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
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
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
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