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OCC Deregulating ONG Gathering, Storage

July 19, 1999
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OCC Deregulating ONG Gathering, Storage

Gathering and storage assets of Oklahoma Natural Gas (ONG) and Kansas Gas Service (KGS) are headed for deregulation, much to the chagrin of the Oklahoma Attorney General's office. The move even gives pause to one of the three commissioners on the Oklahoma Corporation Commission (OCC).

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

The commission determined there is competition for ONG's gas gathering and storage assets and therefore they should be removed from utility regulation by the commission effective Nov. 1. The action is part of an agreement negotiated between ONG and OCC staff and consumer groups. ONG is to buy gas supply through a competitive bidding process, and suppliers will make their own arrangements for gathering and storage services. "The only thing that is not out for competitive bid would be that gas that we have remaining under long-term contracts," said ONG spokesman Don Sherry. "I think the substantial amount of our supply requirements for this season have been awarded with competitive bidding. As the longer-term contracts drop off, they will be replaced with competitively bid gas."

Like most of what has come before it regarding unbundling and deregulation of ONG assets, the commission's order last week came with its share of controversy. There is a possibility the Oklahoma Attorney General's office could appeal the order. The AG's office has fought with the OCC over several issues, including the amount of time the office had to review documents and provide input relevant to the case. The AG's office last week remained unsatisfied by the commission's order.

"We are very disappointed with the commission's determination to deregulate the gathering and storage assets of ONG, and we don't believe that the determination was based on evidence that was presented in the record," said Cece Coleman, assistant attorney general in the public utility unit of the Oklahoma AG's office. If it is to appeal the order to the Oklahoma Supreme Court, the AG's office 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 was not adequate competition in storage to allow ONG's assets to be deregulated, and the AG's office supports that testimony, she said. An Oklahoma gas industry observer who wished to be anonymous was of a similar mind.

"I don't think the facts that presently exist in the marketplace today would justify the order," the observer said. "After other pipelines are connected to ONG's system that have their own storage facilities, you might be able to make the determination of effective competition. It's my belief it's premature at this time."

And although in a separate opinion Commission Chairman Bob Anthony concurred "in the results of bringing the savings anticipated by this order to ratepayers," he wrote "Respectfully, I do not believe a record has been established supporting the required finding that effective competition exists for gas storage." Commissioners Denise Bode and Ed Apple voted in favor of the order. Anthony was absent during the vote.

Last Thursday's vote followed a hearing that included testimony that the bidding process will save customers about $11.3 million annually in gathering and storage costs. That is in addition to a one-time credit of $5 million to appear on customer bills in September.

The OCC recently approved a stipulation among ONG, commission staff, Enogex, Transok, Octagon Resources Inc., Williams Pipeline Central Inc., Oklahoma Industrial Energy Consumers and GPM Corp. The Office of the Attorney General participated in the discussions but 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. The credit, about $7 per residential customer, covers the interim period of Sept. 1, 1999, to May 5, 2000.

ONG will request competitive bids for gas supplies for the 1999-2000 heating season and will seek competitive bids for transmission service effective Nov. 1, 2000.

ONG will seek a stay of its appeal of last summer's OCC unbundling order pending before the Oklahoma Supreme Court and will dismiss the appeal once final orders are issued in the new rate case. In the meantime, the company agreed to implement certain consumer protections from the unbundling order as part of the stipulation.

Commissioner Bode pointed to the multi-million dollar rate reduction in Oklahoman's utility bills but also emphasized the importance of customers gaining greater access at competitive prices to gas that is now being exported.

"The $5 million rate reduction is the icing on the cake we expect with a new open gas market in Oklahoma. Right now, we export 70% of our gas out of Oklahoma. This agreement will allow greater access to that Oklahoma gas by Oklahoma consumers, large and small, with competition at better prices. The consensus that finally developed among the regulators, ONG, and its competitors and customers to move forward is great news for all Oklahomans."

This is an important, positive step forward in a process that we believe will benefit our customers and our state, as well as our company," said ONG President Ed Farrell. "Everyone involved has worked extraordinarily long and hard to create fundamental changes in how we serve our customers."

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

Removing gathering and storage from utility regulation is a beginning step in the move to unbundle gas services to introduce competition to Oklahoma. Later this year, the OCC is to examine the issue of competition and deregulation with respect to transmission pipelines that deliver gas to ONG's distribution system. ONG said it would implement a competitive bidding process for those services beginning next year. Utility rates for gas delivery are to remain regulated and under OCC jurisdiction.

Joe Fisher, Houston

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

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