FERC Warned Against Underestimating Pipe Monopolies
A regulatory expert last week called on FERC to impose a
moratorium on awarding market-based rates for primary
transportation capacity due to the expected continued "monopoly"
nature of major interstate pipelines.
Despite the "fundamental structural changes" proposed by the
Commission, "in the near [term] pipelines will continue to have
market power so that the FERC should not approve market-based
pricing for any significant portion of any major interstate
pipeline," said Pam Prairie, director of the Institute of Public
Utilities at Michigan State University, during the seventh annual
DOE-NARUC natural gas conference in Pittsburgh, PA.
Although "the wholesale transportation market has come a long
way," it is "still a far cry from being workably competitive with
respect to transportation, storage and primary capacity markets,"
she told state regulators and gas industry executives. "For all
practical purposes, interstate natural gas delivery systems remain
a monopoly just as they have been for the past 50 years."
That interstate pipelines retain market power was confirmed by
FERC last month when it denied market-based transportation rates to
Koch Gateway Pipeline. The decision marked the first time that the
Commission had considered a request for market-based transportation
rates on a major long-haul gas pipeline. In 1996. it approved
similar rate authority for KN Interstate Gas Transmission's Buffalo
Wallow system, but that involved short-haul transportation.
Despite the "growing number of second and even third pipelines
[into] many regions of the country, incumbent pipelines continue to
have a disproportionately larger share of the firm transportation
market." There are "significant barriers" that prevent competing
pipeline projects from entering into new markets. "...[I]t's very
difficult to build a duplicate pipeline at prices that compete with
the incumbent's prices," Prairie noted.
This isn't to say there haven't been significant pipeline
expansions in recent years. But despite these, "[incumbent]
pipelines continue to maintain market power both in terms of [the]
share of the long-term firm capacity market...and with respect to
their ability to exercise market power through discriminatory
prices," she said. Even in markets where there are alternative
pipelines systems available for customers, "the number of competing
pipes suggest that what we have is a tight oligopoly rather than a
fully competitive market."
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