gas transport . Shippers would contract directly with producers or marketers for the natural gas volumes. To allow shippers to better align their purchases of pipeline services with their physical gas needs, they could release unused capacity on the open market, reselling transportation service back to the pipeline or to the highest third-party bidder.