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A Round Robin of Residential Unbundling

Fortnightly Magazine - October 15 1996

unregulated rates and the rates that are deemed to be the recourse rates that will be the fallback rates for both parties who don't have enough leverage to negotiate something else.

"I also think that it turns Order 636 on its head in the sense that 636 promoted and required, as a legal matter, equality of transportation service and straight fixed-variable (SFV) rate design. The negotiated-rates policy permits wholesale deviations from SFV rate design without any justification, without any Commission determination as to whether the new rates are just and reasonable. I think that the procedures that the Commission has implemented to date in ramming this policy down the throats of the industry are defective as a matter of law under the Administrative Procedures Act."

Reid: "I support negotiated rates. I think that as we move from a very tightly regulated industry to a 'lighter-handed' regulated industry, you need the freedom to be able to negotiate deals and make sense from the commercial market. And I don't know of any commercial market that doesn't have the freedom to both negotiate price and to negotiate terms and conditions.

"Anyone can read our tariff, anyone can interpret an SFV rate structure. Those rates and tariffs are subjected to excruciating settlement discussions and litigation. How you manipulate something in black and white and out there on a tariff sheet is, quite frankly, kind of beyond me."

Marston: "The basic structure of the filing requirements under the Natural Gas Act gives certain inherent advantages, for example, with regard to timing, to the pipeline. The pipeline, as the regulated entity, decides when to file a new rate case. That means if they see a period of time when their costs in the base period are high, but will be trending down, then if they file a rate case with the right timing, they get to justify higher rates than their actual costs. . . . You're always going to have that. And I don't think there's anything illegitimate about the company taking advantage of that."

Should bidding still be required for capacity release, even though a majority of releases involve "prearranged deals"?

Edwards: "The bidding requirement certainly helps to ensure that capacity release is implemented on a nondiscriminatory basis, and also that capacity is sold at a market-clearing rate. I am also sensitive to the concern of many firm shippers that it creates inefficiencies and slows down the process, that the market really works and needs to work faster and needs to be more efficient. So I'm somewhat ambivalent, to be truly honest, on this one."

Reid: "Now that the market is mature enough, you don't need that kind of control. . . . I think the market is telling us that it thinks it's a very inefficient way of going about it and the market would prefer a more open system. And I think the 75 percent [prearranged deals] speaks to that."

Marston: "I think the market has pretty well voted. . . . The bidding mechanism is poorly designed and unattractive, from the standpoint of