The Associated Gas Distributors (AGD) is a group of 41 natural gas distribution companies which provide gas utility service to consumers in Southern California and along the East Coast. As State or locally regulated public utilities, the AGD members approach federal energy policy issues affecting natural gas with a unique perspective. These companies are not free to "pick up their pipes" and move to some more profitable location. They are, instead, inextricably bound to the local areas and economies wherein they serve.

Unlike gas producers, marketers, brokers and large industrial users, the AGD members are regulated public utilities. They have obligations at the State and local level which transcend, both as a legal and practical matter, the obligations of any other segment of the gas industry. Unlike interstate pipeline companies, which are for the most part regulated by the Federal Energy Regulatory Commission (FERC or Commission), the AGD members are not directly regulated by FERC, but are directly and significantly affected by the policies and rules

there.

established

AGD agrees that there is a great deal that can be done to streamline the federal natural gas regulatory structure.

Indeed, some revisions to that structure are essential to permit the industry to meet the demands of the marketplace for natural gas. Air quality concerns, undue reliance on imported oil, balance of payments and efficient use of energy all point to a more expanded

role for the direct

use of natural gas in the Nation's energy consumption mix. Gas utilities and the infrastructure they command stand ready, willing and able as the critical link to the retail marketplace to rise to that occasion.

By and

Legislative initiatives, such as S. 341, hold the promise of removing some of the unnecessary and burdensome institutional barriers to natural gas reaching its full potential. large, these initiatives are welcome and long overdue. to public policy success on these initiatives is to sense of equilibrium or balance.

The key

maintain a

And, it is

Fundamental systemic changes are necessary. equally necessary that the embedded benefits of the gas utility infrastructure be retained and nurtured to an even greater potential betterment of society. Thus it is that AGD urges the Committee throughout this prepared statement to weigh carefully the implications of its actions on the gas utility segment of the industry and the millions of consumers served thereby. It would be ironic indeed if the well-intended initiatives of today are permitted to so obscure and undermine the benefits of the present system that those benefits are lost for naught.

COMMENTS ON

TITLE X OF S. 341

Section 10001

Optional Construction Procedures. AGD generally supports the optional procedure for construction of natural gas transportation facilities as drafted in S 10001. Several key features of $ 10001 are essential and should be retained and, in some respects, clarified. First, the power of the Federal Energy Regulatory Commission to attach reasonable terms and conditions to the operating certificate, as set forth in paragraph (b)(2) will presumably provide an opportunity for affected parties to obtain Commission redress on matters which adversely inpact their interests. It should be made clear that the Commission's conditioning power will be available at least to address issues related to impairment or degradation of service to existing pipeline customers, oversubscription of capacity, subsidization of the new service by third-parties and bypass of local distribution companies (LDC).

Second, the 10-year prohibition on allocating costs of the facilities to other services of the company, S 10001(d), properly seeks to shield third-parties from costs for which they are not responsible. This is in accordance with traditional cost responsibility concepts and should be retained. It may be advisable also to consider a more flexible cost allocation procedure whereby costs could, upon a proper showing, be allocated differently

to account for changes in the usefulness of the service over time, though still within the 10-year period.

the

Third, subparagraph 10001(c)(1)(iv) provides that rates for facility shall be "stand-alone and incremental." This seems to imply that rates would be "cost-based" as well, even though subparagraph 10001(c)(1)(iii) provides that an agreement between the company and a person who contracts for transportation service "may constitute a rate schedule." There appears to be an ambiguity here which should be clarified to assure that rates are "cost-based," that is, based upon booked cost of service data. This is an especially important notion given that in most circumstances pipeline/facilities capacity is now, and is likely to remain in the future, a monopoly product which the competitive give and take of market participants is unlikely to mitigate.

this

Fourth, the provision for application of NGA S 5 to rate revisions, as stated in paragraph 10001(c)(3), is a necessary and proper safeguard against unjust, unreasonable, unduly discriminatory or preferential rates and service. In terms of perfecting provision to make it more useful as a practical matter, AGD reca sends that reasonably prompt deadlines be included as to Ca mission action on any complaints as well as any further Comnission remedy developed pursuant to a complaint. The present and future dynamics of the natural gas marketplace need an equally dynamic and efficient process for resolving complaints in a timely, and therefore effective, manner. A complaint process

which six months or more after the fact finds that a marketer, broker, producer, industrial user, LDC or other shipper should have been permitted to move gas six months earlier is simply not an effective remedial process.

Finally, S 10001 appears by its terms to be limited to facilities "to provide transportation service," § 10001(b)(1), as opposed to facilities which provide transportation or sales service. It is certainly true that pipeline transportation of gas owned by others has become the dominant portion of pipeline throughput in recent years. By the same token, however, a substantial portion of throughput remains pipeline sales volumes, and there does not appear to be any particularly sound public policy rationale for excluding facilities for sales service from the optional procedures section. To the contrary, sales service continues to play a critical role for most LDCs as a part of a portfolio of gas supplies necessary to serve retail markets. Accordingly, AGD suggests that § 10001 be revised to include facilities for the transportation or sales of gas.

-

NGPA S 311 Transportation.

Section 10002 NGPA S 311 was originally intended to facilitate access by the pre-1978 "interstate" gas markets to "intrastate" gas supplies. Its use has quite obviously expanded, and substantially so, beyond that original intent. In many respects this development has been favorable, e.g., constructive competition has been enhanced, alternative supply arrangements have been developed and more quickly