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Former Chairman Says Reforms May Threaten Order 636

November 9, 1998
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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 customers unprotected.

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 regulate."

Susan Parker

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