FORMULA TO BE SOUGHT FOR OIL PIPELINE DEREG

July 8, 1991
Pipeline companies and farm cooperatives say they are willing to negotiate a formula for partial decontrol of U.S. crude oil and petroleum products pipelines. At a House energy and power subcommittee hearing, Chairman Phil Sharp (D-Ind.) urged both sides to strike a compromise that would allow crude oil pipeline reform to be included in National Energy Strategy legislation this year. "The window is narrow," he warned them.

Pipeline companies and farm cooperatives say they are willing to negotiate a formula for partial decontrol of U.S. crude oil and petroleum products pipelines.

At a House energy and power subcommittee hearing, Chairman Phil Sharp (D-Ind.) urged both sides to strike a compromise that would allow crude oil pipeline reform to be included in National Energy Strategy legislation this year.

"The window is narrow," he warned them.

The Bush administration's energy strategy proposal called for decontrol of all crude and products lines except the trans-Alaska crude oil pipeline and 11 products pipelines.

THE TESTIMONY

Leon Coburn, director of the Department of Energy's office of competition, told the hearing decontrol would save more than $1 0 million/year in regulatory costs and encourage more efficient use of the U.S. oil pipeline system.

"While pipelines are an important mode of oil and products transportation, they no longer are the only form of transportation," he said. "Most lines now face competition in most markets."

James Atwood, vice-president of Farmland Industries Inc., said the National Council of Farmer Cooperatives disagrees. He said oil pipelines are natural monopolies that "have a tendency to exercise excessive power."

Farmer co-ops think decontrol would not ensure better pipeline efficiency but agree the Federal Energy Regulatory Commission's ratemaking regulations need reform.

Atwood said, "In spite of frustrations about the existing regulatory system, the bottom line is that regulation of oil pipelines generally achieves its objectives, although inefficiently. Pipelines are profitable, and shipper and consumer interests can receive some modicum of protection from excesses. There is no crisis."

John DesBarres, president and chief executive officer of Santa Fe Pacific Pipelines Inc., testified for the Association of Oil Pipelines.

He said AOPL favors the administration's proposal, which would replace FERC's cost-based regulation with a new competition-based price cap regulation for pipelines with no competition and rate decontrol for those in competitive markets.

SYNAR PROPOSAL

At Sharp's prodding, Atwood and DesBarres said they will seek a compromise along the lines of a proposal by Rep. Mike Synar (D-Okla).

Synar's legislation would require procedural reforms at FERC and a rate cap for oil pipelines in all markets, including competitive ones.

Sharp told the two groups, "The real issue is whether you can find common ground around the Synar proposal.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.