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Industry 'Swamped' by FERC's NOPR, NOI; Requests Extension

Industry 'Swamped' by FERC's NOPR, NOI; Requests Extension

Citing the breadth of the undertaking as the reason, six trade associations last week jointly asked FERC to extend by 74 days the deadline for the gas industry to respond to the major notice of proposed rulemaking (NOPR) and notice of inquiry (NOI) that were issued in July.

Both Commission efforts "embrace a vast number of issues affecting the interstate gas transportation market, which, if promulgated, would effectuate a comprehensive change in the current way of doing business...Between the NOPR and NOI, commenters are [being] asked to address approximately 200 separate issues," the trade groups said. Their request, if agreed to by FERC, would push back the comment deadline from Nov. 9th to Jan. 22nd. They have asked for expedited action on the request [RM98-10, RM98-11, RM98-12].

Groups seeking the extension include the American Gas Association, the Interstate Natural Gas Association of America, the Natural Gas Supply Association, the Independent Petroleum Association of America, the Process Gas Consumers Group/American Iron and Steel Institute, and the National Association of Consumer Advocates. It was the second time in the last week that industry groups backed away from FERC's latest megaNOPR (See GISB report this issue).

Many of the issues posed by the NOPR and NOI don't lend themselves to easy answers and demand industry solutions, the groups pointed out. "For example, the auction proposal is conceptual in nature and the details of how the auction would be run are not spelled out [in the NOPR]. This industry is called upon to step forward and fill in the details." At the same time, "the NOI poses many questions of serious financial consequences to the industry that require a thoughtful response."

"We're buried. The Commission basically laid on us...with the NOPR and the NOI a reconsideration of the entire regulatory structure without giving us very much detail," said a trade group representative in explaining the need for the extension. The NOPR addresses the regulation of short-term transportation services. Specifically, it proposed the removal of existing price caps on short-term (less than one year) firm, interruptible and capacity-release transactions in return for pipelines conducting auctions of that capacity. The proposal has come under intense fire from industry because FERC provided scant detail about how the auctions would be carried out. The NOI, on the other hand, focuses on the regulation of long-term transportation services, raising issues such as the negotiation of terms and conditions of services and review of straight-fixed variable rate design.

"The auction [as outlined in the NOPR} is all 'if then.' If you do this, then you should do something else that way. If you do it this way, then you've got to do the same thing differently. It's driving people up the wall," noted the source, who requested anonymity. "And the fact the auction was totally unexpected, I think, by all the elements of the industry" has added to the confusion.

Even the Commission staff is having its share of trouble with the auction proposal. "...[W]hen we had some meetings [last] month with Kevin Madden [director of the Office of Pipeline Regulation] and his people about auctions, one of the interesting things that happened...was they started arguing with each other. So I don't think the staff, and I can't say anything about the commissioners, even has a clear vision of where this should be taken."

He doesn't think FERC will deny the gas industry's request for a delay. "Everybody's been telling us, at least the FERC staff has been telling us, that the Commission's not going to move on this quickly," the source noted, referring to both the NOPR and NOI. "I get the sense...that there's no rush to judgment."

The NOPR and the NOI, specifically the auction proposal, also were a hot topic among executives at the Gas Industry Standards Board (GISB) annual board meeting in San Antonio, TX, last week. "Let's face it. We asked them [the FERC] to do something like this with respect to secondary market issues. [But] as the FERC moves forward it needs to be careful to prioritize in order to avoid adopting mutually exclusive rules," said Bill Boswell, vice president, secretary and general counsel for Peoples Gas.

"The thing that comes to mind here to me at least most obviously is we have all of these intraday nominations standards, which in addition to being GISB standards are FERC regulations, and how does that fit with daily auctions, which FERC has on the table right now. They are potentially mutually inconsistent.Does it obviate the need for the rules we already have on the books right now which FERC already decided were pretty darn good?" he asked.

Also, the Commission "needs to avoid standing in the way of what customers want, and putting my LDC hat on, one of the things we think our customers want right now is the ability to have prearranged deals," Boswell said. "FERC does not appear to like prearranged deals, at least in terms of the initial thrust of the NOPR. I think that position, if that's what it is, needs to be revisited."

Meanwhile, there has been a lack of enthusiasm for the convoluted new regulatory hoops FERC has suggested the industry set up and then jump through. The million-dollar question for LDCs and others is: "Is the removal of price caps worth the cost?" FERC seems to believe "LDCs were very, very hot on removing the price caps...We had a number of issues that came under the heading of secondary market concerns, and while removal of price caps was one of those, it's not the leading one," Boswell noted. "Indeed, when we initially raised it somebody. [indicated it would be] simply nice to have. It's probably higher than nice to have right now, but considering what FERC would want in replacement of the removal of price caps we have to ask ourselves whether those are things such that the juice may not be worth the squeeze."

Mike Bray, vice president of corporate rates and regulatory affairs at Duke Energy, also agreed the cure proposed by FERC might be a bit too drastic. "FERC seems to be overly concerned about the market power issue. I also agree with [the] observation that the current system seems to work okay. Maybe it just needs some fine-tuning."

Susan Parker; Joe Fisher, San Antonio

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