[Federal Register Volume 62, Number 44 (Thursday, March 6, 1997)]
[Notices]
[Pages 10266-10268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5535]


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DEPARTMENT OF ENERGY
[Docket No. PL97-1-000]


Issues and Priorities for the Natural Gas Industry; Notice of 
Public Conference and Opportunity To Comment

February 28, 1997.
    Take notice that the Federal Energy Regulatory Commission is 
convening a public conference on May 29 and 30, 1997, to conduct a 
broad inquiry into the important issues facing the natural gas industry 
today, and the Commission's regulation of the industry for the future. 
The Commission expects a broad ranging discussion that will allow the 
members of the Commission to discuss these issues with the industry, 
and the public generally, in order for the Commission to establish its 
regulatory goals and priorities in the post-Order No. 636 \1\ 
environment. We anticipate engaging all industry segments in a dialogue 
about how the industry currently works, how the industry is changing, 
and how the Commission's regulatory policies should respond to such 
changes in the marketplace.
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    \1\ Pipeline Service Obligations and Revisions to Regulations 
Governing Self-Implementing Transportation; and Regulation of 
Natural Gas Pipelines After Partial Wellhead Decontrol, [Regs. 
Preambles Jan. 1991-June 1996] FERC Stats. & Regs. para. 30,939 
(1992), order on reh'g, Order No. 636-A, [Regs. Preambles Jan. 1991-
June 1992] FERC Stats. & Regs. para. 30,950 (1992), order on reh'g, 
Order No. 636-B, 61 FERC para. 61,272 (1992), reh'g denied, 62 FERC 
para. 61,007 (1993).
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I. Background

    Since the issuance and implementation of Order No. 636, natural gas 
markets have developed rapidly and the industry has gained experience 
functioning under different conditions.\2\ Also, significant changes in 
the structure of the natural gas industry have occurred since Order No. 
636 issued. These include consolidation in the ownership of interstate 
pipelines, the spin-off and spin-down of gathering with the potential 
for state regulation, the emergence of mega marketers, and the emerging 
electric and gas convergence. In addition, many more market centers 
exist today, offering a wide array of services that increase the 
flexibility of the system and facilitate connections between gas 
sellers and buyers. These services commonly include wheeling, parking, 
loaning, and storage.
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    \2\ For example, the winters of 1993-94 and 1995-96 were 
relatively cold and capacity in some regions was tight, and the 
winter of 1994-95 relatively warm and capacity was unusually slack 
in some regions.
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    The interstate pipeline transportation grid has expanded 
significantly, offering

[[Page 10267]]

shippers more flexibility in their choice of supply areas, and creating 
new paths from existing supply areas to additional markets. Today, the 
natural gas contract is among the most heavily traded of all commodity 
futures. Also, pipeline capacity rights can now be traded, and 
electronic communication and trading is increasingly more common. 
Electronic trading systems enable buyers to discover the price and 
availability of gas at transaction points, submit bids, complete 
legally binding transactions, and prearrange capacity release 
transactions. Further, capacity release is also playing an increasingly 
significant role in permitting the reallocation of firm pipeline 
capacity to customers most desiring it. Capacity release permits 
shippers to release the rights to transportation on the segments of a 
pipeline they do not need, and to acquire firm rights in segments that 
connect to other supply areas, on a temporary or permanent basis. In 
sum, all of the changes that have occurred since Order No. 636 have 
given shippers better alternatives at less cost and greater reliability 
than ever before.
    With all these advances, the industry now faces new issues. A few 
states have implemented unbundled retail access for all customer 
classes. Unbundled retail access is progressing in some states faster 
than others, and unbundled retail access generally is not available to 
all customer classes equally. Further, the exercise of market power 
behind the city gate may translate into the exercise of market power in 
the interstate transportation market. These developments may create new 
issues for the Commission in its regulation of interstate pipelines.
    In addition, the ability of customers to buy and sell gas and 
transportation capacity, especially in the intraday market, is not yet 
a reality. Electric generators, for example, sell into increasingly 
competitive hourly electric markets. The natural gas market has not yet 
developed the ability to engage in transactions on an hourly basis. The 
Commission would like input on whether trading gas and transportation 
capacity on an hourly basis is desirable to meet the needs of 
customers. It may be that regulatory impediments exist that prevent the 
natural gas industry from offering such flexibility.
    Under Order No. 636 the natural gas markets have improved industry 
reliability; however, there may be further improvements that could be 
made, and at a lower cost. From a competitive perspective, gas 
transportation and commodity markets are interconnected. Many commodity 
trades cannot occur without the appropriate transportation. Therefore, 
the Commission needs to continually assess the operation of the 
transportation system to ensure that unnecessary restrictions, 
particularly regulatory restrictions, do not impair the functioning of 
the commodity market. Are there aspects of interstate pipeline 
regulation that could facilitate the emergence of even more efficient 
natural gas commodity and transportation markets?
    In the aftermath of Order No. 636, the Commission also sees more 
competition among interstate pipelines. Nontraditional interstate 
service providers, such as intrastate pipelines, Hinshaw pipelines and 
local distribution companies, are also competing with interstate 
pipelines to provide interstate service. This raises questions 
concerning the relative roles of NGPA Section 311 \3\ and NGA Section 7 
\4\ in meeting the demand for new interstate services. Increased use of 
NGPA Section 311 to provide a wide variety of interstate transportation 
services creates questions about applying two different regulatory 
regimes.
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    \3\ 15 U.S.C. Sec. 3371.
    \4\ 15 U.S.C. Sec. 717f.
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    In addition, there are longstanding issues respecting pricing and 
environmental review for new facilities. Furthermore, given the post-
Order No. 636 evolution of the natural gas industry, there are 
questions concerning the Commission's criteria for the certification 
and siting of new interstate pipeline facilities.
    At the same time, market power issues also remain a concern. 
Discrimination, affiliate abuse, and other exercises of market power by 
transporters and holders of interstate pipeline capacity (i.e., LDC's, 
marketers, producers and endusers) can undermine the goals of open 
access and can pose impediments to greater regulatory flexibility.
    The Commission remains committed to the fundamental goal of Order 
No. 636: ``improving the competitive structure of the natural gas 
industry in order to maximize the benefits of wellhead decontrol.'' \5\ 
To that end, the Commission has already initiated certain regulatory 
changes to improve the functioning of the transportation grid. Among 
these are the standardization of interstate pipeline business 
practices,\6\ which the Commission intends to be a continuing effort. 
The Commission also has adopted an alternative ratemaking policy, 
including market-based, negotiated, and incentive rates. Further, the 
Commission has obtained comments on the appropriateness of also 
permitting the negotiation of the terms and conditions of service.\7\ 
The Commission has also considered capacity turnback issues in specific 
cases. The Commission has proposed improvements to the capacity release 
rules so that pipeline capacity can be traded more efficiently.\8\ In 
addition to these initiatives, the Commission has also been urged to 
develop procedures to clarify and expedite the processing of 
complaints.
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    \5\ Order No. 636 at 30,392 (citation omitted).
    \6\ Standards for Business Practices of Interstate Natural Gas 
Pipelines, Order No. 587, 61 FR 39053 (July 26, 1996), III FERC 
Stats. & Regs. para. 31,038 (1996) (to be codified at 18 CFR Parts 
161, 250 and 284).
    \7\ Alternatives to Traditional Cost-of-Service Ratemaking for 
Natural Gas Pipelines and Regulation of Negotiated Transportation 
Services of Natural Gas Pipelines, 74 FERC para. 61,076 (1996).
    \8\ Secondary Market Transactions on Interstate Natural Gas 
Pipelines, 61 FR 41046 (August 7, 1996), IV FERC Stats. & Regs. 
para. 32,520 (proposed July 31, 1996).
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II. Scope of Inquiry

    As noted, the Commission is interested in obtaining public comment 
as to what should be the Commission's near-term and longer term 
regulatory priorities. We request a broad analysis of industry issues 
now and in the future, including those deemed the highest priority for 
Commission action. Specifically, the Commission would like input on 
issues of competition and market power, the general financial outlook 
for the industry, and the present and future development of industry 
segments (e.e., pipelines, local distribution companies, producers, 
marketers, and consumers). We would also like an analysis of whether, 
and to what extent, the Commission's current approach to regulation 
should be altered. For example, in light of the issues identified, what 
procedural innovations should the Commission explore? How can the 
Commission more effectively address the issues inherent in a 
competitive environment? How should the Commission continue to fulfill 
its NGA mandate in an increasingly competitive market? It is the 
answers to these kinds of questions that the Commission seeks in this 
proceeding.

III. Request for Comments

    In order to focus and facilitate the organization of the discussion 
at the conference, the Commission requests written comments from 
interested participants to be filed with the Commission by April 29, 
1997. The Commission requests that the

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participants include executive summaries in their comments, and file 
joint comments, wherever possible. Any person who wishes to make a 
formal presentation to the Commission should submit a request to the 
Secretary of the Commission along with the written comments. The 
Commission will issue a separate notice at a later date organizing the 
public conference.
    An original and 14 copies of comments on these issues should be 
submitted to the Office of the Secretary, Federal Energy Regulatory 
Commission, 888 First Street, N.E., Washington, DC 20426, and should 
refer to Docket No. PL97-1-000. All written comments will be placed in 
the Commission's public files and will be available for inspection in 
the Commission's Public Reference Room during regular business hours.
    Commenters are requested to submit a diskette containing the 
written comments. If the Commission receives diskettes with the 
comments submitted in hard copy, then the Commission will make the 
written comments also available on the Commission Issuance Posting 
System (CIPS). CIPS is available at no charge to the user and may be 
accessed using a personal computer with a modem by dialing 202-208-1397 
if dialing locally or 1-800-856-3920 if dialing long distance. To 
access CIPS, set your communications software to 19200, 14400, 12000, 
9600, 7200, 4800, 2400, or 1200 bps, full duplex, no parity, 8 data 
bits and 1 stop bit. The full text of this order will be available on 
CIPS in ASCII and WordPerfect 5.1 format. CIPS user assistance is 
available at 202-208-2474. CIPS is also available on the Internet 
through the Fed World system. Telnet software is required. To access 
CIPS via the Internet, point your browser to the URL address: http://
www.fedworld.gov and select the ``Go to the FedWorld Telnet Site'' 
button. When your Telnet software connects you, log on to the FedWorld 
system, scroll down and select FedWorld by typing: 1 and at the command 
line and type: /go FERC. FedWorld may also be accessed by Telnet at the 
address fedworld.gov.
    All questions concerning the format of the conference should be 
directed to: Erica J. Yanoff, Office of the General Counsel, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, 202-208-0708.

    By direction of the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 97-5535 Filed 3-5-97; 8:45 am]
BILLING CODE 6717-01-M