Natural Gas Supply Association Statement on Resignation of Energy Secretary Hazel O'Leary

NATURAL GAS SUPPLY ASSOCIATION

805 15th Street N.W., Suite 510
Washington, D.C. 20005

FOR IMMEDIATE RELEASE
DATE: Thursday, November 12, 1996

CONTACT:

Charlotte LeGates

PHONE: 202/326-9316

FAX: 202/326-9334

WASHINGTON, DC -- The Natural Gas Supply Association (NGSA) filed the following comments today in Docket No. MS-Public Notice FERC 592, Marketing Affiliates of Natural Gas Pipelines:

I. Introduction

NGSA has been an active participant in the Commission proceedings regarding pipeline affiliates rules of conduct (Docket No. RM87-5) that resulted in FERC Order No. 497, and in turn, FERC Form No. 592 ("Form 592"). As a proponent of fair and even-handed competition, NGSA supported the Commission's collection and public release of data regarding transactions involving the interstate natural gas pipelines and their affiliates. NGSA believes that the Form 592 filing requirement has proven to be an effective deterrent against interstate pipelines providing undue preferential treatment to their affiliates. Consequently, NGSA continues to support the Commission's requirement that the interstate natural gas pipelines file the current Form 592 data at the Commission. NGSA believes that it is appropriate for the Office of Management and Budget ("OMB") to renew OMB approval for FERC Form 592 without any modification. As such, NGSA is not asking that any additional burden be placed on the interstate pipelines. Rather, NGSA is asking for the continuation of a crucial data collection effort, whose existence is necessary if the Commission is to adequately protect the public against potential monopoly abuse.

II. NGSA's Concerns Regarding Potential Pipeline Affiliate Abuse

NGSA believes that interstate pipeline affiliate transactions potentially create market distortions which decrease the competition within the natural gas industry. Transactions that could otherwise occur in an efficient market would be blocked or impeded by the ability of the interstate pipelines to use their market power to favor affiliate transactions over non-affiliate transactions.

Interstate pipelines could grant affiliates preferential treatment in a number of ways. For example, preferential treatment could occur by:

1) giving affiliates preferential access to pipeline transportation capacity;

2) giving affiliates preference in transportation rates and terms of service, including preferences in rate discounts;

3) giving affiliates preference in the processing of transportation requests and the execution of transportation agreements; and

4) giving affiliates preferential access to pipeline operating information, such as the availability of pipeline capacity.

The pipelines' motivation for engaging in such affiliate abuses stems from the fact that the pipelines' activities are regulated whereas most pipeline affiliate activities (e.g., marketing affiliates) are not. Pipelines can use affiliate transactions to exercise market power to extract rates in excess of what the pipeline is permitted to collect under the current regulations. This permits the pipeline's corporate parent to collect monopoly profits for what is otherwise a rate regulated activity.

Moreover, the potential for pipeline affiliate abuses has increased dramatically as the Commission moves toward a more "lighter-handed" regulatory environment, such as that permitted in the RM95-6 Policy Statement regarding negotiated rates. Consequently, the Form 592 reporting requirements are even more important due to continuing changes in Commission regulations.

Pipeline affiliate preferences can be effectively monitored and deterred through the current Form 592 data collection process. For example, Form 592 collects the dates at which the affiliate first requested service (data field no. 9) and the date when the requested service commenced (data field no. 12). The collection of this particular data permits both the Commission and the public to ascertain whether the pipeline provides its affiliate preferential access to capacity by giving preferential processing of the affiliate's request. Similarly, other Form 592 data permit parties to determine whether they are "similarly situated" vis-a-vis an affiliate transaction and are therefore entitled to receive equal treatment from the pipeline. NGSA believes that any reduction in the current Form 592 data requirements would significantly diminish the ability of the Commission and public to monitor for pipeline affiliate abuses.

Because NGSA does not provide Form 592 data to the Commission, it is not possible for NGSA to provide a precise estimate of the annual reporting burden associated with Form 592. NGSA, however, would like to point out that the Commission estimate of 3,500 person-hours assumes a brand new data collection effort which includes "reviewing instructions" and "developing, acquiring, installing, and utilizing technology and systems for the purposes of collecting, validating, verifying, processing, maintaining, disclosing and providing information" (Notice at 3). Because the pipelines have already installed computer systems to report Form 592 data, it is likely that the actual annual cost incurred by the pipelines will be significantly less than that estimated by the Commission. Indeed, the interstate pipeline cost for submitting Form 592 data should be only a small annual computer software maintenance and operating fee. However, even if the 3,500 hour/year estimate were correct, NGSA believes that it is an insignificant cost relative to the cost that would be incurred by the pipelines' customers if pipeline affiliate abuse occurred due to a lack of Commission monitoring and oversight through the Form 592 data collection effort.

Based on these concerns and observations, NGSA fully endorses the Commission's pipeline affiliate regulations and the associated Form 592 data collection requirement. NGSA opposes any modification to the current Form 592 reporting requirements. Because Form 592 protects the public against potential pipeline monopoly abuse resulting from the granting of undue preferences to pipeline affiliates, NGSA believes that Form 592 does not constitute a significant reporting burden on the interstate natural gas pipelines.

Respectfully Submitted,
__________________________________
Nicholas J. Bush
President
On Behalf of Natural Gas Supply Association

Dated: November 12, 1996

The Natural Gas Supply Association represents integrated and independent companies that produce and market domestic natural gas. Established in 1965, NGSA encourages expanded use of natural gas and a regulatory climate that fosters competitive markets.

This page was last updated August 31, 1997.