One of the most significant regulatory events at FERC in 1998went by practically unnoticed: the word “proposed” was put backinto the notice of proposed rulemaking (NOPR), said CommissionerCurt Hebert Jr. in reflecting on his first full year at the agency.Commissioner Linda K. Breathitt, who also just ended her initialyear, agreed “proposed” took on a “stronger meaning” in a specificNOPR last year, but she hardly found it to be precedent-setting.

“There were a lot of things that occurred last year, but I canboil it down into one…If you look historically at what thisCommission has done, even if you go back to [Order] 636, you cansee that the NOPR was the rule” that typically was transformed intoa final edict with only minor adjustments. But all that changed inJuly when FERC issued the landmark NOPR that touched off acomprehensive review of the entire gas industry, Hebert said.

That NOPR was not viewed as pre-ordained law by the Commission,but rather was a genuine invitation to the industry to discussissues critical to natural gas, he said. It sparked immediatedebate on two fronts – inter-industry and FERC, and intra-industry- that is still ongoing and will likely consume much, if not all,of 1999. “For the first time, we are finally making people believethat this is a Commission that is interested in intellectualscoming forward and giving us information to help us shape and moldthis industry…into what it can be.”

Restoring the real meaning to the NOPR “is the one thing we’vedone this year that affects everything. It has a huge effect on howthis industry operates…The industry can now look at a NOPR andsay ‘we’re going to study this NOPR and we’re going to debate itbecause we genuinely believe the FERC will listen and even addressour concerns.’ What more could you ask for?” Hebert asked.

Breathitt agreed greater emphasis was placed on “proposed” inthe July NOPR, but she doesn’t think it marked a shift inCommission policy. Rather, the feature was accented due to thenature of the specific proposed rulemaking. “…[W]e put somethingout that was so new, and quite frankly, it didn’t have a lot ofdetail as to how a mandatory auction would work. It was atheoretical piece in some regards and a thought piece in someregards,” she said. Because the NOPR was “so broad” in scope, itelicited an unparalleled “response and thought” from the industry.

The former state regulator from Kentucky said she expects theCommission to continue its “openness” with future NOPRs, “but itdoesn’t mean that they’re all going to be so broad that they’lltake [the same] amount of time” to debate. For Breathitt, the mostsignificant event for gas in 1998 was the mega-NOPR and notice ofinquiry (NOI) themselves and the “package” of issues theyaddressed, such as lifting the price cap in the short-term market,auctioning and negotiated terms and conditions.

Hebert was particularly pleased the mega-NOPR has prompted thegas industry to sponsor a series of meetings in Houston to discussthe “real” issues in a collaborative fashion.

Breathitt called this one of the “unintended consequences orunintended benefits” of the mega-NOPR. “You have sectors of theindustry that have traditionally kept to their [own] segments” towork out their problems. But now “they’re coming together [under]the auspices of the Natural Gas Council for what is beginning tolook like very effective sessions for coming to consensus on whatmight be another way to handle the capacity release of theshort-term market,” she told NGI.

Breathitt sees “quite a lot” in store for gas at FERC in 1999.”Whereas 1998 was the year of the NOPR, 1999 may be the year of therulemaking.” She said she expects the mega-NOPR to become a finalrule in the new year, along with NOPRs on the complaint,certificate and ex parte processes. She noted that FERC discussionson the landowner-notification process also will move along.

Hebert, a former state legislator and regulator fromMississippi, was more issue-oriented in his predictions. He seesthe “real” issues continuing to be whether there will be an auctionprocess to address market-power concerns, negotiated terms andconditions, the prospect of seasonal ratemaking, and “whether ornot we’re going to have additional pipelines…and how hard they’regoing to be to put together and make happen, and how costly that’sgoing to be.”

New Electric Rule

He said he’s particularly “excited” about FERC’s direction onelectricity issues. “When I came in here, it was ISO, ISO, ISO.Now, if you listen to what’s going on the electric side, we’retalking about alternatives. We’re talking about RTOs.” These areregional transmission organizations that include ISOs, transcos andother groups that would assume the operational control oftransmission facilities from transmission-owning utilities. FERCalso is looking more at market solutions and incentives for thepower industry now, he noted.

“I think electricity will take as much of the Commission’s timein 1999 as gas will take,” Breathitt said. “We’re certainly lookingat another rulemaking in 1999 addressing issues that have arisenfrom seeing a real competitive wholesale market in the [past] twoand a half years.” Some expect the initiative to be a sort ofmid-term correction, but Breathitt doesn’t see it that way. It willbe “just [a] furtherance of 888’s goals.”

In his first year at FERC, Hebert earned the reputation of beingsomething of a maverick, dissenting from the majority on a numberof occasions and going head-to-head with the senior FERCcommissioners at public meetings on a range of issues, especiallythose involving the clash of federal and state jurisdictions. Whilesome may characterize his first year as slightly tumultuous androcky, Hebert doesn’t see it that way.

“I didn’t find [it] rocky at all…I had my eye on the ball theentire time, just like I do today. I came in here with a purposeand that was to do a good job. I didn’t come in here to beeverybody’s friend,” he told NGI. Although he concedes some woulddisagree with him about the “rocky” part, “I wouldn’t changeanything about this last year because it was a great learningexperience for me.” He said he’s a “firm believer that we learnfrom our mistakes, and those people who don’t make mistakes aren’treally doing anything.”

Breathitt admittedly had a smoother first year. “I certainlywasn’t as outspoken as Commissioner Hebert, but what I tried to doin my first year was really delve into the process at theCommission.” She believes she’s been “very effective in seeking amiddle ground, centrist approach to items. I think you’ll continueto see the same style for me” in the new year.

Susan Parker

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