Gas Pipeline Firms Balk at Rules : Some Shipments Halted, Cutting Access to Big Users

Hundreds of large factories and utilities lost access to cheap natural gas Friday when pipeline companies throughout the nation halted some gas shipments rather than comply with new federal gas transport rules.

The new rules require pipeline companies to grant all customers equal access to low-cost gas that is shipped directly from producers to customers. Many pipelines cut off shipments of the cheaper gas rather than follow the new rules.

This means that such companies as Georgia Pacific, Bethlehem Steel and U.S. Steel must switch to more expensive fuel, such as fuel oil. U.S. Steel said a fuel switch would cost it “millions of dollars” a year.

Pipelines don’t serve California factories directly, but they do supply the state’s natural gas utilities. Southern California Gas said the loss of cheaper gas is costing the utility $240,000 a day because it is buying more expensive gas under long-term contracts. The gas company’s biggest supplier, El Paso Natural Gas, also halted shipments of spot, or non-contract, gas to Pacific Gas & Electric.

It is unclear what effect, if any, the pipelines’ actions will have on utility rates. In recent months, California utilities have lowered their gas costs through spot purchases and renegotiated lower prices for supplies purchased under longer-term contracts. Southern California Gas had been purchasing 20% of its supplies on the spot market; about 10% of PG&E;’s supplies were spot buys.

In past years, pipelines offered to transport gas at the cheaper rates only to large customers who could easily switch to other fuels. Recently, competition has forced pipelines to sell spot gas to utilities served by more than one pipeline.

Only 7 to Ship Gas

The new Federal Energy Regulatory Commission rules that took effect Friday say that pipelines that transport gas directly from producers for one customer must transport gas for all customers. Only seven pipeline companies of the dozens serving the United States have agreed to ship gas under the new rules.

The new rules were part of an effort to deregulate the natural gas market by making gas more available to customers. “It is our feeling that it would be very ironic if these new rules prevented us from getting spot gas,” said Sue Ann Levin Schiff, manager of fuels policy and planning at PG&E.;

Some pipelines, however, continued to transport the cheaper gas under an exemption made for contracts that existed before Oct. 9, the day FERC adopted the new rules. Southern California Gas said that the grandfather clause allows it to continue receiving spot gas shipments from the Transwestern Pipeline. The gas company’s transportation contract with Transwestern expires July 1, 1987.

There was some confusion regarding the new regulations on Friday and many pipelines and their customers have asked FERC for numerous clarifications of the new rules. El Paso on Friday asked FERC for permission to continue its spot gas sales to Southern California Gas and PG&E;, and a decision is expected Monday.

Additionally, a provision in the new rules allows pipelines to ship gas exclusively to one customer, but the application must go through a longer hearing process with FERC. Several pipeline companies have applied to FERC to transport gas under that provision.

“I think the gas market is going through a hiccup phase,” said Richard Fillman, Bethlehem Steel’s director of corporate energy affairs. He said that three steel mills must buy more expensive fuel since pipeline suppliers have decided to halt shipments of spot gas. “At some point, the marketplace is going to govern what happens. The producers will find a way to get the gas to the users,” he said.