While FERC’s regulatory gas options paper so far has been kepttightly under wraps, Commissioner Curt L. Hebert Jr. clearly is nothiding his views on some of the most important issues theCommission will face over the next few years. In an articlepublished in the Energy Law Journal, Hebert begins to tackle thequestion of how the Commission can “develop incentives that willspur the industry to act more competitively.”
A more flexible approach to the issues of return on equity,certification, negotiated terms and conditions and capacity release”will enable this industry to respond to the stifling disconnectbetween FERC regulated prices and market-driven values,” Hebertsaid in the article.
The Commission should be alarmed when pipeline officials arepublicly voicing concerns about insufficient rates of return toattract sufficient capital to expand at a time when currentestimates put natural gas demand at the unprecedented level of 30Tcf/year by 2010, he said. “If the Commission would use a higherrate of return as an incentive, it would give the industry theincentive to respond to the anticipated, impending growth indemand, and, at the same time would protect ratepayers from theimpact of stranded costs, while giving shippers alternatives.”Offering higher rates of return in conjunction withincrementally-priced pipeline construction is “an example of howincentive rates can be used to encourage development. Moreimportant, once derived, the rate of return should be used withsome flexibility as a tool that would mimic the pressures andinfluences that a free market would exert.”
In addition, Hebert said, the Commission needs to be moredisciplined in its application of stated certificate policy. Hecited several cases in which the Commission’s decisionscontradicted stated policies. “I am concerned that the Commission’srecent actions in these cases [Granite States Gas Transmission’sWells LNG project and a contract dispute between Texas Eastern andPublic Service Electric and Gas] will stifle, rather thanencourage, actions in the certificate arena.” The Commission should”remain faithful to its articulated policy of confining itself tothe four corners of a contract and accepting applicable contractsas evidence of market need,” he said.
In the Journal article, Hebert also expressed his support forallowing pipelines to negotiate terms and conditions, and forremoving the price caps on released capacity. Without such changes,Hebert worries the industry will lack the tools it needs to provideefficient and low-cost service and create a more competitivemarketplace.
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