Pursuant to the Notice of Comment Schedule ("Notice") issued by the Federal Energy Regulatory Commission ("the Commission" or "FERC") on December 18, 1996, the Natural Gas Supply Association ("NGSA") hereby files comments in response to the Commission's request for comments regarding "the subjects for discussion at the technical conference" (Notice at 1) which was held on December 12-13, 1996.

NGSA represents integrated and independent companies that produce and market domestic natural gas. Established in 1965, NGSA encourages the expanded use of natural gas and a regulatory climate that fosters competitive markets.

Communications regarding this docket should be sent to:

Philip M. Budzik
Director, Federal Regulatory Affairs & Technical Analysis
Natural Gas Supply Association
805 15th Street, N.W., Suite 510
Washington, D.C. 20005
(202) 326-9300

I. EXECUTIVE SUMMARY

NGSA applauds the Commission's continued efforts to standardize the information exchanged in natural gas business transactions. The Commission correctly recognizes the critical importance of standards in furthering the overall objective of facilitating efficiencies in gas transportation across the pipeline grid and more effective implementation of electronic commerce. NGSA supports the Commission's efforts to achieve that goal by standardizing both the common pipeline business practices and the electronic communications.

During the Commission's technical conference held on December 12-13, 1996, the issue arose as to whether all pipeline services should be standardized and whether such standardized services should be mandatory for all interstate pipelines or whether some of these standards should be voluntary. NGSA urges the Commission to resolve this debate by simply determining whether the requirement would advance the further integration of the pipeline grid; that is, would the universal application of a standard "facilitate efficiencies in gas transportation across the pipeline grid and more effective implementation of electronic commerce"? Based on this policy perspective, NGSA believes that some additional services and the associated standards should be mandatory for all pipelines. GISB standards, however, need not be made mandatory in those cases where a pipeline service does not impact upon the ease and efficiency of moving gas across multiple pipeline systems. NGSA believes that so long as the Commission continues to focus on the ultimate objective of "facilitating efficiencies in gas transportation across the pipeline grid and more effective implementation of electronic commerce", the Commission will make the appropriate regulatory decisions regarding the imposition of mandatory pipeline business practices and electronic information services. NGSA believes that pipeline business practices should be standardized to the greatest possible extent, even if any particular standard is applicable to only two pipelines.

At the technical conference, the participants referred to "basic" and "premium" pipeline services in significantly different contexts and perspectives which added much confusion to these discussions. However, to the degree that some parties perceive "basic" and "premium" services to be commensurate with the concepts of "recourse" and "negotiated" services, NGSA believes that these "negotiated"/"recourse" issues are being fully addressed in another current Commission proceeding (i.e., "Regulation of Negotiated Transportation Services of Natural Gas Pipelines", Docket No. RM96-7), and as such, the commensurate "basic" and "premium" issues raised at the technical conference should be reserved for discussion in that Commission proceeding.

Finally, NGSA believes that any request for something other than cost-of-service pricing of electronic information services must address the adequacy of competition in the provision of that service. Absent a determination of adequate competition in the provision of a pipeline electronic information service, the pricing of that service should be based on traditional cost-of-service ratemaking principles.

II. COMMENTS

A. "Basic" vs. "Premium" Pipeline Services

The technical conference participants repeatedly spoke of "basic" pipeline services as distinguishable from "premium" pipeline services. It is clear from the transcript that the different parties view the "basic" vs. "premium" issue from a number of different perspectives. The following list attempts to summarize the most apparent differences in meaning associated with the two terms:

"Basic" Pipeline Services vs. "Premium" Pipeline Services

1) "recourse" pipeline services vs. "negotiated" pipeline services;

2) cost-of-service rates vs. market-based rates;

3) mandatory implementation vs. voluntary implementation;

4) pipeline as sole service provider vs. third party as sole service provider;

5) monopoly markets vs. competitive markets;

6) common pipeline services vs. unique pipeline services; and

7) GISB standard vs. no GISB standard.

Of course, these seven concepts are not mutually exclusive. Because of these differing perspectives regarding this "basic/premium" terminology, there existed considerable confusion in the discussions among the technical conference participants. NGSA will briefly discuss its policy position on the most crucial issues associated with this "basic" vs. "premium" debate.

1. Whether GISB Should Determine "Basic" And "Premium" Services

With regard to the "basic" and "premium" services issue, NGSA believes that GISB should not be in the business of defining which services are "basic" and which are not. GISB should develop industry standards and not involve itself in policy issues related either to pipeline rates and ratemaking or to whether pipelines should be required to offer certain services. The process of classifying services as "basic" or "premium" is being handled in an ongoing Commission proceeding entitled: "Regulation of Negotiated Transportation Services of Natural Gas Pipelines" (FERC Docket No. RM96-7). As such, this issue of "basic" and "premium" service should be resolved within this other Commission proceeding (i.e., RM96-7) and not through any GISB process.

2. Whether GISB Standards Regarding Pipeline Business Practices And Information Services Should Be Mandated On All Pipeline Systems.

NGSA believes that there are two subsidiary issues embedded in this one concept. The first issue is whether all pipeline business practices and information services should be standardized to the maximum practical extent. The second issue is whether the Commission should require that any standard for a particular pipeline business practice or information service be implemented on all interstate pipelines.

With respect to the first issue, NGSA believes that if more than one pipeline offers a comparable transportation service, then the Commission should request the industry to develop a standard which would be required to be implemented only on those pipelines which offer that service. NGSA believes that pipeline business practices should be standardized to greatest possible extent, even if any particular standard is applicable to only two pipelines.

NGSA advocates this position because standardization is of inherent value to pipeline customers, especially for those that transport gas on many pipeline systems. Standardization of pipeline business practices and information services generally improves the efficiency and reliability of the entire pipeline network by eliminating idiosyncratic pipeline practices. Non-standard pipeline practices significantly increase pipeline customer costs because the customers' internal administrative processes must adapt to each idiosyncratic pipeline practice. The extent of the resources necessary to adapt to a pipeline's unique practices inherently discourages shippers from employing multiple pipeline systems for a single transaction. These idiosyncratic practices also discourage the development of efficient business information systems, thereby hindering the competitive viability of third party vendors. Collectively, these problems stifle market competition, and consequently, reinforce the pipelines' monopoly power. Because there are many thousands of pipeline customers and only about three dozen pipeline systems which transport the bulk of the interstate natural gas, NGSA believes that standardization will reduce total industry transactional costs, even if the pipelines themselves are required to expend more resources in a standardized business environment than they would otherwise have spent. Consequently, NGSA believes that every effort must be made to standardize pipeline business practices and information services. NGSA also believes that these standardization efforts will reward all gas market participants by enhancing the overall efficiency of gas industry operations.

Of course, the NGSA perspective brings to the fore the issue of whether a pipeline service is truly unique to that pipeline system or whether it shares the same fundamental aspects of services provided by other pipelines. Clearly, the FERC should expect that some pipelines will argue that every service they provide is in some sense unique enough to warrant that service's exclusion from the standardization process in an attempt either to maintain their monopoly power or simply to maintain the status quo. The Commission must see through this morass because there were standardization opportunities identified by the GISB customer segments which were precluded due to the pipelines' unwillingness to support those initiatives.

Indeed, this problem was evident in GISB's efforts to standardize the nomination and confirmation process. GISB's nomination/confirmation "standards" have not resulted in true standards (which, for example, would employ one and only one routing model), but instead accommodate most pre-existing pipeline nomination/confirmation practices. As a consequence, the GISB nomination/confirmation data sets are still populated by a large number of extraneous data elements which are identified in the published data sets as "conditional" and "business conditional". Both the Commission and the pipelines must face the reality that true standards will require the pipelines to conform their internal business practices.

Even though some pipelines might resist true standards by stating that their service offering is unique, there will be instances where the pipeline is justified in taking that position. NGSA recommends that this issue be addressed on a case specific basis with the burden of proof on the pipeline to demonstrate that a particular service offering is truly unique to the industry at that time, with the recognition that this service could evolve into a more common business practice which would benefit from standardization at some point in the future.

With respect to the second issue of whether the Commission should require that any particular GISB standard be implemented on all interstate pipelines, NGSA believes that the Commission should determine the outcome of this issue on a case-specific basis, by determining whether such a mandatory requirement would facilitate efficiency in gas transportation across the pipeline grid and more effective implementation of electronic commerce. This perspective acknowledges that all future GISB standards need not be mandated on all pipelines. For example, pipelines not operating gas storage facilities should not be required to implement GISB standards pertaining to the operation of such facilities. NGSA believes that the Commission's adoption of NGSA's proposed policy (i.e., would mandating a standard facilitate the efficiency of gas transportation across multiple pipelines and more efficiently and effectively implement electronic commerce?) will be sufficient for the Commission to determine on a case-specific basis whether any new standard should be mandated on all interstate pipelines.

a. An Example Of Limited Implementation Of A Standard: A Pipeline Compressor Fuel Cash-Out Mechanism.

NGSA supports the development of compressor fuel cash-out standards, but such standards should be mandatory only on those pipeline systems which have voluntarily elected to implement such a cash-out mechanism. Some pipeline customers prefer a cash-out mechanism over an in-kind payment mechanism, based on a desire for additional fuel options which provide added convenience and flexibility. NGSA, however, does not believe that the lack of a cash-out mechanism on all pipelines constrains gas transportation over multiple pipeline systems. Indeed, the GISB standardization of the in-kind payment mechanism has gone a long way toward achieving the objective of facilitating gas movements over multiple pipelines. To the degree that pipeline customers prefer a cash-out mechanism to an in-kind payment mechanism, they will continue to request that the pipelines adopt a cash-out mechanism. And to the degree that the pipelines are motivated to satisfying such customer requirements and requests, the cash-out mechanism could eventually evolve to become the industry norm.

b. An Example Of Universal Implementation Of A Standard: Pipeline Intra-day Nominations.

In contrast, the Commission should standardize across all pipelines the implementation of the intra-day nomination standard (GISB 1.3.10) that states: "At least one (1) intra-day nomination can be submitted four (4) hours prior to gas flow". NGSA makes this request because a plethora of inconsistent interpretations have been introduced in recent pipeline Order 587 tariff filings. With respect to the implementation of this standard, NGSA emphasizes those comments from our September 30, 1996 filing which recommend where intra-day nominations should be permitted and how many intra-day nominations should be permitted, namely:

1. intra-day nominations should be allowed at all nominatable receipt and delivery points and at all pooling points;


2. all pipelines should allow at least one intra-day nomination for each shipper contract and further for each receipt/delivery point pairing.

NGSA cannot over emphasize the importance of having the Commission require that these additional intra-day nomination standards be implemented on a consistent basis, across all pipelines. For example, where the Commission considers the establishment of an intra-day nomination timeline, NGSA requests that the Commission require all pipelines to implement the same intra-day nomination timeline which specifies both the same timeframe for submitting and confirming intra-day nominations and the same time at which the gas flow goes into effect on pipeline systems. Without such a standard for all pipelines, the scheduling of gas transportation across multiple pipeline systems becomes an almost impossible task, because shippers would have to commit to moving gas across one system without any assurance that their nominations will be accepted on the other upstream/downstream pipelines necessary to move the gas from its source to its final destination.

Pipelines should not be overly concerned about receiving a significant number of intra-day nominations that only serve to track what has or will happen anyway. In a supply or market downturn, intra-day nominations merely minimize imbalances. If multiple pipelines are involved in that process then the timelines must be synchronized or Operating Balancing Agreements will have to carry the imbalances caused by the different timelines. In the event of a supply or market upturn, the pipeline will either handle the intra-day nomination request with available capacity or higher priority transportation could "bump" already scheduled gas. "Bumping" scheduled gas can have significant deleterious ripple effects on other shippers and operators. The following NGSA recommendations should go a long way toward mitigating these market and operational disruptions:

1. where a pipeline is allowed to batch intra-day nominations at any number of time intervals, the nomination timelines should be consistent across all the pipelines involved in moving gas from source to destination; and


2. if the Commission decides to permit intra-day nominations which allow latecomers to "bump" lower priority transportation arrangements scheduled earlier for that same day, then the Commission should insure that the following additional standards are implemented on all pipelines:


a. pipeline customers must receive adequate notification that their gas shipments are to be bumped by a higher priority customer;


b. pipeline customers must have an opportunity to renominate "bumped" gas shipments, with no restrictions at receipt and delivery points, so long as spare capacity is available at those points;


c. pipelines should waive all applicable pipeline penalties for "bumped" gas shipments, in the event that the affected parties are not given a sufficient opportunity to respond to the "bump"; and


d. pipelines should keep shippers whole (as to originally scheduled gas) until the end of the affected gas day, if possible.

Without the universal implementation of these proposed standards, pipeline customers could be placed in the unacceptable position of choosing between financial penalties and the safe operation of their facilities. In this context, universal implementation encompasses more than just the notion that pipelines would abide by the same set of standards when they "bump" gas shipments moving on their system. Ideally, the standard would also apply to the other upstream and downstream pipelines involved in that transaction. So, for example, the opportunity to renominate "bumped" gas and the waiver of all penalties would apply both to the pipeline system on which the gas shipment is being "bumped" and to the other upstream and downstream pipelines associated with that gas transaction. Without this type of universal implementation, a pipeline customer could be financially responsible to gas suppliers, the upstream and downstream pipelines, and gas consumers for gas shipments interrupted by another pipeline; actions over which the shipper had no control. Similarly, without a commensurate ability to renominate "bumped" gas shipments on the upstream and downstream pipelines, it is unlikely that pipeline customers would be able to successfully reconfigure the "bumped" transportation transaction so as to continue the movement of gas in an uninterrupted and balanced manner.

3. The Role Of Third Party Vendors

NGSA has always supported a regulatory environment that fosters greater competition within gas markets. As such, NGSA has always believed that third party vendors could play a pivotal role in enhancing industry competition by providing a competitive alternative to the monopoly power of the pipelines. The notion, however, that pipelines should not be required to provide certain services because third party vendors "could" potentially provide such services, is inherently disingenuous because vendors may not exist today to adequately provide these various services, such as a replacement for pipeline EBBs. Until such services are provided by third parties on a viable and competitive basis, any pipeline request to relieve itself of this regulatory burden is premature.

The Commission should apply the market power test it adopted in its Alternative Ratemaking Policy Statement (issued on January 31, 1996 in FERC Docket No. RM95-6) in any determination of whether sufficient competition exists in the provision of a particular service to warrant the Commission's permission for a pipeline either to abandon the provision of that service or to charge market-based rates for that service. Absent any demonstration of sufficient competition, pipeline services should be priced according to traditional cost-of-service ratemaking principles.

B. Comments Regarding Standards Pertaining To Specific Pipeline Practices And Information Standards As Previewed At The Technical Conference

1. The Future Of Pipeline Electronic Bulletin Boards ("EBB")

NGSA has supported the development of standard datasets and protocols for electronic communication and believes the specific standards adopted by the Commission will move the industry in the right direction. As stated in the past, NGSA believes a "nationwide EBB" represents a more efficient mechanism for the handling of transactional data as opposed to proprietary EBBs. In this context, a "nationwide EBB" does not necessarily suggest a specific technology, but rather a single interfacing environment for transacting business across multiple interstate pipelines. The electronic communication standards adopted by the Commission provide the foundation for the development of such nationwide EBBs; and it appears that such systems are now being developed by third party vendors.

The vast majority of pipelines seem poised to implement the data-related standards for EDI use only, but not for proprietary EBBs and the associated "flat files". To the extent applicable, proprietary EBBs and associated "flat files" should incorporate the standardized data elements so as to assure comparability between the EBBs and Electronic Data Interchange ("EDI"). NGSA urges the Commission to clarify its expectations in this regard by addressing these questions:

1. when should a pipeline be allowed to make a major upgrade of its EBB?;


2. are the costs of changing the EBB justified at this time?; and


3. how can third party vendors compete with the embedded cost-of-service approach under which pipelines develop their EBBs?

Shippers' objections concerning proprietary EBBs have not centered on the technology or the effectiveness of any particular EBB, but, rather, on the variation in data, hardware and software requirements across pipelines. The introduction of proprietary EBBs placed shippers in the position of having to input transactional data into the pipeline's computer system in that pipeline's format. Unfortunately, that logic did not apply in the reverse, when pipelines communicated to their customers, it was also in the pipeline's format. Consequently, customers have to rehandle and reformat the data, either electronically or manually, prior to inputting it into their gas management systems or the pipeline's system. Implementing these data-related standards on all pipeline EBBs will reduce the variation between pipelines and help to make the reformatting process more economic. These benefits will accrue to individual shippers and other participants when nationwide EBB systems are developed.

At the technical conference there was considerable discussion regarding the transition from traditional dial-up EBBs to internet-based communication tools. For the many shippers and interconnected operators who only have transactions on one or two pipelines, the proprietary dial-up EBB is the most economic means of conducting business. Having already invested in the necessary hardware and software, it would be burdensome for those entities to have to reinvest in different computing tools when there likely would be no benefit. As a fundamental principle, NGSA believes pipelines should provide an adequate and efficient means of communication for all shippers and interconnected operators to conduct business on their system. Just as telecommunication companies continue to support rotary dial telephones for customers preferring that technology, even though the de facto standard is touch-tone, the Commission should ensure that pipeline customers of all sizes, present and future, are provided an acceptable means of communication. Those means range from the proverbial telephone and facsimile, to the proprietary EBBs, to the further use of EDI in X12 format. NGSA believes that the existing communication modes (EBB, facsimile and phone) should be maintained both until there are reasonable and proven alternatives available from the pipeline or third-party vendors and until these existing modes are no longer being used, as customers move to a more efficient medium for their communications.

NGSA also recommends that the Commission closely monitor the transition away from proprietary EBBs towards third-party alternatives so that pipeline affiliates are not afforded an advantage in the development and operation of alternative solutions. The sharing of computing resources among pipelines and their affiliates, for example, may provide an economic edge to the affiliate in terms of data access that could limit competition. Many of the principles behind open access to pipeline capacity apply to open access to transactional data interfaces when attempting to create an environment where competition can prosper.

2. Employing Internet Web Browser Technology For Electronic Data Communications

If the Commission decides to permit interstate natural gas pipelines to provide electronic data transmission via the use of Internet Web Browser technology, irrespective of whether it is transactional or not, then the Commission should require that the internet "web pages" developed by every pipeline have a similar "look and feel", such that every pipeline is employing the same nomenclature and formats. Otherwise, the use of Internet Web Browser technology could evolve into a set of idiosyncratic pipeline "web pages" which creates the same customer problems as had developed with the pipeline EBBs (see II.B.1 above). Consequently, NGSA urges the Commission to avoid this pitfall and to require a certain level of "web page" standardization to insure that parties using one pipeline's internet web pages are capable of quickly employing another pipeline's web page system without requiring training specific to that pipeline's system.

3. Title Transfer Tracking

Title transfer tracking is crucial to moving gas across multiple pipeline systems, because title transfer tracking is the only means of synchronizing financial flows with the actual physical flows of natural gas. The problem of achieving this synchronization is especially daunting when the gas molecules are flowing through multiple title-holders, across multiple pipeline systems. The title holder of the gas as it leaves one pipeline grid location could be different (and many commodity transactions removed) from the title holder of record when the gas enters the next pipeline grid location. Pipeline customers, however, have no practical way of tracking the upstream and downstream financial liabilities, absent any pipeline title tracking service. Although the pipeline can perform gas transportation without this title transfer information, the rest of the natural gas community desperately needs this paper "trail" to efficiently and reliably match financial flows with physical flows.

In NGSA comments filed in RM96-1-000 on September 30, 1996, NGSA supported expedited review by GISB of this important issue. NGSA continues to believe the tracking of title transfers is integral to the most efficient process for nominating, scheduling and allocating natural gas across multiple pipeline systems. NGSA also recognizes, however, that a superior solution and a stronger consensus will emerge if all options for a possible standard are given a full and fair hearing.

GISB is currently deliberating on alternative title tracking standards and gas producers are engaged in this effort. Presumably, GISB's further deliberations will weigh all the relative benefits and risks of the various title transfer tracking standardization options. Consequently, it is premature to advocate any particular option until GISB's deliberations are completed.

4. Critical Pipeline Notices And Operational Flow Orders ("OFO")

At the technical conference, a number of parties expressed concern with the pipeline proposal to deliver electronic notification of pipeline critical notices and operational flow orders without insuring that the personnel responsible for taking the appropriate actions had actually read the electronic message. This pipeline customer concern was particularly acute for notices and OFOs that are electronically delivered after normal business hours, when personnel might not be physically present to access and read the electronic notice. This concern is driven by the realization that customer inaction could result in significant financial liabilities, given the large imbalance penalties associated with not complying with a pipeline critical notice or OFO. Ultimately, the pipeline should be motivated to alleviate the physical emergency on their pipeline by ensuring that customers and interconnected parties take appropriate action. However, their position regarding critical notices and OFOs seems more focused on establishing a basis for charging penalties than in mitigating emergency situations. Consequently, many pipeline customers attending the technical conference asked that the pipelines be responsible for insuring that such electronic notices are actually received by customer personnel, by sending parallel messages through other communications modes, such as the telephone or pager. NGSA shares these concerns and supports this customer request.

Moreover, NGSA believes that the Commission should establish the following GISB principles as standards which should be codified in the individual pipeline tariffs:

GISB Principle 1.1.12: Transportation service providers should attempt to minimize the use of operational flow orders and the declaration of critical periods, and when possible, should direct an operational flow order to the specific party(s) creating the operating condition.

GISB Principle 1.1.14: Where a nomination is required by the service provider to make an effective physical change necessary to comply with an Operational Flow Order, unless critical circumstances dictate otherwise, an Operational Flow Order penalty should not be assessed unless the shipper is given the opportunity to correct the circumstance giving rise to the Operational Flow Order and fails to do so, or the action(s) taken fails to do so. The opportunity to correct the critical circumstances should include the opportunity to: (a) make a nomination, which once confirmed and scheduled, would cure the circumstance giving rise to the Operational Flow Order, or (b) take other appropriate action which cures the circumstance giving rise to the Operational Flow Order.

GISB Principle 1.1.15: A shippers's response to an Operational Flow Order should not be constrained by restrictions on the submittal and processing of intra-day nominations.

5. Resolving Natural Gas Pipeline Imbalances

During the technical conference, the issue arose as to whether pipeline customers should be permitted to net-out their volumetric imbalances either across their portfolio of transportation contracts or with other pipeline customers. NGSA believes that the Commission should permit such netting-out activities by the pipeline customers, at no additional cost, so long as the imbalances are "similarly situated". In addition, shippers should be allowed the option to net-out dissimilar imbalances by agreeing to pay the appropriate transportation service charge between the imbalance locations.

Pipeline imbalance penalties are intended to deter pipeline customers from creating critical pipeline operating conditions, especially when the pipeline is operating at full capacity. Consequently, NGSA believes that the "harm" caused by any particular imbalance must be "punished" on the basis of the actual impact it has on a pipeline's operations. If two or more similarly situated pipeline customers can net-out an imbalance on the pipeline, then it is clear that the individual imbalances were not putting the pipeline at risk with respect to its operations; so the netting-out of these imbalances should be permitted. In this manner, the total imbalance penalty imposed on gas consumers is directly proportional to the actual impact on pipeline operations.

The Commission's approval of allowing pipeline customers to net-out their imbalances will not undermine the deterrence effect of the imbalance penalties, because pipeline customers know that they will always be at-risk in being able to find customers with a countervailing imbalances, who are willing to agree to a net-out. Any pipeline customers who consistently maintain volumetric imbalances in the expectation of always finding another party with whom they can net-out their imbalances are just setting themselves up for a rude and very costly awakening.

Respectfully submitted, Nicholas J. Bush President On Behalf of the Natural Gas Supply Association

Dated: February 21, 1997

This page was last updated August 31, 1997.