Gas Regulators Get Praise, Advice from IEA
While efforts to deregulate the electric industry at both the
state and federal level drag on, at least one international
observer found U.S. gas deregulation worthy of praise. Robert
Priddle, executive director of the International Energy Agency
(IEA) in Paris, told reporters at the 17th Congress of the World
Energy Council that the United States leads the world in gas
Priddle said he is heartened by the Federal Energy Regulatory
Commission's (FERC) decision to review pipeline rate regulation.
Priddle gave his talk to highlight findings of the IEA's report
card on U.S. energy policy. The findings stem from a 1998 review
and are published by the agency in a 152-page book.
"The outlook for further deregulation of gas transportation is
quite mixed," the report says. "Despite a very large number of
pipeline companies, wide areas of the country still receive
supplies from fewer than three transportation companies. Some
cities like Chicago and some states like Louisiana or New York have
ample opportunity to choose between different pipelines, but most
parts of the country still depend on a small number of lines -
sometimes only one." Judging from the IEA's map of the U.S.
pipelines, states with a dearth of options include Idaho, Nevada
Utah, and the Carolinas.
The review found the secondary market of pipeline capacity to be
critical to competition, but it points out trouble with electronic
bulletin boards intended to disseminate capacity information.
"Obtaining timely information on - and confirmation of -
capacity reservation can become a problem if a shipper needs to
line up several pipeline segment reservations, plus possibly other
network services, for one delivery. The information and transaction
costs can be high because time lags in posting bids and completing
transactions typically takes two to three days. FERC has a crucial
role in reducing such transaction costs."
The report continued to outline findings that more work remains
on capacity rate regulation. "During off-peak periods (the
non-heating season), prices have fallen considerably below market
value. This has meant that companies in regions with ample pipeline
capacity have been unable to earn the regulated rate of return on
the released capacity. It clearly reflects how the current system
of price regulation does not take properly into account the
peak-load characteristics of the gas business reflected in marginal
IEA said the existence of a gray market for pipeline capacity
shows in principle that pipeline price regulation is no longer
adapted to the market and that regulators make rule adjustments to
market conditions too late. "The gray market needs attention
because it constitutes a hidden path to vertical re-integration not
in the interest of competition in gas marketing. Simply removing
pipeline rate regulation would provide no solution because the
business is not yet sufficiently competitive." As the gray market
does reveal the market's valuation of capacity during peak periods,
simply getting rid of it would not be efficient even if feasible,
Speaking on electric deregulation, Priddle said, "We have no
doubt that the United States is in a dynamic transition phase in
its electricity market, and we applaud that." However, Priddle
noted that dynamic transition is not taking place in a unified
fashion. In other words, every state and the federal government is
doing its own thing. Priddle and the IEA recommend that federal
policy create a legal framework to shepherd the states transition
to competition. This would avoid, for instance, disputes between
states power moves between.
Joe Fisher, Houston
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