Natural Gas Regulation

During the past decade, Congress and the Federal Energy Regulatory Commission (FERC) have taken several steps to lessen federal regulation of the production and interstate transportation of natural gas. Industry attention has now focused on regulatory changes in transportation services. This report reviews recent regulatory changes affecting three aspects of the industry--the collection of gas from wells for delivery to a processing plant or pipeline; the holding of gas, normally in underground reservoirs, for later use; and the interconnection points among several pipelines where gas and transportation services can be obtained easily. GAO discusses how producers, pipeline companies, and end-users view these changes. GAO also reviews the Energy Department's (DOE) plans to intervene in energy-related regulatory proceedings in the states and the extent to which DOE plans to work with FERC in such interventions.

GAO found that: (1) FERC will use its authority over pipeline companies to regulate an affiliate if the parent company and the affiliate act together in a collusive manner; (2) interstate pipeline companies, local distribution companies, and end-users find the new FERC policy acceptable, while producers believe that it is too early to determine the effectiveness of the new policy; (3) FERC has determined that competition is sufficient to allow storage operators to charge market-based rates; (4) no segment of the industry has objected to the use of market-based rates in locations where the storage market is competitive; (5) while FERC sets the rates for the services that interstate pipeline companies provide, FERC has agreed to allow some pipeline companies to vary their rates to compete better; (6) according to FERC officials and industry analysts, market hubs are still in the early stages of development, and it is still too early to determine what, if any, regulatory role FERC will have; (7) DOE plans to intervene or participate in energy-related regulatory proceedings when it believes its participation can result in a more comprehensive assessment of energy policy options; and (8) although FERC does not coordinate its regulatory activities with DOE, the two agencies have established a working group to ensure that their staffs interact and are aware of the goals and objectives of each other's programs and policies.