To “ameliorate” the effects of natural gas price volatility thiswinter, FERC Chairman James J. Hoecker yesterday called on LDCs toaccent hedging techniques and long-term contracts, state regulatorsto make greater use of rate design and stabilization tools andclosely oversee LDC purchasing practices, and both federal andstate governments to support energy assistance and weatherizationprograms to aid low-income customers.

He cited some long-term solutions as well, such as a gaspipeline from Alaska and energy efficiency measures, but theyaren’t going to “heat people’s houses and…..cook their food” thiswinter, Hoecker told the House Energy and Power SubcommitteeThursday during a hearing into the price and supply outlook forheating oil and natural gas this winter.

“The prospect of higher prices this winter for natural gas is amatter of serious concern for businesses and consumers. I do notminimize the consequences for our citizens of today’s price anddeliverability issues, especially if our winter weather isextreme,” he said. However, he cautioned that regulatory and policyresponses to the situation should be “measured and balanced inrecognition of the fact that the fundamental structure ofinterstate natural gas markets is sound.”

Within the boundaries of its jurisdiction, “the Commission isworking hard to ensure that there is adequate pipelineinfrastructure available at fair prices” to meet this anticipated”historic growth” in gas demand, Hoecker said, adding that FERChas authorized 6,000 miles of new pipeline facilities over the pastthree years.

Congressional policies have created a “transportation platformfor [a] well-functioning commodity market.” This has resulted in”significant benefits” for gas consumers over the past years, someof which “have come at the cost of [a] downturn in drilling,” henoted.

Gas producers already have stepped up exploration and drillingefforts in response to higher gas prices, Hoecker told Chairman JoeBarton (R-TX) and other lawmakers on the subcommittee. “I believethat this is evidence of a functioning market.”

The current “demand equation for natural gas is out of balance,”said Texas Railroad Commissioner Charles R. Matthews. Both theUnited States and Texas, which produces one-third of the nation’sgas, are “well behind” in meeting the targeted amount of workinggas in storage for winter consumption, he noted.

However, “I do not believe we should change the demand side ofthe equation with price controls or other governmentalintervention.” Instead, “we need to make changes to [the] supplyside” by developing polices that favor tax incentives forproducers, reopening training programs for oilfield workers and thedevelopment of new recovery technologies, Matthews said. “We [inTexas] have a record of proving…..that tax incentives do work.”

Byron Lee Harris, deputy director of the West Virginia ConsumerAdvocate Division of the Public Service Commission, said hisstate’s gas customers will be protected this winter. “As the resultof the rate caps that we have in place, approximately 85% ofnatural gas customers [in West Virginia] will not experience anincrease in their rates this winter, which has been estimated to bean $82 million savings.”

Given the high level of natural gas prices, he advised stateregulators to pursue “absolute” rate freezes as a way to protectconsumers this winter. However, “commissions could opt for [a]modified cap that protects [customers] against price increases, butis flexible enough to capture potential price declines.”

For Rep. Ralph Hall (D-TX), the ranking minority member on thesubcommittee, “what’s missing [in the oil and gas industry] isprice stability.” That’s because Congress and the federalgovernment have “neglected the supply side” for too long.

He called on Washington to provide tax incentives to furtherencourage oil and natural production, and to open up more publiclands – both onshore and offshore — to drilling and explorationactivity. Rep. Frank Pallone (D-NJ) said he was opposed to grantingproducers greater access to the offshore. However, he thinksCongress should propose incentives to promote drilling elsewhere.

Rather than seriously addressing the higher gas and electricprices facing consumers this winter, much of yesterday’s hearingwas consumed by Barton and other House lawmakers ranting about thepolitical, policy and legal ramifications surrounding PresidentClinton’s decision to release 30 million barrels of crude oil fromthe Strategic Petroleum Reserve.

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