'Fairness' in Gas Regs Should 'Bite the Dust,' Williams Says
Williams Gas Pipelines' Lew Posekany proposed something this
week that would make most pipeline customers cringe-that FERC in
its quest to create a more competitive natural gas market should
toss out some of the notions of fairness that have been woven into
its regulations over time.
"Some of the considerations about fairness that have driven gas
regulation for years frankly are going to have to bite the dust,"
said the senior vice president for group planning and development,
who participated in a panel discussion on major transportation
issues at NGI's GasMart/Power '99 on Tuesday in Dallas.
The remark drew an immediate rise from Washington attorney
Katherine Edwards, who represents major producers. "That's the
major problem I have with completely unleashing everything because
I'm idealistic enough to think that regulators still have to
guarantee some basic semblance of fairness in the marketplace...
Competition is one thing, but if by competition it means that
people are free to discriminate and discrimination is good then I
think that is a greater harm than competition is a greater good."
Posekany countered that equal treatment and fairness were
becoming more difficult in today's market. "I think, frankly, what
you need to think about is in differentiating markets how tightly
do we hold on to the old equal treatment for similarly situated
when similarly situated gets harder and harder to find," he said.
"There's also frankly the element of opportunism because at least
in my view the next 8 Tcf of load is going to be created by
entrepreneurship in the downstream market..... It's going to be
driven by people out there making deals." In order to get that
business "we're going to have to let go of some of the old concepts
of equality of treatment....."
FERC Commission Curt Hebert Jr. assured Edwards that
discriminatory behavior would not be tolerated. "I don't ever see
the federal government moving away from regulation in the sense
that it's going to tolerate what will be perceived or ruled as
discriminatory conduct. I think you're going to continue to have
certain rules of conduct. You're certainly going to have affiliate
rules until and if ever you can relax them," he told gas executives
at the conference.
He dropped something of a bombshell when he said FERC, however,
might not be the enforcer of fairness in the gas industry in the
years ahead. "I'm not sure FERC will be the agency to decide all of
those rules in the future. It could be the Department of Justice. I
think that's where we'd go from here. How quickly we get there I'm
The future for Williams and other pipelines is in negotiated
terms and conditions, Posekany said. "Our main pitch in the NOPR
and NOI is more flexibility. We think we need it to make the growth
happen and to keep the business that we've got. We're seeing people
that want customized deals that are tailored to meet their needs,
not a standardized product that was decided on by five political
appointees after consultation for several years with 257 industry
representatives, each with an equal voice but not necessarily equal
economics." Eventually, Williams believes "most of the industry is
going to prefer negotiated rates, terms and conditions....."
With respect to captive customers, he noted, "they're going to
have to be taken care of by a regulatory process that works.
Whether they ought to get the benefits of innovations and economics
that are developed for customers with entirely different economic
characteristics..... I'd strongly argue with....."
David D'Allesandro, a Washington attorney representing state
commissions, thinks FERC should bar pipelines from negotiating
terms and conditions with their affiliates, particularly affiliated
generating companies. "It seems that the inherent advantages that
are already built in to electric company ownership of
pipelines...would only be enhanced further if pipelines could
negotiate separate deals with their affiliates."
The Williams' official generally embraced the pipeline position
on FERC's proposed auctions, saying they were "more trouble than
they're worth." But he did make a slight departure. "There are
probably situations where on individual pipelines they might work,
and the pipeline and its customer base might think [they're] a good
idea under certain circumstances. [There's] no reason not to let
those evolve.....but please [FERC] don't mandate them." Still,
Williams thinks the Commission should lift the price caps in the
short-term capacity market. Posekany contends the market has plenty
of competition, and the caps are depressing the true value of the
"You [Posekany] talk about lifting the price caps, but what I
didn't hear from you was anything on elimination of the reserve
price. What I heard was you want the upside of market-based rates,
but I haven't heard you [say you're] willing to assume the downside
risk of the reserve price," said Kathryn L. Patton, director and
regulatory counsel for Dynegy Inc.
He conceded most of his "brethren" at the Interstate Natural Gas
Association of America (INGAA), and individual pipelines, were
"very staunchly opposed" to any kind of auction without a reserve
price. But, he believes, "probably there are situations where if
push came to shove it [the auction] could be done, it could be
worked," although "not most often."
Posekany noted that most financial analysts "hate the idea of an
auction without a reserve price because all it is is an opportunity
to lose money." Commissioner Hebert remarked that the reserve price
was "the very issue that has made it tough on the auction process."
On rate design, he said Williams came down on the side of
volumetric rates. "The pipeline industry is split all over the
place on this...Most of the Williams pipelines actually would
prefer a shift away from SFV [straight fixed variable] to more of a
volumetric-based rate design simply because we think we could do
And, the pipeline welcomes greater transparency in the market.
"...[O]ur position is not the same as most of the pipelines. We're
probably a tad more radical. Our view is frankly we're happy to
have the Commission and the staff to look at anything we do anytime
they want to," Posekany said.
"The problem I do have with transparency is really more of a
commercial [nature]...in that we're the only business in the
business world that when you go out and make a deal with customers
that you're happy with then you [have to] submit it to the scrutiny
of your competitors and [their] competitors to see if they can
dream up ways" to build on it. "That process, frankly, to the
investment community that's looking at risking capital on
big-ticket projects is just nuts."