Former Chairman Says Reforms May Threaten Order 636
Former FERC Chairman Martin L. Allday has expressed "deep
concern" about the Commission's proposals to lift the price cap on
short-term capacity and to negotiate terms and conditions of
transportation service, saying they could threaten the success
story of Order 636. Allday's Commission was the architect of the
rule that led to the restructuring of the natural gas industry.
The latest proposals "could have a devastating impact on the
natural gas market in general and smaller players in the gas
industry [producers], in particular," Allday, now an attorney in
Austin, TX, representing oil and natural gas producers and
landowners, said in a letter to Chairman James J. Hoecker. Given
their "critical import" to the gas industry, he urged FERC "not to
rush to judgment" on the proposed reforms.
Although a "true believer" in the benefits of market
competition, he said rate and tariff protections still are
"central" to the regulatory mechanism created in the Natural Gas
Act and the "afforded continued vitality" of Order 636. "Regulation
is a necessary surrogate for competition where workably competitive
markets do not exist." And, "removal of these protections would
undermine much of what was accomplished in Order 636 by effectively
deregulating pipeline services that are not competitive while at
the same time subjecting those at the producing and consuming ends
of the pipeline to the abuse of market power."
Allday would not go as far as to say the notice of proposed
rulemaking (NOPR) and notice of inquiry (NOI), which outlined the
gas reforms, would wind up destroying Order 636, but "they'll
certainly flip it around a little bit," he told NGI in an
interview. "I hate to see them monkeying with what's been working
pretty 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 was
there - do what they think's right. I just don't think that what is
being proposed is for the good of the industry," Allday noted. "It
seems to me that they are considering putting market power right
back in their [pipelines'] pockets with no control at all," while
leaving the producers that are unaffiliated with pipelines and gas
He estimated about 95% of the producers in Texas who actually
understand what the Commission is trying to do with its proposals
are opposed to them. Producers traditionally "have often been given
the short end of the stick," Allday told Hoecker, adding that this
needs to change.
"All parts of the gas industry need to be treated fairly -
producers, pipelines and consumers. And to unfetter a part of the
industry so as to empower one facet of the industry, which would
hold deregulated market power, would, in my mind, be a mistake," he
wrote. Moreover, "if you destroy the producing industry, as [these
proposals] might do, ...what in the world will [there] be left to
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