FERC seeks to wrap up U.S. gas industry restructuring

The Federal Energy Regulatory Commission is taking a close look at what it needs to do to complete the restructuring of the U.S. natural gas industry.

FERC has scheduled a major public conference May 29-30 in Washington, D.C., to examine the important issues facing the industry and its own regulatory goals.

It explained, "Since the issuance and implementation of Order 636, natural gas markets have developed rapidly, and the industry has gained experience functioning under different conditions."

Change since 636

FERC noted the gas industry has changed since Order 636 was issued in 1992, with consolidation in the ownership of interstate pipelines, the spinoff and spindown of gathering lines with the potential for state regulation, the emergence of megamarkets, and the emerging electric and gas convergence.

"In addition, many more market centers exist today, offering a wide array of services that increase the flexibility of the system and facilitate connections between gas sellers and buyers. These services commonly include wheeling, parking, loaning, and storage."

FERC also noted the interstate pipeline grid has expanded significantly, gas contracts are heavily traded, and capacity release is playing an increasingly significant role in the market.

"With all of these advances, the industry now faces new issues. A few states have implemented and unbundled retail access for all customer classes. Further, the exercise of market power behind the city gate may translate into the exercise of market power in the interstate transportation market. These developments may create new issues for the commission in its regulation of interstate pipelines."

Industry hurdles

FERC noted that electric generators can sell into increasingly competitive hourly electric markets, but the ability of customers to buy and sell gas and transportation capacity in the intra-day market is not yet a reality.

The commission wants to examine whether there are impairments to competition in the transportation system, and if changes are needed in its criteria for certification and siting of new interstate pipeline facilities.

"At the same time, market power issues also remain a concern. Discrimination, affiliate abuse, and other exercises of market power by transporters and holders of interstate pipeline capacity (local distribution companies, marketers, producers, and end users) can undermine the goals of open access and can pose impediments to greater regulatory flexibility."

Larry Hall, chairman, CEO, and president of KN Energy Inc., and chairman of the Interstate Natural Gas Association of America, recently praised FERC's efforts.

"I have worked with many FERC commissions, but this commission is the most forward-looking team I have seen. Chair Elizabeth Moler has been successful in building the necessary consensus to provide direction in moving toward a competitive, for-profit, gas market."

Hall said, "We will work with FERC to deregulate the secondary market to achieve a real spot market in capacity. We also will continue to work toward implementation of negotiated rates, terms, and conditions.

"We want to use the commission's policy for onshore gathering to increase competition in light of the policy having recently been upheld by the courts.

"Also with FERC, we will be urging adoption of a faster complaint process that fulfills the dual objectives of timely complaint resolution and light-handed regulation," Hall said.