FERC Filings
EPSA'S COMMENTS ON FERC'S PIPELINE CAPACITY RECALL NOPR
BODY
Given these interests, EPSA has two concerns with the NOPR. First, EPSA is concerned that the proposed NOPR will diminish the attractiveness of released capacity as a viable competitive substitute for pipeline firm capacity, thereby harming the efficient functioning of the capacity release market. EPSA does not take issue with the Commission’s general view that releasing shippers should have the flexibility to structure capacity release transactions that best fit their business needs, because, of course, the releasing shippers purchased the firm capacity in the first instance from the pipeline. At the same time, the Commission’s focus on flexibility cannot be skewed solely toward the releasing shipper by allowing, as the NOPR appears to do, the releasing shipper to recall released capacity more frequently than under current regulation, for any reason.
Rather, the Commission must also bear in mind that the capacity release market was designed as an alternative to the purchase of pipeline services. A releasing shipper is, for all intents and purposes, an interstate pipeline competing within an interstate pipeline for firm, as well as interruptible services. The proposed NOPR would allow a potential competitor for firm transportation services to offer a firm service that is, in essence, interruptible at any time, because it is only firm at the discretion of the releasing shipper. This service will be of less value to potential purchasers than any firm service the pipeline could offer because it is not firm for the day. It is subject to interruption. Moreover, this form of interruptible capacity release will be inferior to the normal pipeline interruptible capacity since the market participant will not have the same predictability of when capacity will be interrupted as it does with pipeline interruptible capacity.
Given the reduction anticipated in options for transportation service, the Commission’s response should not simply be to accept the situation because at east one will know that released capacity is less valuable. Rather, the answer should be that prior to going forward with a NOPR that will reduce choice in the secondary market, the Commission should explore all reasonable alternatives. For example Dynegy makes the persuasive point that rather than disrupting the market through the recall of capacity, LDCs can easily go into the market and purchase any capacity they need for reliability purposes. As Dynegy said:
The secondary market works well and should be relied upon to fill the void that AGA claims to exist. AGA members requiring supplies of gas at their city gates on the same day can find those supplies with a phone call or on gas exchanges and EBBs. If capacity is available, it will be posted. If the gas or capacity is not available, the last event the market needs is an unexpected recall of needed gas. Rather than deprive a supplier of needed transportation, isn’t the market better served by finding a WILLING SELLER of the service.
Second, EPSA is concerned with the costs pipelines may incur to implement the proposal and more importantly whether implementing this proposal will reduce the flexibility of pipeline services. The Commission asserts that its proposal is not designed to cause operational problems for the pipelines. Yet, the comments filed prior to the NOPR in response to the AGA petition, particularly the comments of the Interstate Natural Gas Association of America (INGAA), recognized the host of thorny issues that must be addressed in order to implement a workable partial day flowing recall program. Not the least of those issues is described in INGAA’s comments concerning revised scheduling procedures.
Recalls after gas has been scheduled on released capacity or during the gas day would present significant scheduling difficulties because the related nominations would have to be revalidated to determine the correct capacity holder in each cycle. It could also require a complete change as to how the capacity would be billed regarding reservation charges and crediting, and capacity fees including capacity overruns. Questions would arise as to who should receive the bill for that day (the replacement shippers, the releasing shippers or both shippers).
Other technical and practical differences must be worked out. Therefore, instituting recalls during the gas flow day would require a much broader rule than merely applying the same scheduling rules to recalls.
The pipelines concerns as well as the obvious difficulty that the Gas Industry Standards Board (GISB) encountered stems inter-alia, from the fact that the Commission-approved GISB standards are drafted to address daily business by natural gas pipelines. The GISB standards address daily entitlements and scheduling of daily quantities. Given the comments of INGAA and others, as well as the focus of the GISB standards on daily business, the Commission in the NOPR simply rules too broadly when it asserts:
Partial day recalls should not adversely affect scheduling procedures, since under the Commission’s proposal, recalls will take place under the same nomination timeline currently used for nominating and scheduling firm and interruptible service, including the bumping of interruptible service. Order No. 637 already requires pipelines to implement procedures to allocate capacity and potential imbalances and penalties associated with partial day releases, so the same procedures can be used for partial day recalls.
At this stage of the Commission’s deliberations, EPSA is not as confident as the Commission in the pipelines’ ability to implement the proposal without doing more harm to the competitive market than the proposal itself would benefit releasing shippers. Specifically, EPSA is concerned that the pipelines, to implement the proposal, may also seek to impose tighter operational controls antithetical to the needs of electric generators, such as lower tolerances and daily balancing.
This adverse impact on shipper flexibility and the secondary market in general was not contemplated when the Commission issued Order No. 637. To the contrary, the Commission’s focus in Order No. 637 was fostering a “more competitive short-term market,” i.e., a market more competitive for pipeline services, by making it easier for purchasers of released capacity to use that capacity. In Order No. 637, the Commission found a “general consensus” that the current restrictions on nominations and scheduling of capacity release do inhibit the use of released capacity. In response to that “consensus” — a consensus certainty not found with this proposal — the Commission ordered that pipelines must provide purchasers of released capacity the same ability to submit a nomination at the first available opportunity after consummation of the deal as a shipper purchasing capacity from the pipeline. The Commission added:
This will enable shippers to acquire released capacity at any nomination or intra-day nomination times, and nominate gas coincident with their acquisition of capacity. By enabling released capacity to compete on a comparable basis with pipeline capacity, this will foster a more competitive short-term market.
The AGA petition and the Commission’s subsequent NOPR turns the Commission’s findings and actions in Order No. 637 on its head. Order No. 637 was designed to give those that purchased released capacity more flexibility in scheduling, an action designed to facilitate released capacity as an alternative vis-a-vis pipeline capacity. That Order cannot be used as justification for a policy that takes away released capacity from purchasers, if the releasing shipper so desires.
No doubt the fact that recalls were not the focus of Order No. 637, contributed, in part, to the failure of GISB to resolve the issue. In the past, GISB has had success in implementing Commission’s initiatives, particularly when there was clear Commission direction based on a record that was thoroughly vetted. At the very least, the failure of the GISB process to resolve the issue should give the Commission some pause that this NOPR, painting as it does with such a broad brush on the issue of recalls, is not the appropriate course at this time. Rather EPSA believes these issues should be vetted within the Order No. 637 process on individual pipelines and only after sufficient experience has been gained should the Commission mandate the ability of releasing shippers to recall capacity as proposed in this NOPR.