Hoecker: No Major Changes for Gas
FERC will address the remaining gas policy changes on its platebefore the end of the year, Chairman James J. Hoecker said lastweek, confirming what other commissioners have indicated recently.But some of the side dishes originally on the menu probably willnot show up at the table because most of the industry found themindigestible, Hoecker told attendees at the 55th annual meeting ofthe Interstate Natural Gas Association of America in Aventura, FL.A more market-oriented approach to regulation apparently is a tastethe industry and the Commission will have to acquire over time.
“Not surprisingly, few of our proposals garnered universalsupport and some, like mandatory capacity auctions of short-termcapacity, drew expressions of concern from every camp,” Hoeckernoted. “Clearly, the task of adequately incorporating marketfactors into our regulations, as INGAA would have us do, must be agoal achieved in increments…”
Auctions and the removal of secondary market price caps “shouldnot be declared dead but rather works in progress,” he said, addingthat they may return in the form of future proposed policy or besubject to further comment. “We can already see that some auctionswork effectively. That may not mean this mechanism is universallyworkable now, however, and solutions to issues such as their costand the need for a reserve price will require furtherexperimentation.”
Hoecker said removal of secondary market price caps would”increase short-term capacity options and enhance competition…butsince some shipper classes keep a sharp eye out at all times forpotential exercises of market power, the comments counselsubstantial caution in this area.”
The Commission also learned, however, of additional”opportunities to obtain efficiency gains,” such as seasonal andterm-differentiated rates. “If we are looking for flexibility andnew services, a way to remove biases against long-term contracts,and a system that matches capacity value with patterns of usage,these are attractive alternatives. We must determine whetherproblems could surface for some temperature-sensitive customers asa consequence.”
In addition, FERC discovered it should take a “fresh look” atright-of-first-refusal provisions because the basis for “suchprotections begin to disappear with he growth in retailcompetition.”
The industry simply is not quite ready for all these changes,but the Commission will attempt to deal with them once againsometime down the road. “You people are saying to us ‘OK just leaveit well enough alone. Don’t mess around too much.'”
“I do not mean to suggest, however, that we will approachpolicymaking on an ad hoc basis. In my view, the Commission isprogressing very deliberately toward a market-oriented regulatorymodel, both as a matter of internal process and external policy.”
The current system, in which FERC sets rates and definesservices that apply to customers with and without competitivechoices, no longer works very well, he said, and it may makematters worse if capacity decontracting escalates, discountingbecomes more prevalent and demand increases to levels widely beingpredicted.
The best way to foster competition and protect captivecustomers, Hoecker said, is to “establish a bifurcated system ofmarket-priced services for customers that want price and serviceflexibility and price-controlled services for captive customers..Captive customers’ rates would be established independent ofpipeline revenues for market-based services. As such, captivecustomers would no longer see their rates increase due todiscounting or make up revenue shortfalls because capacity holdersdo not renew contracts at expiration (capacity turnback).”
A more market-oriented approach to regulation will, however,require FERC to monitor the market more broadly and more closely”to ensure that markets are transparent and that they staycompetitive.”
But observers can expect that under a market model capacitybrokering would replace capacity release. There would be “greaterfluidity and transparency over electronic media, a much lessprice-limited market for short-term services [and] negotiated termsof service for non-captive customers.
“The market model of regulation is an (almost) empty vessel tobe filled at a later time. In my estimation, the market model ofregulation will (and indeed must) become the Commission’s NorthStar. Far away perhaps – but clearly discernible.”
When the industry and the Commission are ready, there “may beanother round of initiatives. I’m not sure any of us is ready totake that on at present,” he said.
Rocco Canonica
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