Gathering and storage assets of Oklahoma Natural Gas (ONG) andKansas Gas Service (KGS) are headed for deregulation, much to thechagrin of the Oklahoma Attorney General’s office. The move evengives pause to one of the three commissioners on the OklahomaCorporation Commission (OCC).

Last week, the OCC voted 2 to 0, with one commissioner absent,to deregulate the upstream gas gathering and storage services ofONG and KGS, divisions of Oneok Inc.

The commission determined there is competition for ONG’s gasgathering and storage assets and therefore they should be removedfrom utility regulation by the commission effective Nov. 1. Theaction is part of an agreement negotiated between ONG and OCC staffand consumer groups. ONG is to buy gas supply through a competitivebidding process, and suppliers will make their own arrangements forgathering and storage services. “The only thing that is not out forcompetitive bid would be that gas that we have remaining underlong-term contracts,” said ONG spokesman Don Sherry. “I think thesubstantial amount of our supply requirements for this season havebeen awarded with competitive bidding. As the longer-term contractsdrop off, they will be replaced with competitively bid gas.”

Like most of what has come before it regarding unbundling andderegulation of ONG assets, the commission’s order last week camewith its share of controversy. There is a possibility the OklahomaAttorney General’s office could appeal the order. The AG’s officehas fought with the OCC over several issues, including the amountof time the office had to review documents and provide inputrelevant to the case. The AG’s office last week remainedunsatisfied by the commission’s order.

“We are very disappointed with the commission’s determination toderegulate the gathering and storage assets of ONG, and we don’tbelieve that the determination was based on evidence that waspresented in the record,” said Cece Coleman, assistant attorneygeneral in the public utility unit of the Oklahoma AG’s office. Ifit is to appeal the order to the Oklahoma Supreme Court, the AG’soffice must do so within 30 days of last Thursday.

The primary area of concern for the AG’s office is storage,Coleman said. Commission staff witnesses testified that there wasnot adequate competition in storage to allow ONG’s assets to bederegulated, and the AG’s office supports that testimony, she said.An Oklahoma gas industry observer who wished to be anonymous was ofa similar mind.

“I don’t think the facts that presently exist in the marketplacetoday would justify the order,” the observer said. “After otherpipelines are connected to ONG’s system that have their own storagefacilities, you might be able to make the determination ofeffective competition. It’s my belief it’s premature at this time.”

And although in a separate opinion Commission Chairman BobAnthony concurred “in the results of bringing the savingsanticipated by this order to ratepayers,” he wrote “Respectfully, Ido not believe a record has been established supporting therequired finding that effective competition exists for gasstorage.” Commissioners Denise Bode and Ed Apple voted in favor ofthe order. Anthony was absent during the vote.

Last Thursday’s vote followed a hearing that included testimonythat the bidding process will save customers about $11.3 millionannually in gathering and storage costs. That is in addition to aone-time credit of $5 million to appear on customer bills inSeptember.

The OCC recently approved a stipulation among ONG, commissionstaff, Enogex, Transok, Octagon Resources Inc., Williams PipelineCentral Inc., Oklahoma Industrial Energy Consumers and GPM Corp.The Office of the Attorney General participated in the discussionsbut did not sign the final agreement.

The stipulation guaranteed ONG residential customers a one-time$5 million credit in lieu of an ONG interim rate hearing. Thecredit, about $7 per residential customer, covers the interimperiod of Sept. 1, 1999, to May 5, 2000.

ONG will request competitive bids for gas supplies for the1999-2000 heating season and will seek competitive bids fortransmission service effective Nov. 1, 2000.

ONG will seek a stay of its appeal of last summer’s OCCunbundling order pending before the Oklahoma Supreme Court and willdismiss the appeal once final orders are issued in the new ratecase. In the meantime, the company agreed to implement certainconsumer protections from the unbundling order as part of thestipulation.

Commissioner Bode pointed to the multi-million dollar ratereduction in Oklahoman’s utility bills but also emphasized theimportance of customers gaining greater access at competitiveprices to gas that is now being exported.

“The $5 million rate reduction is the icing on the cake weexpect with a new open gas market in Oklahoma. Right now, we export70% of our gas out of Oklahoma. This agreement will allow greateraccess to that Oklahoma gas by Oklahoma consumers, large and small,with competition at better prices. The consensus that finallydeveloped among the regulators, ONG, and its competitors andcustomers to move forward is great news for all Oklahomans.”

This is an important, positive step forward in a process that webelieve will benefit our customers and our state, as well as ourcompany,” said ONG President Ed Farrell. “Everyone involved hasworked extraordinarily long and hard to create fundamental changesin how we serve our customers.”

ONG spokesman Sherry said gathering and storage assets will beplaced under non-regulated entity Oneok Gas Transportation;however, another entity could be created to manage gathering andstorage.

Removing gathering and storage from utility regulation is abeginning step in the move to unbundle gas services to introducecompetition to Oklahoma. Later this year, the OCC is to examine theissue of competition and deregulation with respect to transmissionpipelines that deliver gas to ONG’s distribution system. ONG saidit would implement a competitive bidding process for those servicesbeginning next year. Utility rates for gas delivery are to remainregulated and under OCC jurisdiction.

Joe Fisher, Houston

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