INGAA Answer in Notice of Proposed Rulemaking on Rate Changes Relating to the Federal Income Tax Rate

A few commenters request the Commission to clarify that negotiated rate contracts are subject to revision and allow rate reductions for shippers under such contracts.  Indicated Shippers argue that the Commission should allow negotiated rate shippers to share in the tax cost reductions through a negative surcharge where the contract includes a Memphis clause that would allow, or require, a change to rates.  Indicated Shippers further request the Commission to establish a process to review each negotiated rate contract entered into by every pipeline to determine whether the contract allows for such rate changes.

These requests are contrary to well-established law and policy and should be soundly rejected.  Shippers have two rate mechanism options for paying for natural gas transportation service.  Shippers can choose a recourse rate option and pay the pipeline’s maximum tariff rate or a discounted recourse rate that is linked to the maximum tariff rate.  Maximum and minimum tariff rates must be filed and approved by the Commission as just and reasonable under Section 4 of the Natural Gas Act (“NGA”).  If the pipeline and a shipper agree to a discounted rate, the rate is bound by the maximum and minimum tariff rates.  As a result, a discounted contract receives the benefit of a lower rate if the maximum rate decreases below the contractual discounted rate. A shipper subject to the maximum tariff rates pays the maximum tariff rate as modified during the term of the contract through Section 4 or Section 5 proceedings.