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Hebert Steps Out in Front on Gas Issues

Hebert Steps Out in Front on Gas Issues

While FERC's regulatory options paper so far has been kept tightly under wraps, Commissioner Curt L. Hebert Jr. clearly is not hiding his views on FERC policy. In an article titled "The Quest for an Inventive Utility Regulatory Agenda" published in the Energy Law Journal, Hebert is particularly critical of past FERC policy blunders, and shows, despite his short time on the federal panel, he's not afraid to step into the limelight and make frank arguments for future gas and electric policy direction.

His stated purpose: to "compel the utility industry, regulators, stockholders and consumers to take a second look at the regulatory framework of today's utilities to ensure the most efficient service at the lowest cost to the customer."

".[I]f we are moving towards one (competition), we should be moving away from the other (regulation). I query, are we doing as we have been taught? I suggest we should be doing more."

Hebert focuses primarily on providing more incentives for regulated companies to participate in the competitive market. He devotes up to 75% of his discussion on FERC's electric agenda, showing his forte on electric issues while at the Mississippi Public Service Commission, but in the end, moves to the point on some of the most important gas topics of the day.

Hebert believes the Commission should take a more flexible approach to the issues of return on equity, certification, negotiated terms and conditions and capacity release. That "will enable this industry to respond to the stifling disconnect between FERC regulated prices and market-driven values."

The Commission should be alarmed when pipeline officials, specifically Williams CEO Keith Bailey, are publicly voicing concerns about insufficient rates of return to attract capital to expand at a time when current estimates put natural gas demand at the unprecedented level of 30 Tcf/year by 2010, he said.

"If the Commission would use a higher rate of return as an incentive, it would give the industry the incentive to respond to the anticipated, impending growth in demand, and, at the same time would protect ratepayers from the impact of stranded costs, while giving shippers alternatives." Offering higher rates of return in conjunction with incrementally-priced pipeline construction is "an example of how incentive rates can be used to encourage development. More important, once derived, the rate of return should be used with some flexibility as a tool that would mimic the pressures and influences that a free market would exert."

In addition, Hebert said, the Commission needs to be more disciplined in its application of its certificate policy. He cited several cases in which the Commission's decisions contradicted stated policies. "I am concerned that the Commission's recent actions in these cases [Granite State Gas Transmission's Wells LNG project and a contract dispute between Texas Eastern and Public Service Electric and Gas] will stifle, rather than encourage, actions in the certificate arena." The Commission should "remain faithful to its articulated policy of confining itself to the four corners of a contract and accepting applicable contracts as evidence of market need," he said.

In the Journal article, Hebert also expressed his support for allowing pipelines to negotiate terms and conditions, and for removing the price caps on released capacity. Without such changes, Hebert worries the industry will lack the tools it needs to provide efficient and low-cost service and create a more competitive marketplace.

Rocco Canonica

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