While efforts to deregulate the electric industry at both thestate and federal level drag on, at least one internationalobserver found U.S. gas deregulation worthy of praise. RobertPriddle, executive director of the International Energy Agency(IEA) in Paris, told reporters at the 17th Congress of the WorldEnergy Council that the United States leads the world in gascompetition.

Priddle said he is heartened by the Federal Energy RegulatoryCommission’s (FERC) decision to review pipeline rate regulation.Priddle gave his talk to highlight findings of the IEA’s reportcard on U.S. energy policy. The findings stem from a 1998 reviewand are published by the agency in a 152-page book.

“The outlook for further deregulation of gas transportation isquite mixed,” the report says. “Despite a very large number ofpipeline companies, wide areas of the country still receivesupplies from fewer than three transportation companies. Somecities like Chicago and some states like Louisiana or New York haveample opportunity to choose between different pipelines, but mostparts of the country still depend on a small number of lines -sometimes only one.” Judging from the IEA’s map of the U.S.pipelines, states with a dearth of options include Idaho, NevadaUtah, and the Carolinas.

The review found the secondary market of pipeline capacity to becritical to competition, but it points out trouble with electronicbulletin boards intended to disseminate capacity information.

“Obtaining timely information on – and confirmation of -capacity reservation can become a problem if a shipper needs toline up several pipeline segment reservations, plus possibly othernetwork services, for one delivery. The information and transactioncosts can be high because time lags in posting bids and completingtransactions typically takes two to three days. FERC has a crucialrole in reducing such transaction costs.”

The report continued to outline findings that more work remainson capacity rate regulation. “During off-peak periods (thenon-heating season), prices have fallen considerably below marketvalue. This has meant that companies in regions with ample pipelinecapacity have been unable to earn the regulated rate of return onthe released capacity. It clearly reflects how the current systemof price regulation does not take properly into account thepeak-load characteristics of the gas business reflected in marginalcosts.”

IEA said the existence of a gray market for pipeline capacityshows in principle that pipeline price regulation is no longeradapted to the market and that regulators make rule adjustments tomarket conditions too late. “The gray market needs attentionbecause it constitutes a hidden path to vertical re-integration notin the interest of competition in gas marketing. Simply removingpipeline rate regulation would provide no solution because thebusiness is not yet sufficiently competitive.” As the gray marketdoes reveal the market’s valuation of capacity during peak periods,simply getting rid of it would not be efficient even if feasible,IEA said.

Speaking on electric deregulation, Priddle said, “We have nodoubt that the United States is in a dynamic transition phase inits electricity market, and we applaud that.” However, Priddlenoted that dynamic transition is not taking place in a unifiedfashion. In other words, every state and the federal government isdoing its own thing. Priddle and the IEA recommend that federalpolicy create a legal framework to shepherd the states transitionto competition. This would avoid, for instance, disputes betweenstates power moves between.

Joe Fisher, Houston

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.