A regulatory expert last week called on FERC to impose amoratorium on awarding market-based rates for primarytransportation capacity due to the expected continued “monopoly”nature of major interstate pipelines.

Despite the “fundamental structural changes” proposed by theCommission, “in the near [term] pipelines will continue to havemarket power so that the FERC should not approve market-basedpricing for any significant portion of any major interstatepipeline,” said Pam Prairie, director of the Institute of PublicUtilities at Michigan State University, during the seventh annualDOE-NARUC natural gas conference in Pittsburgh, PA.

Although “the wholesale transportation market has come a longway,” it is “still a far cry from being workably competitive withrespect to transportation, storage and primary capacity markets,”she told state regulators and gas industry executives. “For allpractical purposes, interstate natural gas delivery systems remaina monopoly just as they have been for the past 50 years.”

That interstate pipelines retain market power was confirmed byFERC last month when it denied market-based transportation rates toKoch Gateway Pipeline. The decision marked the first time that theCommission had considered a request for market-based transportationrates on a major long-haul gas pipeline. In 1996. it approvedsimilar rate authority for KN Interstate Gas Transmission’s BuffaloWallow 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 tohave a disproportionately larger share of the firm transportationmarket.” There are “significant barriers” that prevent competingpipeline projects from entering into new markets. “…[I]t’s verydifficult to build a duplicate pipeline at prices that compete withthe incumbent’s prices,” Prairie noted.

This isn’t to say there haven’t been significant pipelineexpansions 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 totheir ability to exercise market power through discriminatoryprices,” she said. Even in markets where there are alternativepipelines systems available for customers, “the number of competingpipes suggest that what we have is a tight oligopoly rather than afully competitive market.”

Susan Parker

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