N.Y. PSC Approves Changes to National Fuel Gas Distribution Imbalance Procedures

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January 24, 2011

The New York PSC has approved National Fuel Gas Distribution Company's new cash-out procedures, which replace the prior end of the month rollovers for imbalances (10-G-0474, 12/8).

Under the approved changes, market pricing would only be applied to imbalances within a +/- 5% threshold, unless one of several safe harbors were invoked.  Otherwise, for imbalances beyond 5%, a tiered penalty structure of prices either a percentage above (or below, for payments for surplus gas) the market rate would apply.  

Under the most recent tariff sheets filed by Distribution, a System Imbalance Position will be computed by dividing the system total Initial System Imbalance Volume (ISIV) by the system Total Monthly Consumption (TMC), and converting the quotient into a percentage.  If the System Imbalance Position is within the range 5% long to 5% short, then all Imbalance Holders will be assigned to the Market Pricing Tier for cash-outs, rather than sliding tiers based on their unique position.

If an Imbalance Holder's Final System Imbalance Volume (FSIV) is less than 1,000 Mcf, it will be assigned to the Market Pricing Tier as well.

Under another safe harbor, if the Imbalance Holder's allocated deliveries for each of the pools for which it is responsible are within 2% of the Aggregated Daily Delivery Quantities (ADDQ) provided by National Fuel Gas Distribution, then the safe harbor would apply.  In cases where the Imbalance Holder is responsible for pools where Distribution does not assign an ADDQ, the Total Monthly Consumption for each customer pool will be substituted for the ADDQ.

PSC Staff, in its approved recommendation, described the safe harbor thusly:

"During its original review of the filing, Staff was concerned with the assignment of pricing tiers to the marketers receiving DDQ requirements from the Company. It did not seem proper to penalize a transporter for doing what the Company requested.  In their updated filings, the Company included a section ... clarifying that the tiers would only be used when marketer deliveries exceed the DDQ tolerance bands, regardless of actual usage.  The marketer can make adjustments to its DDQ during the month and then make trades with other marketers at the end of the month to reduce its imbalances.  If, after attempting these remedies, a marketer or marketer pool still shows an imbalance of over 5%, the pricing tiers would be applied to the imbalance."

Distribution is to further clarify the changes in revisions to its Gas Transportation Operating Procedures (GTOP) manual, and suppliers will have 30 days once such changes are filed to provide further comment.

The PSC will allow continued use of the Dominion South Point Index Price as an appropriate pricing point to use for cashing-out imbalances.  Staff acknowledged that with the changing landscape of natural gas in the Northeast, due to additional gas supplies from the Rockies Express (REX) pipeline, and the continued development of the Marcellus Shale reserves, there may be a need to revise the pricing point in the future, as suggested by suppliers.  "However, these new supply sources have not yet evolved into new liquid trading points capable of replacing the DTI SP index. Other liquid indices are located farther south near the Gulf coast but are inappropriate for this Company," Staff said, noting that no party raised a suitable alternative, and that parties only asked for continued discussion.

Additionally, the PSC dismissed arguments from suppliers that cashing out imbalances using a market index plus applicable transportation costs results in double recovery, since the demand component of transportation costs are already paid by suppliers through mandatory capacity release.  

Staff said that this issue is more appropriately addressed in a full rate case setting, noting that the inclusion of the transportation costs have existed since 2003.  "At this time Staff believes that the Company is properly assigning costs associated with capacity that is new and above what marketers are already paying for."

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