Register Today for Courses in Cost of Service and Rate Design for Natural Gas Interstate Pipeline Companies (January 26th-27th)
Brown, Williams, Moorhead & Quinn, Inc.

The presentation of a rate case argument is laid out in the Code of Federal Regulations in a series of schedules and statements required for a rate case filing, including the data supporting billing determinants, volumes, and the cost allocation and rate design that are being proposed in a company’s case in chief. Cost allocation and rate design are the final steps in the cost of service process and can be the trickiest part of determining the tariff rates for the pipeline’s services. Brown Williams has the expertise to lead its clients through the evolution of allocation methodologies, Commission precedents, and industry accepted practices to find equitable solutions and fair allocations of costs among customers.

Allocations Factors

Cost allocation involves apportioning the functionalized costs among customers or classes of customers, between services, and among zones. The costs are usually allocated based on allocation factors, which in most cases are the billing determinants (volumes) that a customer or a class of customers transports. Billing determinants are also used to design rates. In some instances, allocation factors and billing determinants can be the same and both are based on some measure of service level to a particular customer, or class of customers. Brown Williams has been around the block a few times making assessments of pipeline cost structures and seeing to it that its clients interests are served when it comes to allocation of costs

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Classification: Reservation v. Commodity

The allocation of costs as either reservation (demand) or commodity (usage) is the first step in rate design. Classification of variable costs to the commodity component is a relatively settled matter but the classification of fixed costs between demand and commodity continues to be controversial issue that can hamper settlement talks and lead to litigation. The choice of a cost classification method can have direct effects not only on the rates paid, but also on the revenue responsibility of a particular class of customer. That’s why Brown Williams’ is called upon to represent its clients through the whole process from functionalization to classification with supporting documentation, precise spreadsheet models, and written testimony to explain and support the client’s interests.

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Cost Allocation & Rate Design Manual

While much has changed at the Federal Energy Regulatory Commission (FERC) over the past decades with respect to regulation of the interstate natural gas pipeline industry, cost-of-service ratemaking has remained a constant.

Despite its willingness to rely on market forces to address many issues in the industry, FERC still relies on cost-of-service principles in litigated section 4 rate cases (both full and limited cases) to set just and reasonable rates for pipeline services.  The final step in this rate-making process is cost allocation and rate design.

The Cost Allocation & Rate Design Manual that BWMQ offers contains a comprehensive road map regarding all aspects of cost allocation and rate design.  It contains an informative glossary of application terms and concepts with electronic links to seminal and precedent setting cases on innumerable issues.  Purchases of this document will be able to access electronic updates to precedent setting cases regarding cost allocation and rate design.

BWMQ believes this document will prove invaluable to company analysts that are preparing to litigate section 4 rate cases at the FERC.

If you would like to obtain a subscription to this manual or would like further information, contact:

Barry E. Sullivan, President of BWMQ at 202-775-8994

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Discount Adjustments

Discount adjustments allow a pipeline to design rates on higher throughput volume, which in turn helps retain or gain new customers and makes all customers of the pipeline better off even when those volumes were added at a discounted rate. Brown Williams has delivered improved rate design and revenue generation using all three methodologies approved by the Commission in deriving discount adjustments.

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Evolving Markets Rate Design

Developing equitable tariff rates to share the cost of pipeline operations among customers varies from case to case, and generation to generation. All manner of rate designs have been created to reflect the realities of the markets for natural gas. From postage stamp rates to zonal rates, seasonal rates, interruptible rates, and market-based rates, Brown Williams has been at the forefront in working with clients to fashion solutions that meet the needs of today.

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Traditional Rate Design

Rate design includes a number of complex concepts and associated rate models. Billing determinants, load factors, zones, contract demand, firm service, unit rates, fully allocated costs, revenue checks, discounts, iterative methods, and many other terms of art serve to hone the search for just and reasonable rates but can make the rate case process a minefield of complex options that can make or break a company in these volatile times. Brown Williams has been swimming in this environment for decades, helping clients create solutions using traditional rate design methodologies that meet the needs of clients facing an uncertain world.

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