The Federal Energy Regulatory Commission, reacting to growing consumer and congressional concern about high natural gas prices, is proposing to shift more of the risk for bad business judgments onto gas pipelines and away from customers.
The commission last week rejected a petition for rehearing on whether the Tennessee Gas Pipe Line Co. should be denied the automatic pass-through of costs incurred in purchasing high-priced natural gas. The company is seeking to pass on to gas consumers $454 million in purchased gas costs, a cost that protestors said was incurred through bad management decisions.
The FERC commissioners softened their rejection by suggesting that bad management decisions might be addressed in rate-making proceedings rather than in protests to "purchased-gas adjustments," as the automatic pass-throughs are called.
According to some studies, natural gas prices will increase at least 20 percent this year because of purchased-gas adjustments that already have been approved. One of the increases improved will raise gas costs in the Washington area $354 million.
The FERC commissioners said they would use a rate proceeding involving Tennessee to pull together evidence that might result in a new rate design. Recovery of the pipeline's fixed costs would be tied to the company's success in avoiding the loss of industrial customers.
They noted that protestors have asserted that bad decisions to purchase high-cost gas have pushed prices so high that large industrial users now switch to other fuels, leaving residential customers to pay for the pipeline's fixed costs through higher rates.
"Although the commission has historically sought to avoid substituting its judgment for that of management regarding the negotiation of new gas supply contracts . . . it may be necessary to exercise our historic authority to protect the ratepayers from the cost burden of underutilization of pipeline facilities which may result from load loss," they wrote in their order.