NGSA urges tighter FERC rules on gas pipelines' affiliate companies

May 1, 2001
US gas producers have urged the Federal Energy Regulatory Commission to be more aggressive in the regulation of when regulating pipelines and their affiliates. They said FERC regulatory changes are needed to better reflect a more competitive gas industry in the post-restructured marketplace.


By the OGJ Online Staff

WASHINGTON, DC, May 1 -- US gas producers Monday urged the Federal Energy Regulatory Commission to take a more aggressive approach to regulating the affiliate companies of natural gas pipelines.

"Pipelines claim that the amount of business conducted on affiliated pipelines has not changed in over 4 years, and therefore does not warrant a change from the commission," said Patricia Jagtiani, the Natural Gas Supply Association's director of regulatory affairs, in a written statement to the agency.

"We are saying commission regulations need to be updated to reflect a very different natural gas industry." NGSA represents both integrated and independent companies. The Independent Petroleum Association of America also endorsed the NGSA statement.

NGSA told FERC the current system is broken and needs to be fixed to protect producers, and ultimately consumers, from market abuses. Jagtiani outlined several proposals that producers want FERC to adopt.

Six weeks ago the agency held a technical conference with producers, pipeline owners, and other stakeholders on whether regulatory policies should be revised to reflect, in the agency's words, the role of pipeline affiliates in "the changing nature of the gas market."

Pipeline companies have argued that pipeline marketing affiliates are now separate business units that deal at arm's length with affiliated pipelines. They have also said that reporting requirements are transparent enough to discourage and ultimately expose any special treatment a pipeline may give an affiliate.

NGSA rejected that reasoning. It said marketing affiliates have grown in power and competitive impact since the original rules were put in place. The synergies associated with their pipeline affiliations have, in many cases, been a key driver of growth.

Jagtiani said, "Marketing activities now rival or exceed revenues from regulated lines of business. Convergence mergers have become the order of the day. Affiliate control of strategic assets, such as storage or critical transportation paths, cannot be ignored when examining affiliate holdings of pipeline capacity."

NGSA complained that gas pipeline marketing affiliate rules only apply to gas marketing affiliates; all other affiliates, such as a power marketers, electric generators, and asset managers, escape these rules.

"At a bare minimum," Jagtiani continued, "reporting requirements adopted in Order No. 637 (Regulation of Short-Term Natural Gas Transportation Services) must be enhanced so that industry participants can analyze reported data on a timely basis. In a complaint-driven regulatory environment, the industry needs user-friendly tools in order to ensure that competitive advantages do not exist in the market place. Customers cannot do this alone and they need the commission to supplement this information with an effective market-monitoring program.

"Moreover, the commission should revisit and expand the scope of the definition of 'marketing affiliate,' to cover all entities that hold or manage interstate pipeline capacity and that also have a corporate affiliation with the pipeline."

"Finally," Jagtiani said, "with the convergence of pipeline affiliate marketing activities into both natural gas and electric wholesale markets, coupled with the potential exercise of market power by affiliated pipelines, new risks of anti-competitive behavior may present itself. FERC cannot ignore this new market reality."