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(5) Another problem which must be confronted is the fact that, in some cases, the capacity of an interstate pipeline to "receive" gas into its system far exceeds its ability to "deliver" gas in the market areas, thus raising the question of whether 7(a) (3) would operate as a bar to any mandatory interconnections in the producing areas.

(6) Finally, it must be recognized that, in some areas, the only economic option is access to the existing gathering system of the interstate pipeline, there being no economic alternative to "bypass" the pipeline's own gathering, even if an interconnection with mainline facilities or a plant could, in theory, occur.

(7) In order to address the problem presented, the above factors should be taken into consideration, so that any legislative changes can achieve the desired result. That result is, at a minimum, that there be an access to the interstate market for gas starting at the wellhead. If interstate pipelines have the power to deny interconnections with the "gathering lines" of others or access to their own gathering lines, a monopsony power is fostered. Likewise, when the "gathering line" of another crosses over into the category of "transmission", without an opportunity to interconnect the same monopsony power is fostered.

with the above considerations in mind, the Committee may wish to consider:

.

(A) inserting the words "or gathering" between "transportation" and "facilities" in 7(a) (2). This would make clear that an applicant has the right to seek interconnection with facilities classified as "gathering" as well as "transportation" facilities, which may be construed to mean only mainline transmission facilities. Thus, even individual well hookups to a pipeline's gathering system could be ordered under this provision;

(B) inserting the words "and transport" between "receive" and "natural gas" in 7(a) (2). It does not achieve the purpose if the pipeline is not obligated to transport the gas received in an interconnection. The pipeline could either (a) shut in, or (b) force a sale to the pipeline;

(C) inserting the words "production or other" between "petitioner's" and "facilities" in two places in 7(a) (2): This would avoid any litigation on the definition of "facilities" and whether wellheads are excluded;

(D) adding a sentence to the end of 7(a) (2) as follows: "Any interconnection ordered pursuant to this subsection, including any facilities upstream of the

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interconnection, shall be deemed to be 'production or gathering' of natural gas, within the meaning of Section 1(b), unless the interconnection and any facilities upstream are owned by a person who transports natural gas in interstate commerce pursuant to Section 1(b)." The intent here, if achieved, is to preserve a non-jurisdictional status for gatherers other than interstate pipelines and to preempt any litigation as to whether the interconnected facilities are "gathering" or "transmission." This should encourage optimum construction and utilization of facilities for access to production, including access to more than one pipeline;

(E) clarifying that a "natural-gas company" in 7(a) (2) means only an interstate pipeline by adding "which transports natural gas in interstate commerce. Except to the extent repealed either by the NGPA or the Wellhead Decontrol Act, persons who make "sales for resale" in interstate commerce are also "natural gas companies." It was understood that the purpose of this section was not to reach beyond interstate pipeline companies and 7(k) pipeline companies; and

(F) amending section 7(a) (3) (B) to add: "Provided, this subsection shall not apply when an interconnection ordered to or in lieu of gathering facilities pursuant to section 7(a) (2) if the Commission finds that natural supply alternatives to natural gas consumers will be enhanced by the physical connection." This is a legislative finding that service to existing customers will not be impaired by increasing the number of potential sellers and the quantities of potential supply in the production areas. The Commission would, of course, continue to regulate access, so that no customer would be cut off from existing arrangements but would only have more viable alternatives.

These suggestions are tendered only as a result of the perceived duty to respond to this inquiry and should not be taken as any modification of the filed testimony or these answers.

ANSIERS OF F. JOSEPH GRAHAN ON BEHALF OF
UNION CARBIDB CORPORATION AND THE PBTROCHEMICAL

BNBRGY GROUP TO SENATOR PBTB V. DOMENICI
POST-HBARING QUESTIONS, HEARING ON TITLE X OF 8. 341

THE NATIONAL ENERGY SECURITY ACT OF 1991

1.

Do you support the Commission's open access transportation progran?

Answer: Yes. We recognize that the promise of open access transportation, with comparable third party transportation service, has not been achieved yet. with the support of this Committee, this goal can be achieved by (a) assuring that comparable third party transportation service is required, and (b) by preventing the abuse of market power, as we suggested in the testimony filed.

2. If sections 204 and 205 of 8. 570 were adopted what impact

vould that have on the commission's open access
transportation program?

Answer: Unfortunately, it appears that sections 204 and 205 of S. 570 would actually negate the commission's open access transportation program. Contrary to the National Energy Strategy itself, these sections do not impose the two essential preconditions: that interstate pipelines provide comparable service to third party shippers and that the interstate pipelines do not have market power. These provisions apparently would reestablish monopoly power over customers and monopsony power over producers of gas.

3.

Would you prefer the NGPA section 311 amendments in 8. 341 or those in s. 570?

Answer: S. 341. This bill codifies open access transportation, a codification that should be imposed on all interstate pipelines, as well as protections against the abuse of market power, the two preconditions found in the NES.

What changes would you recommend be made to sections 203, 204 and 205 of s. 570?

Answer: We continue to recommend deletion of Sections 204 and 205. As previously stated, we recommend Section 10002 of s. 341 over Section 203 of s. 570.

FEDERAL ENERGY REGULATORY COMMISSION

WASHINGTON, D. C. 20426

OFFICE OF THE GENERAL COUNSEL

March 29, 1991

Honorable J. Bennett Johnston
United States Senate
Washington, D.C. 20510

Dear Senator Johnston,

Enclosed is supplemental testimony relating to the National Energy Strategy Act (s. 570) and answers to follow-up questions resulting from the March 7, 1991 hearing before the committee on Energy and Natural Resources to consider Title X of the National Energy Security Act (s. 341). As stated in my letter of March 19, 1991, the supplemental testimony addresses several questions that were raised at the hearing relating to the deregulation of natural gas imports and gas delivery interconnections which are proposed in the National Energy Strategy Act.

We appreciate the opportunity to submit this supplemental testimony and the answers to follow-up questions, and look forward to working with the Committee in the future.

Sincerely,

William S. Schermax
General Counsel

SUPPLEMENTAL TESTIMONY OF

WILLIAM S. SCHERMAN
GENERAL COUNSEL, FEDERAL ENERGY REGULATORY COMMISSION
BEFORE THE COMMITTEE ON ENERGY AND NATURAL RESOURCES

OF THE UNITED STATES SENATE

MARCH 25, 1991

Mr. Chairman and Members of the Committee:

On March 7, 1991, Kevin P. Madden, Director of the Federal

Energy Regulatory Commission's (Commission) Office of Pipeline

and Producer Regulation, and I appeared as staff witnesses before this Committee to discuss Title x of the National Energy Security

Act of 1991 (s. 341), the amendments to that bill that were introduced by Senator Bingaman, and the National Energy Strategy put forth by the 'Administration. At that time, the legislation to implement the National Energy Strategy, the National Energy

Strategy Act (s. 570), had just been submitted to the Congress.

Consequently, the Committee requested that we submit supplemental testimony analyzing that legislation. We are also submitting today answers to post-hearing questions posed by the Committee. Questions or requests for comments which were made during the

hearing itself were addressed in written responses on March 19,

1991.

THE BILL DBNIET

The National Energy Strategy Act (NESA) contains several changes which are intended to streamline the Commission's

regulatory process relating to the regulation of natural gas.

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