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The Interstate Natural Gas Association of America (INGAA) has released a background report from its rate and policy analysis department that compares natural gas and electric restructuring costs. INGAA feels the gas industry experience offers lessons for federal and state regulators as they debate potential stranded costs from electric industry restructuring.

INGAA notes that the interstate pipelines had to adopt open access and provide their customers with choices before their stranded-cost liabilities were settled. Also, pipelines had strong incentives to hold restructuring cost levels down: Pipelines were not permitted to fully recover their restructuring costs because of Federal Energy Regulatory Commission (FERC) policies, and because of competitive pressures. Consequently, gas industry stranded costs ended up significantly less than expected ($13.2 billion, as compared to FERC's estimate of $44 billion).

INGAA says pipeline stockholders absorbed $3.7 billion (28 percent) of restructuring costs, mostly due to equitable sharing requirements in the late 1980s. Pipelines paid producers $12 billion to reform or buy out gas-supply contracts. The gas was resold by producers at prices below the original contract amount, but while producers received take-or-pay settlement payments and the (now lower) market value for their gas, they did not always receive full contract value. So gas producers also paid for restructuring. Finally, about $9.5 billion in transition costs were passed through local distribution companies to gas consumers. But although consumers paid restructuring costs, they also benefitted from lower gas prices, INGAA reported.

Electric industry restructuring costs will, however, receive different treatment. While the FERC set recovery policy for almost all gas costs, individual states will set recovery policies for the bulk of electric restructuring costs. Also, because gas restructuring cost payments went primarily to third parties (producers), but stranded-cost payments for electric

generation assets (em the major electric category (em would go to the owning utility, arm's-length negotiation would not likely occur.

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