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Pipeline Restructuring: Slicing a Shrinking Pie

Fortnightly Magazine - October 15 1997

entities [e.g., marketers and aggregators] who are stepping into the LDC's merchant shoes. ... Clearly, an effective means of addressing upstream pipeline costs must be found before retail unbundling can reach its full potential. (Columbia Gas, p. 12.)

The New York Public Service Commission raises another point. As it explains, FERC policy on storage capacity also plays an important role in speeding the transition to retail choice:

The availability of storage is a required component of moving retail access programs forward. ... [However], the pipelines have expressed their concern regarding the operational and administrative problems that would result from having individual storage accounts for perhaps thousands (to millions) of individual small customers. It is clear that such a system would be exceptionally burdensome. ... The above describes one example of how existing rules [at the FERC, presumably] may be presenting a significant obstacle to achieving meaningful open access programs. (N.Y. PSC, pp. 7-9.)

Nevertheless, many other commenters, such as the California Public Utilities Commission, strongly forbid the FERC to take too active a role in aiding or abetting retail access at the state level: "We urge the FERC to respect the jurisdiction of state commission to decide whether to unbundle the LDC's services or the extent of unbundlng which must take place." (Calif. PUC, p. 7.)

This view draws strong support from the recent case of General Motors Corp. v. Tracy, %n19%n in which the U.S. Supreme Court reaffirmed that the Natural Gas Act "was drawn with meticulous regard for the continued exercise of state power [and] not to handicap or dilute it in any way."


(Impediment to market centers?)

FERC Order 636 was designed to create a transparent national market for the gas commodity and to transform the pipelines into a networked national grid, marked by regional trading hubs and market centers, rather than a collection of independent linear and one-dimensional transportation lines.

Some claim, however, that long-haul pipelines are blocking that vision.

For instance, NorAm warns that inadequate segmentation between production and market areas could discourage market centers for commodity and capacity trading. It charges that some long-line pipelines use rate design and cost allocation techniques to bundle their production area costs into their market area rates. Says NorAm, "[T]his restricts the customer's ability to choose another production area pipeline and restricts the customer's use of competing supplies from the basins accessed by the other pipeline." In other words, the customer will continue to use a single pipeline for both production-area and market-area services, because the customer will have already paid for production-area services in the improperly bundled rate. (NTTG, pp. 7-8. 27-28.)

Citing a discussion by Commissioner Massey in a 1996 opinion %n20%n and a more recent order %n21%n barring the practice, NorAm asks the Commission to be especially vigilant to root out any unlawful bundling by the long-line pipes.


(Bootstrapping jurisdiction?)

Having extricated themselves from their historic merchant sales function, most interstate pipelines no longer need to be in the business of gathering produced gas. Instead, they have transferred their gathering function