April 22, 1999

Public Interest Comment on Regulation of Short-Term and Long-Term Gas Transportation

  • Jerry Ellig

    Research Professor, George Washington University Regulatory Studies Center
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The Federal Energy Regulatory Commission is seeking comments on proposed rules regulating short-term (less than one year) transportation of natural gas and on a variety of issues related to the regulation of long-term transportation of natural gas.

Summary

There is substantial evidence that both short-term and long-term gas transportation markets are workably competitive, or could become so with some changes in regulation that would make capacity rights more fungible and transferable. If some market power exists, it is sufficient that the Commission prevent participants from withholding capacity from both the short-term and long-term markets to ensure a competitive outcome. A mandate that all short-term trades must occur through auction markets of some particular design could prevent the evolution and development of the most efficient exchange institutions. If pockets of market power exist in the long-term market, federal railroad regulation and Texas intrastate pipeline regulation demonstrate how to deal with such pockets while leaving most of the industry free from cost-of-service regulation.

Our Recommendations

  • Institute proposed rules designed to make pipeline capacity more fungible and tradeable.
  • Refrain from mandating auctions or other specific exchange mechanisms, as long as pipelines can prove that all available capacity is being sold.
  • Revise its regulation of long-term transportation to reflect scholarly findings that this market is or can be made workably competitive.