NEM Seeks Modification of National Fuel Gas Distribution Cash-Out Safe Harbors

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December 27, 2010

The National Energy Marketers Association has recommended revisions to several safe harbor provisions proposed by National Fuel Gas Distribution Corporation in its New York tariff revisions regarding imbalances and cash-outs (10-G-0474, 12/8).

As only noted in Matters, National Fuel Gas Distribution, in response to concerns from ESCOs, added several safe harbor provisions under which ESCOs would not be penalized for imbalances, and would instead pay (or be paid) the market price for such imbalances rather than paying (receiving) a premium (discount).

Absent the various safe harbors, an ESCO is only eligible for the Market Pricing Tier in cases where it is between 5% short and 5% long for the month.

Under one safe harbor, for customer pools where Distribution assigns Aggregated Daily Delivery Quantities (ADDQ), if the Imbalance Holder's total receipt volumes are within 2% of the total monthly ADDQ for each pool, the Imbalance Holder will be assigned to the Market Pricing Tier.

NEM said that this safe harbor, on Tariff Leaf 148.15, should be revised so that the 2% tolerance is a 5% tolerance.  "Indeed, if a marketer were to be within 2% for each day of the month, it stands to reason that the marketer will be within 5% for the month.  Accordingly, an alignment of both safe harbor provisions to 5% would be reasonable," NEM said.

Furthermore, NEM said that the Leaf 148.15 safe harbor should replace the "total receipt volumes" language with the term "total nominated volumes."

"The reasoning behind this recommendation is premised on the amount of local production tied to the NFGDC system.  NFGDC has many local wells tied directly to its distribution system, and NFGDC reads the meters of many of these local production wells only once a month, allocating delivery variances (after-the-fact) back to marketers that purchase such local production.  Hence, there is the potential for NFGDC to allocate local production volumes variances back to marketers so that even if a marketer's nominations met NFGDC's required ADDQ for a given day, but due to variances between local production estimates (the nomination) and actual local production volumes (the meter read), NFGDC may nonetheless deem the marketer out of tolerance," NEM said.

Finally, while NEM said that it appreciated Distribution's clarification to the circumstances under which Distribution will revert from the new cash-out mechanism to roll-overs for imbalances (such as to maintain system integrity), NEM remains concerned that the new tariff language still grants Distribution a large amount of discretion as to when to make such a determination, "leaving marketers with a significant degree of operational uncertainty."

NEM suggested it may be more appropriate to omit such discretion from the tariff, and, if cases arise which necessitate use of a roll-over for system integrity, then Distribution could submit an emergency tariff filing.

"Alternatively, at a minimum, to better resolve the ambiguity as to the application of rollover and cash-out of imbalances, NEM suggests that the specific circumstances under which NFGDC envisions it would utilize the rollover method be delineated in the tariff to provide marketers with increased certainty that rollover of imbalances not be employed when it would be punitive or unreasonable in nature," NEM said.

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