The Federal Energy Regulatory Commission has a pretty full schedule these days, but Commissioner Branko Terzik wants to add a new wrinkle.
Terzik has been working for several months on a proposal that would allow FERC to offer gas pipelines a system of incentive rate regulation.
He plans to circulate a draft plan among the other four FERC commissioners within 1-2 weeks.
INCENTIVE REGULATION
Terzik argues government price regulation can never be as effective as competition, and incentive regulation is the second best alternative to workable competitive markets.
Terzik said, "I think we can improve our system of regulation." An incentive scheme would give monopoly pipelines "a better incentive to hold costs than they have now."
He figures that approach would provide consumers lower rates and better service than traditional pipeline regulation and offer pipelines higher profits.
Terzik said FERC should avoid a rigid approach to incentive regulation, instead adopting a policy based on specific standards.
He said the policy should be prospective in nature, awarding future performance only. It should be clearly and concisely stated, provide for progress reviews at specific times, require a finding of quantifiable benefits for each pipeline's customers. And the policy must be feasible under current laws.
Terzik stressed that, as much as anything, regulators must allow incentive regulation to work. "They must be willing to recognize success and allow pipelines higher returns if they earn them."
Two techniques, already tested by other federal agencies, might offer a means of incentive regulation: automatic rate changes and performance targets. A single approach probably would not be compatible with all kinds of pipeline management.
Terzik told a meeting of the National Energy Resources Organization (NERO) in Washington last week "there is some healthy skepticism among my colleagues' at FERC about his idea.
LESS EFFICIENT LINES
Terzik was asked at NERO if incentive regulation wouldn't benefit less efficient pipelines more than others because then, would have more room for improvement than more efficient pipelines. . Perhaps, Terzik agreed, but he added that was no reason to continue the present system. And a pipeline efficient under the current incentives perhaps could be even more efficient under incentive regulation.
Terzik also was asked if incentive regulation wouldn't give pipelines a motive simply to cut services.
He replied FERC would be watchful for that. "Letting managements allow their systems to fall apart is not commensurate with being efficient. It is being greedy."
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