FERC Action May Reduce Retainage Charges



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On May 20, 2010, the Federal Energy Regulatory Commission (FERC) issued an order approving, subject to conditions, Columbia Gulf Transmission Company's ('Columbia Gulf') proposal to replace its current retainage tracker and true-up mechanism with an incentive retainage mechanism using fixed retainage percentages (called an Incentive Fixed Fuel or IFF mechanism). In approving Columbia Gulf's proposal, FERC signals its continuing belief that fuel and lost-and-unaccounted-for (LAUF) saving incentive mechanisms can be helpful in ultimately reducing retainage charges for customers, and signals its willingness to continue to review them on a case-by-case basis. FERC clarified that pipelines can propose IFF-like mechanisms in limited Natural Gas Act (NGA) Section 4 filings when the pipeline agrees to charge customers fixed retainage percentages below their cost-based levels in exchange for a share of the savings that result from the capital improvements made by the pipeline under an IFF-like mechanism designed to reduce fuel and LAUF

Generally speaking, Columbia Gulf's IFF contains five main features when implemented:
1. Fixed retainage percentages that are to remain in effect for seven years, which percentages reflect an advance sharing of some anticipated fuel and LAUF savings;
2. Customers and Columbia Gulf will remain liable to the other for any under or over recovered fuel and LAUF from the existing retainage tracker mechanism;
3. A savings-sharing mechanism under which Columbia Gulf calculates and shares with its customers certain fuel and LAUF savings experienced and monetized;
4. Columbia Gulf will not recover in its transportation rates during the IFF its costs for certain capital investments incurred to obtain fuel or LAUF savings;
5. No later than seven years after the IFF becomes effective, Columbia Gulf must file to keep, modify, or replace the IFF, with Columbia Gulf and customers retaining certain filing rights during the term of the IFF.

Columbia Gulf states that it anticipates making investments in various projects to reduce its fuel use and LAUF volumes during the time the IFF is in effect. Existing retainage rates on Columbia Gulf will remain in effect until FERC approves required compliance filings pertaining to the IFF in a manner satisfactory to Columbia Gulf.

Kurt Krieger
Chase Tower - Eighth Floor
707 Virginia Street E.
Charleston, WV 25301



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