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Issues » Fact Sheets
Natural Gas Fact Sheets
FERC Natural Gas Transportation Final Rule
On July 29, 1998 the Federal Energy Regulatory Commission (FERC) issued several orders which propose the most significant and sweeping changes to federal natural gas regulation since the advent of restructuring pursuant to Order 636. These changes include eliminating cost of service protection to ratepayers, permitting pipelines to negotiate terms and conditions of pipeline service, and providing pipelines with more incentive rate options.
First, FERC issued a Notice of Proposed Rulemaking (NOPR) which would establish a different regulatory structure for long-term transportation (one year or longer) and short-term transportation. According to the NOPR, all available short-term capacity would have been sold through an auction process. In an attempt to increase the attractiveness of long-term capacity FERC proposed to permit the negotiation of rates, terms, and conditions of service subject to a set of principles, including the requirement that there be no degradation of the quality of existing services. Second, FERC issued a Notice of Inquiry (NOI) on pricing issues such as whether rates should be tied to various indices; the appropriateness of incentive rates; and the need for periodic rate reviews. IPAA filed extensive comments in these proceedings on April 22, 1999.
In response to the comments filed by IPAA and others, FERC issued Order 637 on February 9, 2000 which addressed many of the issues raised in the NOPR. Specifically, Order 637 revised the current gas regulatory framework in numerous ways, and waived price ceilings for short-term released capacity, permitted peak/off-peak and term differentiated rates, revised the requirements with respect to scheduling procedures, capacity segmentation and penalties, narrowed the right of first refusal, and expanded pipeline reporting requirements. Significantly, FERC did not allow the negotiation of terms and conditions of service or require a capacity auction procedure.
The natural gas industry is roughly a $93 billion burnertip business. Independents produce two-thirds of the natural gas in the U.S. There have been estimates that these proposals would cause a significant shift in revenues from producers and consumers to pipelines. Every penny lost at the wellhead translates into over $200 million less each year for producers.
On March 9 IPAA filed for rehearing of Order 637 and on March 15 IPAA also filed for a stay of the removal of price caps for short-term capacity. Both requests were denied by the Commission. On June 30 IPAA filed an appeal which is pending in the D.C. Circuit.
Please call David Sweet at (202) 857-4722 if you have any questions about these proceedings.
August 2000
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