Gas Regulatory Outlook: Are Rules Changing for the Better?
Keith Bailey and David W. Biegler discuss FERC policy for pipelines.
What does Order 637, the Federal Energy Regulatory Commission's Feb. 9 Final Rule on short-term pipeline capacity mean for the gas industry? Keith Bailey, chief executive officer at Williams, and David W. Biegler, president and chief operating officer at TXU, give their reactions and describe what else must be done to facilitate growing natural gas demand.
On the Price Cap:
What are the benefits of the price cap removal for short-term capacity markets?
: It is a step in the right direction. It is a move toward market-based pricing, but it, again, is only a move in that direction. It is a positive move rather than status quo.
[What would make it perfect are] freely negotiated rates, terms, and conditions. The way we have proposed it, both as an industry and a company, is that it be done against a safe harbor. If a customer chose to fall back on a regulated pricing model, they would always have that ability to do that. Beyond that, the pipelines and customers could engage in free negotiations like they do in every other part of our business. You could tailor the rates, terms, and conditions to the specific needs of each individual customer.
: It will show that the capacity auction process can be market-driven and be a proper market. The cap was kind of those last vestiges of an attempt to have regulated competition. It became so unworkable because it was applying this average annual regulatory structure on a capacity market that really has to vary from hour to hour. It is the step to opening up capacity auctions toward being more like a market structure.
What is your take on the OEC?
: The optional expedited certificate procedure was put in as a way of more quickly enabling facilities to be built.
One of the challenges that we will face is being able to respond in a timely way to market demands. From a pipeline's point of view, because of the long project lead time, permitting, and regulatory process, we are beginning to approach the [time frame well into the 2005 and 2006]. The industry needs 25 billion [cubic feet] in additional capacity. Part of the challenge is that competitors can intervene and use the certification process as a tool to slow down the projects.
You need to be able to site facilities in a way that meet the environmental and safety concerns that will exist. The concern should only be that it is being done in an environmentally responsible way. That ought to be the only barrier to it. It would get the commission out of the role of trying to decide the facilities needed or trying to choose among competitive facilities because the marketplace would ultimately determine who won and who didn't.
That requires two things to happen. One, the commission has to be willing to let those who are prepared to spend the money, spend it. But [second], those that are spending the money have to