While FERC’s regulatory options paper so far has been kepttightly under wraps, Commissioner Curt L. Hebert Jr. clearly is nothiding his views on FERC policy. In an article titled “The Questfor an Inventive Utility Regulatory Agenda” published in the EnergyLaw Journal, Hebert is particularly critical of past FERC policyblunders, and shows, despite his short time on the federal panel,he’s not afraid to step into the limelight and make frank argumentsfor future gas and electric policy direction.

His stated purpose: to “compel the utility industry, regulators,stockholders and consumers to take a second look at the regulatoryframework of today’s utilities to ensure the most efficient serviceat the lowest cost to the customer.”

“.[I]f we are moving towards one (competition), we should bemoving away from the other (regulation). I query, are we doing aswe have been taught? I suggest we should be doing more.”

Hebert focuses primarily on providing more incentives forregulated companies to participate in the competitive market. Hedevotes up to 75% of his discussion on FERC’s electric agenda,showing his forte on electric issues while at the MississippiPublic Service Commission, but in the end, moves to the point onsome of the most important gas topics of the day.

Hebert believes the Commission should take a more flexibleapproach to the issues of return on equity, certification,negotiated terms and conditions and capacity release. That “willenable this industry to respond to the stifling disconnect betweenFERC regulated prices and market-driven values.”

The Commission should be alarmed when pipeline officials,specifically Williams CEO Keith Bailey, are publicly voicingconcerns about insufficient rates of return to attract capital toexpand at a time when current estimates put natural gas demand atthe unprecedented level of 30 Tcf/year by 2010, he said.

“If the Commission would use a higher rate of return as anincentive, it would give the industry the incentive to respond tothe anticipated, impending growth in demand, and, at the same timewould protect ratepayers from the impact of stranded costs, whilegiving shippers alternatives.” Offering higher rates of return inconjunction with incrementally-priced pipeline construction is “anexample of how incentive rates can be used to encouragedevelopment. More important, once derived, the rate of returnshould be used with some flexibility as a tool that would mimic thepressures and influences that a free market would exert.”

In addition, Hebert said, the Commission needs to be moredisciplined in its application of its certificate policy. He citedseveral cases in which the Commission’s decisions contradictedstated policies. “I am concerned that the Commission’s recentactions in these cases [Granite State Gas Transmission’s Wells LNGproject and a contract dispute between Texas Eastern and PublicService Electric and Gas] will stifle, rather than encourage,actions in the certificate arena.” The Commission should “remainfaithful to its articulated policy of confining itself to the fourcorners of a contract and accepting applicable contracts asevidence of market need,” he said.

In the Journal article, Hebert also expressed his support forallowing pipelines to negotiate terms and conditions, and forremoving the price caps on released capacity. Without such changes,Hebert worries the industry will lack the tools it needs to provideefficient and low-cost service and create a more competitivemarketplace.

Rocco Canonica

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