The Interstate Natural Gas Association of America recommends the Federal Energy Regulatory Commission not regulate rates U.S. gathering lines charge.
FERC is expected to consider next year whether it should retain jurisdiction over gathering lines that are affiliates of interstate gas pipelines.
Ingaa said, "Given the competitive market for gathering services, rate and regulatory policy should result in equal treatment for all gathering companies. FERC should not regulate pipeline or affiliate owned gathering systems. Such a market oriented policy from FERC will enhance the overall level of competition in the production area."
An Ingaa study said a number of pipeline owned gathering facilities have been certificated in connection with transmission facilities used to fulfill the merchant function. Still other pipeline owned gathering facilities were neither certificated nor subject to regulation because the Natural Gas Act exempts gathering facilities from certification.
OPEN ACCESS
"With the advent of open access, both pipeline and non-pipeline gathering systems are offering substantially the same unbundled gathering services in direct competition with each other," Ingaa said. "In this environment, FERC regulation of the rates of pipeline and affiliate owned gathering facilities can inhibit the ability of these entities to compete against other gatherers.
"From a practical standpoint, a more market oriented policy for gathering services would increase the choices open to gas buyers and sellers and add to the benefits of a fully competitive wellhead market and open access transportation system."
Ingaa said rates for gathering services traditionally are one part volumetric rates, although some interstate pipelines have two part demand/commodity rates for unbundled gathering services.
"The gathering system is characterized by many providers. Hundreds of gathering systems exist in gas producing regions. Gathering companies may be small, local companies that serve several wells, or they may be large integrated companies with substantial resources that do business in several states, operate thousands of gathering pipelines divided into many discrete systems, and serve thousands of wells.
"Some large gatherers are producers that build facilities to gather their own gas supplies but also gather gas belonging to other producers."
Some Gathering facilities not subject to FERC regulation may be subject to state regulation, mostly for safety and environmental reasons and seldom for rate regulation.
Ingaa said, "FERC should not attempt to regulate rates for pipeline owned gathering facilities in the post Order 636 era because such regulation will hamper competition in the gathering market by creating a system of unequal services, and competitive forces will achieve more effective results than those FERC seeks through regulation.
"Unbundling of the merchant function and mechanisms such as market hubs and supply aggregation are supporting competition in gas markets."
MERCHANT FUNCTION
As pipelines' merchant function has declined, producers increasingly are direct sellers of gas to pipeline customers.
"Growing gas demand and a dramatic increase in the number of gas buyers have also created opportunities for upstream services, such as gathering, processing aggregation, and balancing," Ingaa said.
"To provide a competitive environment for connecting gas supplies, it is critical for gas buyers to face the maximum number and widest diversity of gatherers. To assure equal opportunities, all gatherers, including pipelines, should be subject to the same market rules."
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