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however, as stated above, the Department supports

the Commission's attempts to require that those pipelines subject to rate regulation comply with

the Policy Statement.

It must be noted that,

under the NES proposals, it would be possible for

CNG Transmission Corporation to seek abandonment of the relevant facilities or services or to prove that it lacks market power and that it provides

its services on a not unduly discriminatory basis. If the Commission agreed with the applicant, further regulation of its rates would be

unnecessary.

In such a case, the Department

believes that regulation of the pipeline's rates would be unnecessary and that a major regulatory barrier to efficient pipeline transportation would

be removed.

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April 12, 1991

VA HAND DELIVERY

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OFFICERS
JACK M HILLIARD

President
Florence. Alabama
EDWAROJ MRIZ

Fonte Vice President
Palo Alto California

JOM DOMENT
Second Via Precedent

Muntevia. Aiebama
0. CHRIS ORTEGO

Treaturer Los Alamon Now MOUCO PAST PRESIDENT

SANOY NOVICK

Memphis, Tenneco EXECUTIVE DIRECTOR

ROBERT S CAVE

Vieme Virginia GENERAL COUNSEL WILLIAM T. MILLER

Washington, D.C. BOARD OF DIRECTORS

WUS ALDERDA

Sioux Carter, lowa
JOINT CRISCOL JA

Monon George
KENNETH L CRNG

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WALES W. CROCKWELL

Jackson Tom
SAMUE DAVIA, JR.
The Plorida
JOIN W. OUNEY

Donald F. Santa, Jr., Counsel
United States Senate Committee

on Energy and Natural Resources
364 Dirksen SOB
Washington, D.C. 20510

Re:

Senator Wirth's "Gas Policy Reform Act," S.662, and "National Energy Emiciency and Development Act," S.741 and S.742; and the Administration's "National Enemy Strats Act." S.570.

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On March 19, 1991, the American Public Gas Association (APGA) submitted a prepared statement for the Committee's hearing record regarding Title X of S.341 (the "National Energy Security Act of 1991“), certain amendments proposed by Senator Bingaman thereto, and the Administration's proposal to abolish the Federal Energy Regulatory Cominission (FERC). In that statement, the APGA reserved the right to make further comment as the need arose. This supplemental statement provides the APGA's views on the regulatory issues and "accelerated pipeline construction" provisions of S.662, S.741 and S.742 (hereinafter collectively referred to as S.662) and the natural gas title of S.570.

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APGA shares the concerns regarding S.662 expressed by Mr. Ronald J. Binz on behalf of the National Association of State Utility Consumer Advocates (NASUCA), in his testimony before the Committee. It is not clear to APGA that the provisions of this bill will meet its stated goal, to "increase the use of

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Donald F. Santa, Jr., Counsel
April 12, 1991
Page 2

natural gas in the United States," but may in fact decrease the use of natural gas because it will lead to increased rates for small customers, arbitrary abandonment of service, and the shifting of the risk to natural gas customers of cost responsibility for uneconomic pipeline facilities.

Mr. Wirth was quoted in the "Gas Daily" on March 15, 1991, and in "The Energy Report" on March 18, 1991, as saying that past attempts to reform gas regulation have been stymied by "controversy between segments of the gas industry, each looking after its own interests." S.662 certainly would resolve a number of controversies, but all in favor of the pipelines! Controversies concerning pipeline monopoly service should be left to resolution before the appropriate regulatory body, FERC, where all segments of the natural gas industry and consuming public can make their interests known.

Mr. Wirth was also quoted in those same articles as having said that "[t]he complicated adversarial regulatory system we have built up for regulating gas over the years has, in effect, kept gas from the people who need it." In truth, though, this regulatory the system has required pipelines to provide and maintain service to numerous small customers in many circumstances where the pipelines were otherwise unwilling to initiate or continue such service.

Provisions of S.662 would unfairly shift costs and risks to customers through changes in rate design and would mandate the automatic "as-billed" flowthrough of producer demand charges to customers. Monopoly pipeline companies would be permitted to extract higher rates of return from firm services, and would be able to arbitrarily abandon sales service. Moreover, rather than increasing competition by encouraging new investors to construct pipelines, S.662 provides unfair advantages for cavisting pipeline companies. Thus, pipeline companies will be protected from both competition from new entrants and the risk of their investments

The captive natural gas customer, unlike the long distance telephone customer, does not have the physical capability to chose among a plethora of long distance interstate pipelines. Even if the construction of new pipelines is encouraged by this proposed legislation, these pipelines would be located in the production area and would not extend to the city gates of the great majority of natural gas distribution systems. Small distributor-customers have one, and only one, source of pipeline capacity to obtain their required gas supplies - the pipeline that was required by the FERC (and before it, by the FPC) to serve their respective communities with firm sales service. Small customers do not have bargaining power, or storage facilities, or true market access. The pipelines

Donald F. Santa, Jr., Counsel
April 12, 1991
Page 3

which serve small distributor-customers are still monopolies, and these customers must be protected from the abuse inherent in monopoly service. Just as many small towns either no longer have airline service or now pay exorbitant fares for such service, and just as many small communities are losing their bankrupt banks, 5.662 would lead to both increased rates and the loss of natural gas service to many small communities.

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This bill goes far beyond either S.341, S.662, or H.R.779 (Representative Sharp's "Natural Gas Enhancement Act of 1991"), towards deregulation of the natural gas industry. While it attacks one derivative facet of Natural Gas Act (NGA) Section 7 proceedings, ie, the opportunity for competitors to participate in such proceedings, it ignores the fundamental_purpose of such NGA proceedings, ic. the opportunity for natural gas distributor-customers and consumers to be heard in an objective forum regarding proposed pipeline construction and rates since they will be the ones to receive (or be denied) service from and to pay the costs of the facilities to be constructed. The NGA was enacted to protect the public interest and to ensure that natural gas facilities, for which the public would have to pay, would be necessary to serve the public and would be "used and useful." In this crucial aspect, the industry has not significantly changed since the NGA was enacted because most pipelines still have monopoly power over most customers. Customers still need the protections offered by the NGA, but S.570, unfortunately, would effectively eliminate those protections.

Contrary to the contentions of the Administration, service and construction under Section 311 of the Natural Gas Policy Act (NGPA) is hardly "adrift" in uncertainties. As noted in APGA's initial comments, the breadth of the "on behalf of standard has been thoroughly litigated at FERC and in the courts, where all factions of the industry had full and fair hearings. To change this standard now would introduce uncertainty, and lead to further litigation. As for allowing major construction under section 311, APGA also stated its opposition in its initial comments. APGA agrees with the comments of the Natural Gas Supply Association (NGSA) that such a broadening of construction authority under Section 311 is not necessary (since the NGA Section 7 regulated option already caxists and assuming there will be a deregulated option of some kind included in any natural gas legislation enacted by this Congress) and inappropriate (because the pipeline will get the benefit of regulation, i.e. shared

Donald F. Santa, Jr., Counsel
April 12, 1991
Page 4

risk of costs, while not having to submit to regulatory approval through proof that construction is necessary and in the public interest).

APGA strongly opposes those portions of S.570 which would provide for optional certificate procedures and nonjurisdictional certificate procedures. The optional certificate procedures proposed in S.570 do not include the protections and procedural safeguards afforded by those proposed in S.341. Again, nonjurisdictional pipelines are out of the question given the current status of the industry. Small distributors and consumers must be protected from the monopoly power of the pipeline that is physically connected to their town. Deregulation may encourage construction of pipelines in the production area, but more pipelines will not be built to small towns where the market is less lucrative. Section 7(a) of the NGA was written because pipelines have historically been unwilling to even provide sales service to small towns, let alone competitive transportation service.

APGA could support the provisions in S.570 regarding mandatory interconnection if they were properly conditioned. It should be clarified that the notice and hearing procedures of existing Section 7(a) would apply to mandatory interconnection actions. The petitioner for mandatory interconnection should be required to bear all associated costs related to the relevant interconnection. And, if Section 7(a) is to be amended, it should be broadened to include transportation service as well as sales service. Any new version of Section 7(a) must require that mandatory interconnections meet the existing statutory standards of not creating any undue burden or an impairment of existing services.

Finally, APGA reemphasizes that it is strongly opposed to the abolishment of FERC, as fully stated in its initial comments.

APGA thanks the Committee for this opportunity to present its views. APGA reserves the right to comment further as the need arises. If there are any questions, please do not hesitate to call me.

Sincerely,

Robert S. Can

Robert S. Cave
Executive Director

All Members of the Committee on Energy and Natural Resources,
U.S. Senate
Stanley W. Balis. Esquire

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