[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] ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \3\ 15 U.S.C. Sec. 3371. \4\ 15 U.S.C. Sec. 717f. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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 [[Page 10268]] 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