CHAPTER 3 RECENT FERC ACTIONS ENCOURAGING COMPETITIVE MARKETS
| Jurisdiction | United States |
(Apr 1988)
RECENT FERC ACTIONS ENCOURAGING COMPETITIVE MARKETS
John, Hengerer & Esposito
Washington, D.C.
I. INTRODUCTION
Competition has become the by-word of the 1980's. Industry by industry, our society has moved away from traditional governmental oversight, electing to have "competitive markets" substitute for regulatory control. Airlines and other transportation industries, telephones, and energy are among those riding the crest of the deregulation wave. Whether this trend will ultimately prove beneficial to the consumers of those services remains to be seen.
Consistent with this trend, Congress and the Federal Energy Regulatory Commission have, in the past ten years, mandated extensive change in the structure of the natural gas industry — from deregulating gas prices to expediting abandonment of facilities to encouraging open-access transportation of natural gas. The Commission has searched for, and in some cases created, opportunities and mechanisms to replace traditional regulation with open competition.
Particularly during the past two and one-half years, the natural gas field has been the focus of FERC's most ambitious "experiments." This paper will discuss the initiatives undertaken by the Commission during that time to foster competition and competitive market conditions in the natural gas industry.
II. OPEN ACCESS TRANSPORTATION
Despite being vacated by the D.C. Court of Appeals last
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June, Order No. 436,1 promulgated in October, 1985, has done more than any other single FERC order to open up the natural gas transportation world to competition. As envisioned by the Commission, Order No. 436 provides the opportunity for natural gas pipelines to render self-implementing transportation for third parties in exchange for a commitment to provide such transportation on an open-access, first-come, first-served, non-discriminatory basis. As the Court in Associated Gas Distributors v. FERC, 824 F.2d 981 (D.C. Cir. 1987) (AGD), noted, this concept is more easily implemented in a bakery than in an industry as complex as natural gas transportation.
Key to the Court order vacating Order No. 436 is the fact that the Court of Appeals upheld both the basic terms of the Order, and the authority of the Commission to adopt it. Citing the Commission's pervasive failure to address the problem of take-or-pay liability, and acknowledging that open-access transportation could serve to exacerbate that problem, the Court vacated and remanded the Order to the Commission. Shortly thereafter the Commission adopted Order No. 5002 , reenacting many of the fundamental aspects of Order No. 436, with some significant changes.
The key elements of "open-access" transportation are enumerated and discussed at length in a paper delivered to the Rocky Mountain Mineral Law Foundation by this author at the Institute on Natural Gas Marketing in May, 1987. A revised and updated version of that paper is appended to the prepared remarks of Edward J. Grenier, Jr., included in the materials distributed for this conference.
A. Alternatives to Full Open-Access: Rough Sledding
In the wake of Order Nos. 436 and 500, a major frustration of the Commission has been the seeming reluctance of many major interstate pipelines to embrace the open-access program on other than a provisional basis. This tentativeness is manifested by an unwillingness on the part of these pipelines to file for and/or accept a blanket transportation certificate under Part 284, Subpart G of the regulations, opting instead for a narrower and
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more easily escaped form of self-implementing transportation service under NGPA Section 311(a)(1) and Part 284, Subpart B of the regulations.
To combat this reluctance, the Commission has adopted a variety of carrot-and-stick type measures. Optional expedited certificates are only available to pipelines transporting on a blanket certificated open-access basis. Under a recent proposal to allow capacity brokering, only pipelines holding blanket certificates will be permitted to broker capacity. Gas inventory charges are only available to open-access transporters. A Final Rule on marketing affiliates may, as a practical matter, permit more freedom for marketing affiliates of blanket-certificated, open-access pipelines. In Order No. 490,3 the Final Rule on expedited abandonments, the Commission precluded pipelines which are not blanket-certificated, open-access transporters from using the expedited procedures to abandon their purchase obligations. It is expected that the Commission's Final Rule on Order No. 500 take-or-pay crediting will also prescribe a reduced level of benefit for pipelines who elect to shun blanket certificates.
The Commission has, during the past year, demonstrated a robust willingness to make life particularly difficult for those pipelines who have not taken even the Subpart B step towards open-access. For example, the Commission recently conditioned a proposal by National Fuel Gas Supply Corporation (National Fuel) to offer interruptible off-system sales on National Fuel's applying for and accepting an Order No. 500 blanket certificate.4 The Commission stated:
Because National Fuel is only providing transportation pursuant to individual certificates, and is not subject to the contract conversion provisions, National Fuel can remain relatively secure in maintaining its own traditional customer base while at the same time competing for traditional sales customers of other pipelines. We agree ... that this situation would be inequitable.5
The Commission has also become highly sensitive to claims of
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programmatic discrimination by pipelines operating under individual NGA Section 7(c) transportation certificates.
The Commission has, for example, instituted an evidentiary hearing under Section 5 of the NGA to determine whether "Great Lakes' performance of transportation services is unduly discriminatory."6 Similarly, when Wisconsin Power & Light Company and Wisconsin Public Service Corporation protested a Midwestern Gas Transmission Company Section 7(c) proceeding, claiming that they had been unable to obtain transportation services on Midwestern, the Commission set the matter for investigation. The Commission stated that "undue discrimination is a relevant issue in a section 7 proceeding,...."7
This same concern was borne out in an ANR case. While maintaining that Order No. 436/500 open-access transportation is a voluntary program, in addressing a number of Section 7(c) applications made by ANR, the Commission pointed out that the style of the application is not dispositive. If the pipeline is seeking the type of flexibility available under the open-access transportation program, it must offer certain safeguards to guard against undue discrimination. In this case, ANR was seeking authorization to transport specific volumes of gas for identified customers at specified receipt points. Thus, none of the flexibility of the open-access program was present.8
However, the Commission did express concerns about ANR's discriminatory refusal to provide transportation services to its sales customers. Since those customers did have access to transportation on ANR through the transportation provided to LDCs and intrastate pipelines, the Commission conditioned the certificate sought by ANR with the requirement that, should ANR cease providing Subpart B, open-access transportation service to these other shippers, it will be required, within 45 days, to file Section 7(c) applications on behalf of those sales customers who request transportation services.9
In another proceeding, James River Corporation of Nevada
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(James River, formerly Crown Zellerbach) filed a complaint against Northwest Pipeline Corporation (Northwest) alleging discriminatory denial of gas transportation services.10 James River alleged that Northwest was engaged in a series of anti-competitive practices, including offering only to transport under a rate schedule which includes a ten percent cap on gas transported for system supply, dilatory processing of some Section 7(c) applications, providing off-system transportation to certain customers while denying captive customers similar treatment and refusing to transport under Rate Schedule T-6 for some shippers, while doing so for others. Because of the lack of available alternative transportation facilities in the Pacific Northwest, James River argued that Northwest would not provide non-discriminatory transportation services absent a Commission order to do so. Northwest responded with an application to abandon all transportation it was providing under the T-6 rate.
On March 22, 1988, the Commission issued an order denying the abandonment sought by Northwest and granting the relief requested by James River.11 The Commission concluded that providing T-6 service for some customers and not others is unduly discriminatory on its face. Northwest was ordered to begin transporting for James River under the certificate issued to it for that purpose or to begin transporting under the open-access program. Northwest was also required to provide transportation services pending judicial review of the Commission's order and to perform similar transportation service to other shippers as well.
As is evidenced by these cases, and the programs and cases discussed below, the Commission is doing all it can to lead the industry toward permanent participation in its open-access transportation program.
B. Order No. 500
Following the Court's action, the Commission readopted many of the basic provisions of Order No. 436 in Order No. 500. Taking what it called a "series of interrelated actions designed to substantially mitigate the effects of [its open access
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program] on pipeline take-or-pay problems"12 the Commission adopted several new programs. The most significant aspect of Order No. 500 was the...
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