SENATE PANEL BACKS GAS REGULATORY REFORM

The Senate energy committee has approved natural gas regulatory reform provisions for its U.S. National Energy Strategy (NES) legislation.

One of the changes, sought by independent producers, would require more regulatory oversight of Canadian gas imports.

Most of the gas provisions were the result of compromise, with the committee staff merging the administration's NES proposal with a bill authored by Sens. Bennett Johnston (D-La.) and Malcolm Wallop (R-Wyo.) and other Senate bills.

Associations representing gas producers, pipelines, and distributors also agreed on the compromises. Johnston, committee chairman, said, "The whole industry has cooperated beautifully on this bill."

Should Congress not pass an omnibus NES bill this session, lobbyists said, the gas section could be passed separately.

When the committee continues marking up legislation the week of May 6, Sen. Don Nickles (R-Okla.) may offer an amendment to deregulate gas gathering systems.

CANADIAN IMPORTS

The major gas issue before the committee was regulatory scrutiny of Canadian gas imports. Independent producers charge that Canadian rate structures allow imported gas a price advantage over U.S. gas.

Sens. Tim Wirth (D-Colo.), Pete Domenici (R-N.M.), and Nickles won changes that would transfer the authority to approve gas import licenses from the Department of Energy to the Federal Energy Regulatory Commission.

At present, DOE issues import permits and FERC authorizes pipelines to move the imported gas.

The changes instruct FERC to "condition any import authorization ... to redress any anticompetitive impacts on U.S. natural gas producers including ... competitive disparities resulting from different rate designs applied to transportation of domestic and imported natural gas."

The amendment directs the Justice Department to determine if DOE and FERC have the legal authority "to remedy regulatory advantages that may be conferred on imported natural gas" and report back to Congress.

Nickles said, "U.S. natural gas producers need a level playing field in competing with imported Canadian gas. This rate design reform is probably the most important regulatory action we can take at this time to enhance production, distribution, and sale of natural gas."

Domenici said, "Canadian producers are enjoying unfair benefits at a cost to American producers and, worse yet, the American people. These complex regulatory loopholes that are being exploited by our Canadian competition result in the American consumer being charged for gas that is ultimately more expensive.

"The way we are treating Canadian gas may be the reason we are not selling more domestic gas."

Wirth added, "We have to change policies that result in Canadian gas producers getting $1.90/Mcf for the same gas that Colorado producers can get only $1.30."

SHIFT OPPOSED

Deputy Energy Sec. Henson Moore said the Bush administration opposes the committee changes.

He said the U.S.-Canadian Free Trade Agreement (FTA) has a process for resolving such disputes, and FERC has powers to resolve rate problems.

And he opposed shifting the import permitting authority to FERC. "This is an executive level function--not a regulatory agency function."

Sen. Bill Bradley (D-N.J.) fought the imported gas provisions in committee but was defeated in a 13-7 vote.

Bradley noted the thrust of many of the other gas provisions is "to fight regulatory delays at FERC, and I find it surprising" the committee would shift more authority to the agency. Bradley argued the shift is "a direct violation of the FTA ... and is profoundly anticompetitive."

Johnston said the goal of the amendment is to promote competition in the U.S., and the Senate legislation approving the FTA retained for FERC the power to impose terms and conditions on gas imports.

Domenici distributed a chart illustrating ratemaking distortions regarding Canadian gas consumed in southern California (see table).

A Senate aide said FERC Order 236 requires equal treatment of U.S. and Canadian rates for gas sold to pipelines for resale. But it does not apply to Canadian gas end users buy and pipelines transport, which is becoming a large share of the market.

He said the Canadian commodity charge, essentially the cost of transportation, is lower than the U.S. commodity charge because FERC includes part of the demand cost, the cost of pipeline construction, in the U.S. commodity charge.

He said Canadian gas may be cheaper at the point the purchase decision is made but ultimately is more expensive.

Bradley replied, "It ought to be up to the people of California to decide what a good deal is."

OPTIONAL CERTIFICATES

Another controversial issue was whether to give pipelines built to serve new markets an optional certificate procedure.

If the pipelines assumed all the financial risk of construction, FERC would grant them the right of eminent domain without extensive hearings on the need for the line, supplies, and potential demand.

Sen. Larry Craig (R-Idaho) opposed issuing eminent domain authority without more control over the route. But Johnston countered that the point of the provision is that it takes too long to grant a permit required for eminent domain.

The committee voted 13-6 to retain the provision but stressed that FERC could influence a pipeline route through its environmental reviews.

The panel approved an amendment covering instances in which local distribution companies oppose construction because it would displace their sales.

FERC would be required to decide that issue within 90 days.

The bill streamlines regulations for transportation of gas under the Natural Gas Policy Act, expanding authority for intrastate pipeline transportation.

It makes FERC the lead federal agency for complying with the National Environmental Policy Act and requires FERC to issue rehearing orders quickly.

It requires FERC to report to Congress on its open access transportation program, rules regarding the pipeline merchant function, and natural gas ratemaking criteria.

It authorizes the Gas Research Institute, which is funded through a surcharge on pipeline shipments, to study the application of gas in motor vehicles.

OTHER PROVISIONS

The bill allows a limited antitrust defense for independent gas producers with less than 6 MMcfd of production to form cooperatives to pool and sell their gas.

It limits FERC's jurisdiction over the sale and transportation of gas used in automotive vehicles. Wirth explained, "Neither the states nor the federal government controls what price a service station charges for gasoline. The same should be true for stations selling natural gas as an alternative to gasoline for vehicles."

It streamlines gas certificate procedures, allowing FERC to issue permits if certificates are not opposed within 60 days. It would not require a certificate of public convenience and necessity for projects costing less than $20 million to repair and replace existing facilities.

And it authorizes FERC to exempt pipeline sales from regulation in regions in which it determines markets are competitive.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.