Former FERC Chairman Martin L. Allday has expressed “deepconcern” about the Commission’s proposals to lift the price cap onshort-term capacity and to negotiate terms and conditions oftransportation service, saying they could threaten the successstory of Order 636. Allday’s Commission was the architect of therule that led to the restructuring of the natural gas industry.

The latest proposals “could have a devastating impact on thenatural gas market in general and smaller players in the gasindustry [producers], in particular,” Allday, now an attorney inAustin, TX, representing oil and natural gas producers andlandowners, said in a letter to Chairman James J. Hoecker. Giventheir “critical import” to the gas industry, he urged FERC “not torush to judgment” on the proposed reforms.

Although a “true believer” in the benefits of marketcompetition, he said rate and tariff protections still are”central” to the regulatory mechanism created in the Natural GasAct and the “afforded continued vitality” of Order 636. “Regulationis a necessary surrogate for competition where workably competitivemarkets do not exist.” And, “removal of these protections wouldundermine much of what was accomplished in Order 636 by effectivelyderegulating pipeline services that are not competitive while atthe same time subjecting those at the producing and consuming endsof the pipeline to the abuse of market power.”

Allday would not go as far as to say the notice of proposedrulemaking (NOPR) and notice of inquiry (NOI), which outlined thegas reforms, would wind up destroying Order 636, but “they’llcertainly flip it around a little bit,” he told NGI in aninterview. “I hate to see them monkeying with what’s been workingpretty good” since 1992.

“I don’t want to say anything detrimental about them [FERC].They’re trying to do the same darn thing that I did when I wasthere – do what they think’s right. I just don’t think that what isbeing proposed is for the good of the industry,” Allday noted. “Itseems to me that they are considering putting market power rightback in their [pipelines’] pockets with no control at all,” whileleaving the producers that are unaffiliated with pipelines and gascustomers unprotected.

He estimated about 95% of the producers in Texas who actuallyunderstand what the Commission is trying to do with its proposalsare opposed to them. Producers traditionally “have often been giventhe short end of the stick,” Allday told Hoecker, adding that thisneeds to change.

“All parts of the gas industry need to be treated fairly -producers, pipelines and consumers. And to unfetter a part of theindustry so as to empower one facet of the industry, which wouldhold deregulated market power, would, in my mind, be a mistake,” hewrote.Moreover, “if you destroy the producing industry, as [theseproposals] might do, …what in the world will [there] be left toregulate.”

Susan Parker

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