Rule Changes to Rock Natural Gas Industry

Article excerpt

By Ronda Fears Journal Record Staff Reporter The entire natural gas industry would be hurled into the closest thing to a free market system for the first time since the 1930s in a sweeping proposal by federal regulators now under debate.

"Mega-NOPR," as the notice of proposed rule-making is commonly referred to, is anticipated to rock the industry, spanning from producers to marketers to local distribution companies to interstate pipelines, and even trickle down to consumers. No direct impact is anticipated for intrastate pipelines, except as the marketplace changes.

State regulators will also find themselves and their regulated public _ producers, in-state pipelines and utilities _ in a new world. Oklahoma will especially feel the repercussions, being the third natural gas producing state in the nation.

The natural gas industry has been in a constant state of disarray for nearly 15 years because of laws gradually eliminating regulatory impediments to a national gas market. Federal regulation dates back to the Natural Gas Act of 1938.

Aimed at cultivating a truly competitive climate in the natural gas industry, the proposed rule filed July 31 at the Federal Energy Regulatory Commission suggests a "light-handed" approach to interstate pipeline regulation. More specifically, it is a final step to separate merchant or sales functions from transportation of gas, and emphatically is not intended to deregulate the pipeline industry.

It is inextricably linked, however, to the deregulation of natural gas wellhead prices, which was signed into law in 1989 by President Bush, and to FERC measures taken subsequent to the Natural Gas Policy Act of 1978, which partially decontrolled gas prices. The latter act spawned FERC Order 436 in 1985, which created an indiscretionary open-access market for transporting gas on interstate pipelines.

Those two acts set the tone for the current undertaking by federal regulators, and indeed made action vital to accomplish the stated goal of Congress to foster a national gas market.

"The (FERC) commission's own experience since the implementation of open access transportation in 1985, and the passage of the Natural Gas Wellhead Decontrol Act of 1989 . . . have led the commission to conclude that the structure of interstate pipeline sales services may no longer be well suited to the present economic environment of the natural gas industry," the proposed rule making states.

"The goal, simply put, is to recognize the current characteristics of the natural gas industry _ which is now dominated by pipeline transportation, not by traditional merchant service _ and to create a regulatory framework that will accommodate the meeting of as many gas sellers and buyers as possible." The 96-page proposed rule-making eclipses virtually every nuance of the natural gas industry.

Under the proposal, pipelines can retain historic merchant affiliates _ marketing arms _ but they cannot show preference to haul gas sold by their affiliates. Any seller or marketer theoretically would have "comparability," or equal access to pipeline capacity. Too, transportation services provided by pipelines would include storage space. …