an

natural gas industry, industry which expects to expand its share of the nation's overall energy market in the near future.

ONCLUSION

AGD appreciates the opportunity to comment on s. 341 and Senator Bingaman's amendments. We are fully prepared to assist

this Committee in the development of a more efficient natural gas

regulatory structure that will further enhance the gas industry's ability to obtain for society the maximum beneficial use of natu

ral gas.

On March 14, 1991, AGD submitted a prepared statement for the Committee's hearing record Title X of S. 341, the "National

on

Energy Security Act of 1991," and certain amendments to that

bill

offered by Senator Bingaman.

This supplemental statement provides

AGD's views on the natural gas title of s.

tion's "National Energy Strategy Act" (NES), and responds to certain issues raised at the March 7, 1991 hearing on s. 341.

natu

As an introductory matter, it should be noted that the
gas regulatory reform title of s. 570, the NES, goes well be-

ral

Natural Gas Act (NGA) regulatory structure, s. 570 would authorize

sweeping and fundamental revisions to that structure

which

would

alter dramatically the operation of an essential component of the natural gas industry interstate pipelines. AGD agrees that many aspects of the present federal regulatory structure should be streamlined and fine-tuned for the benefit of the gas industry and society at large. AGD does not, however, agree with the approach taken in s. 570 which would, as a practical matter, "re-invent the wheel" and saddle industry with a wholly unproven structure at a time when some reasonable modicum of certainty and stability in regulation is critical to achieving the market promise of natural

gas.

to

S. 570 seems to be based upon a set of theoretical

premises the effect that the interstate pipeline industry is "competitive," that regulation of these natural monopolies is no longer in

the

public interest and that "market forces" can therefore elicit

efficiencies which are lost by government regulation. There is certainly some truth to these premises, but hardly enough to go as far as s. 570 would go toward interstate pipeline decontrol. At this point in time, the inherent market power of interstate pipelines simply cannot reasonably be ignored or dismissed to the

ex

tent done in s. 570.

no

as

It is answer to say that much of s. 570 merely confers "options" on pipelines. The fact is that "options" such as those set forth in s. 570 will, through a combination of interstate pipeline market power, both monopoly and monopsony, and strong market demands at the city-gates and production fields, accentuate the unequal bargaining positions of industry participants and permit pipelines to extract above free market concessions from all others in the industry and, ultimately, from consumers well. Further, in a competitive market, these "options" will more likely than not become the standard order of business and thereby replace entirely the NGA regulatory structure. The necessity for this outcome is questionable, and the appropriateness of it is similarly dubious given the dramatic changes that have already occurred in the gas industry and the fact that many elements of S. 570 could be accomplished by the Federal Energy Regulatory Commission (PERC or Commission) under present law and in a manner which would allow full and considered treatment of the views and concerns of

all affected parties.

or

interstate pipeline interconnections either "downstream" at delivery points "upstream" at receipt points. NGA S 7(a) has, of course, provided authority for the Commission to order downstrear interconnections for many years. This power, though used sparingly, has elicited a body of Commission precedent and case law that

has defined the parameters of PERC action in such cases.

Industry

to

are

is generally comfortable with these procedures, but their expansion upstream interconnections raises new issues related to potential service impairment to existing customers which

not adequately accounted for by the proposed revisions to s 7(a). Issues relating to existing capacity entitlements, transportation obligations once

interconnected, and cost (beyond the physical facilities) allocation as to administration (dispatching, metering, balancing, etc.) of the interconnection are left unresolved by the proposal.

a

The protections set forth in proposed S 7(a) (3) are essentially restatement of the conditions found in the "provided" clause of the present s 7(a).

There is, however, significant difference between the present s 7(a) and the proposed revision. The proposed revision includes the new S 7(k) "non jurisdictional option" facilities, and those facilities may be for the transpor