given "continuing market distortions, DOE draws the conclusions that we must . . develop a second generation of natural gas statutory and regulatory reform." He further spoke about making new capacity available, providing proper incentives and eliminating unnecessary regulation. We are glad that both S.341 and the NES Act reflect Deputy Secretary Moore's observations. The Persian Gulf crisis is a disturbing reminder of the Nation's vulnerability to disruptions in world oil markets. Natural gas is an environmentally preferred, secure and cost effective alternative to oil. However, until legislative actions are taken which will remove the regulatory impediments to the expansion of the natural gas industry, the contribution of natural gas to the Nation's long-term energy security will remain restricted. The natural gas industry is substantially different today than it was in 1938, when the Natural Gas Act (NGA) was passed. Evolving from its pre-World War II infancy in which a handful of pipelines were beginning to reach out from producing areas, the industry has matured, with scores of interstate and intrastate pipelines serving every major metropolitan area in the continental U.S. The prior natural gas transportation and sales monopolies are being replaced by multiple competitors for sales on every major pipeline. Additionally, transportation alternatives are being made available to both producers and consumers. Natural gas is a competitive business, and consumers will benefit immensely if the decisions of regulators are replaced with the decisions of the commercial world. The experience of regulation at the wellhead should not be forgotten. For two decades, the federal regulators controlled the price at which producers could sell their product to the interstate market. The result was shortages, curtailments, and other adverse economic consequences to consumers and the industry alike. Moreover, the regulators proceeded from the premise that we were about to dissipate our supply of natural gas. Those regulators were proven to be incorrect when their decisions were replaced by the incentives of the marketplace commencing with the enactment of the Natural Gas Policy Act of 1978. Within five years, chronic shortages were replaced with surpluses, prices fell well below equivalent fuel oil prices, and the natural gas resource base was expanded to a size sufficient to meet our needs for decades to come. Despite this growth in infrastructure and supply, however, both relative and absolute consumption of natural gas has declined. Mr. Chairman, it is difficult, of course, to pinpoint precisely all of the reasons for the country's failure to develop adequately this resource. There are, however, some fairly obvious problems that Title II of the NES Act addresses. Generally, the industry has reached the stage where it will react more favorably to the stimulus of competition rather than to the dead hand of regulation. However, because since 1938 the natural gas industry has been so pervasively regulated, a "regulated mentality" has developed which directly and adversely shapes business decisions. The lethargic, costly and cumbersome procedures of the existing statutory and regulatory scheme, taken together with the climate of uncertainty that the scheme injects into the industry's decisionmaking process, frequently provide industry participants with limited incentive to develop new markets aggressively. There are simply not enough risk-taking incentives for the industry to engage in more dynamic and expansive practices. At best, a substantial part of the natural gas industry currently views market expansion as a high-risk venture with nothing to gain, but much to lose. Little wonder, then, that unnecessary regulatory barriers are reducing natural gas consumption by as much as 1 trillion cubic feet per year. - While there may not be an overall nationwide shortage of pipeline capacity, and though many existing pipelines are not operating at maximum throughput levels -- at least during the off-peak periods existing regulatory constraints detract from the attractiveness of natural gas in markets which could expand the utilization of gas. Inordinate delays in pipeline construction prevent natural gas from reaching new markets in a timely manner, and regulation of transportation and sales rates dampens incentives for pipelines to develop new markets for existing capacity. Many of the new industrial and utility sources, that would prefer to use natural gas, elect instead to use other fuels that do not involve the delays and inherent uncertainties of the regulatory process which must be hurdled before the desired natural gas service may be commenced. Once these facilities begin to use other fuels, the ability of natural gas to compete for their supply requirements, including subsequent expansions, is significantly inhibited. The NES Act seeks to alleviate the burdens, imposed by regulation on the industry's ability to expand into new markets in competition with other fuels, by proposing new, expedited options for pipeline construction and by replacing the edicts of regulators with the preferred negotiations of the commercial world. The Act also would encourage pipelines and their shippers and customers to make their own commercial arrangements, while providing a "safety net" for those unable to reach agreements and an opportunity for even a traditional pipeline to remove its rates in a competitive market from the Federal Energy Regulatory Commission's (FERC) regulatory jurisdiction, provided it abides by certain conditions. In addition, the proposed legislation would consolidate and streamline National Environmental Policy Act (NEPA) review responsibility. All of these proposals are designed to provide incentives for companies to rely on marketdetermined practices in the timely expansion and efficient utilization of their facilities. They are also intended to streamline and improve the overall efficiency of the construction authorization process, while protecting and promoting the interests of consumers, rather than those of competitors. Mr. Chairman, we believe that in order to maximize the effects of these new market-based options, a fundamental structural change in the regulatory oversight of the industry is needed. Since the NES Act proposes to give those who would construct and operate pipelines, and transport and sell natural gas through those pipelines, the opportunity to do so on the basis of commercial agreement rather than regulatory fiat, pipelines desiring to operate under this system would do so at their own risk. The marketplace and the investment community would tell them if that risk was justified. The role of the regulators would be to protect potential customers and consumers from possible market failures, not to second-guess commercial and investment decisions or protect the business interests of other market participants from competition. This reform would eliminate the requirement for virtually every decision made between a pipeline and its customers or shippers, as well as the investment or lending decisions of its financiers, to be established or approved by the regulators. Accordingly, as a procedural counterpart to these substantive recommendations, the NES Act also would transform FERC into a single-headed executive administration within DOE. |