natural

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

ICLUSION

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.

bill

On March 14, 1991, AGD submitted a prepared statement for the Committee's hearing record on Title X of S. 341, the "National Energy Security Act of 1991," and certain amendments to that offered by Senator Bingaman. This supplemental statement provides AGD's views on the natural gas title of S. 570, the Administration's "National Energy Strategy Act" (NES), and responds to certain issues raised at the March 7, 1991 hearing on S. 341.

ral

As an introductory matter, it should be noted that the natu

gas regulatory reform title of S. 570, the NES, goes well beyond S. 341. Rather than streamline and enhance the existing 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.

S. 570 seems to be based upon a set of theoretical premises to 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 extent done in S. 570.

It is no answer

and strong

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, 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 as 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 (FERC 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.

COMMENT ON

TITLE II OF S. 570

Section 201

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Interconnection Authority. AGD generally op

poses further expansion of the Commission's authority to order interstate pipeline interconnections either "downstream" at delivery points or "upstream" at receipt points. NGA S 7(a) has, of course, provided authority for the Commission to order downstream 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 FERC action in such cases. Industry is generally comfortable with these procedures, but their expansion to upstream interconnections raises new issues related to potential service impairment to existing customers which are not adequately accounted for by the proposed revisions to § 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.

There is,

The protections set forth in proposed $_7(a)(3) are essentially a restatement of the conditions found in the "provided" clause of the present S 7(a). however, a significant difference between the present $ 7(a) and the proposed revision. The proposed revision includes the new S 7(k) "nonjurisdictional option" facilities, and those facilities may be for the transpor