5. PIPELINE SALES DEREGULATION

NGSA opposes the immediate statutory deregulation of both sales and transportation services as set forth in S. 570. NGSA believes that for the foreseeable future most interstate pipelines will continue to possess both monopoly and monopsony power, and that continued FERC oversight is appropriate and necessary. Unlike the "at-risk" pipelines that would be built under the proposed legislation, most existing interstate pipelines were built on an exclusionary basis (i.e., a monopoly) conditioned upon utility-style regulation as provided under the Natural Gas Act. The quid pro quo behind this regulatory "pact" remains to this day and should not be swept aside by deregulation. not mean that a lighter handed regulation of the pipelines' services is not appropriate in some circumstances.

This does

In the case of pipeline sales, NGSA has supported negotiated rates where the pipeline has achieved

comparability of service on its system.

Comparability,

however, is a very complex issue on which the Commission is

developing policy and guidelines. Other inter-related issues, such as the pipeline's service obligation to its customers and customer conversion rights, also remain unresolved on many pipelines. Moreover, in some situations purely negotiated rates may be appropriate for some but not all of the pipeline's customers. In sum, the degree of regulation of the pipelines' sales service remains subject

to many interrelated issues which are best resolved through the existing regulatory process and not through legislation.

As to the existing pipelines transportation services, NGSA opposes any form of blanket deregulation at this time. On nearly all existing interstate pipelines, monopoly power over the transportation service still exists. Even in markets served by more than one pipeline, the market is simply allocated among or between the pipelines. Market allocation does not equate with market competition.

This is not to say that rates on existing interstate pipelines for all services must always be cost-based. However, there still is a need for regulatory oversight of such rates to assure that they are "just and reasonable" and that the market power of the pipeline over its

transportation services is not wielded in a discriminatory manner. NGSA, through its White Paper on Pipeline Rate Reform, has suggested numerous ways for developing more competitive and market-responsive transportation rates and services. However, as was the case with the pipeline sales service, this is a matter that is much better resolved by the existing regulatory process rather than legislation.

This is in response to your letter of March 13, 1991, which requested that we respond to three questions from Senator Murkowski as follow-up to the hearing on Titles VII and VIII of S. 341.

Our responses are enclosed. If we can be of further assistance, do not hesitate to contact

Followup Questions to Hearing on Title VIII. S.341

1. The MMS has proposed 8 lease sales in the Alaska OCS. Could you comment on the importance of the proposed lease sale areas in terms of potential production?

Response: MMS estimates that undiscovered oil resources on the Outer Continental Shelf (OCS) amount to between 3.6 and 24 billion barrels of oil. The Alaska OCS contains between an estimated 2.5 and 8.7 billion barrels of undiscovered oil resources. Within the eight Alaska OCS planning areas, the tracts under consideration for leasing in the Comprehensive Program for 1992-1997 contain between an estimated 1.7 and 3.1 billion barrels of undiscovered oil resources.

The above are conditional estimates and represent the possible range of resources present, given the assumption that hydrocarbons exist in the area of study. Gas on the Alaska OCS is assumed to be uneconomic at the present time.

2. Could you please comment on the oil potential and national significance of leasing and possible developments of the Chukchi and Beaufort Sea lease sale areas?

Response: These are currently viewed as the two most promising offshore areas in Alaska. Conditional mean estimates of undiscovered, economically recoverable resources in the Chukchi and Beaufort Sea planning areas are 5.96 and 1.66 billion barrels of oil, respectively. Conditional estimates are based on the assumption that hydrocarbons exist in planning areas. There may be a substantial range around the mean. These areas hold the potential for some of the largest new oil discoveries predicted anywhere in the United States. For example, the conditional mean estimate for Chukchi Sea oil resources is even larger than the estimates for the Arctic National Wildlife Refuge (ANWR) coastal plain, though the probability of a commercial discovery is lower.

Previous lease sales have already taken place in the Chukchi and Beaufort Seas. Only a small percentage of these areas have been leased, and many of these leases will soon expire. These two planning areas are of particular interest due to their resource potential. In the Comprehensive Program for 1992-1997, lease sales will be considered for the Chukchi Sea planning area in 1994 and 1997 and for the Beaufort Sea planning area in 1993 and 1996.