While changes to pipeline tariffs are generally viewed as unremarkable because they are expressed in specialized language and lack fanfare, their impact is significant and usually only felt by individuals whose use of the pipeline depends on them. Tariffs have a direct and profound effect on the movement of natural gas throughout the pipeline and the flexibility of movement.
A familiar mechanism that reflects continuity
A recent announcement by the Natural Gas Pipeline Company of America (NGPL) was typical of the type of announcements made by pipelines regarding tariffs. The company stated that it would continue to offer negotiable rate options for its pipeline transportation service under its current tariff provisions.
The announcement appears to be little more than a reaffirmation of a well-established practice rather than a major shift in policy. Negotiable rate options are allowed in addition to standard maximum recourse rates and give shippers the opportunity to negotiate with the pipeline for alternative pricing arrangements that fit their specific needs.
The fact that NGPL has chosen to continue this practice indicates that the company values continuity in its commercial practices despite the evolving nature of the market.
A pipeline system that serves many different regional areas and customer types
How negotiable rates work:
While all rate options offered by the pipeline must be contained within the tariff structure, negotiated rate options offer the ability for NGPL and each individual shipper to develop customized pricing options that are tailored to the specific needs of the shipper.
Customized pricing options can be based on a variety of criteria, including
- The length of time the contract will be in place
- The amount of natural gas that the shipper agrees to purchase
- Other special operating needs of the shipper.
Regardless of the type of rate agreement that is developed, negotiated rate options do not replace the standard tariff rates, and each shipper retains the right to revert to the standard recourse rates if desired. Additionally, negotiated rate options are subject to all applicable state and federal regulatory filing and disclosure requirements.
For certain customers, negotiated rates can provide predictable costs or better economic conditions than would otherwise be available. For NGPL, negotiated rates can assist in maintaining a high level of usage for a longer period of time and assist the pipeline in remaining competitive in the highly competitive natural gas transportation market.
The transportation market continues to experience changes due to shifts in the natural gas supply
As the natural gas transportation market continues to experience changes due to shifts in the natural gas supply, changes in the demand for natural gas, and increased competition among the various pipeline operators, flexibility in pricing becomes increasingly relevant to the decision-making process of shippers. The decision of whether to renew a contract, expand upon an existing commitment, or enter into a new one can all be influenced by a shipper’s desire for greater flexibility in their pricing options.
By continuing to permit negotiated rate options, NGPL provides itself with the means to address these changing dynamics while minimizing the need to make broad changes to the underlying tariff structure. This action also sends a message to shippers that flexibility is still available to them within the framework of a consistent regulatory regime.
Tariffs are normally not considered newsworthy as they are often written in specialized language and are published without much fanfare; however, the provisions contained in tariffs often set the parameters of operation for the infrastructure. NGPL’s continued allowance of negotiated rate options demonstrates how regulated entities like pipelines strike a balance between providing stability to shippers and adapting to changing conditions in the marketplace. As market conditions continue to evolve, these seemingly innocuous actions will continue to play a critical role in determining how responsive the natural gas transportation infrastructure can be.
