Surface Transportation

Issues Associated With Pipeline Regulation by the Surface Transportation Board Gao ID: RCED-98-99 April 21, 1998

The Surface Transportation Board (STB) was created in 1996 as a successor agency to the Interstate Commerce Commission. STB regulates the rates charged by interstate pipelines carrying products other than gas, oil, or water. GAO is required to report on the impact of STB's regulation on pipeline competitiveness. Members of Congress have raised concerns specifically about the impact of STB's regulation on the transportation of anhydrous ammonia--an important crop fertilizer in the Midwest. This report examines (1) the historical reasons for regulating pipelines; (2) STB's role in regulating pipelines, including the number of pipelines regulated by STB; (3) the ability of alternatives to compete with pipelines that transport anhydrous ammonia to the Midwest; and (4) issues before Congress as it examines whether to extend, modify, or rescind STB's authority to regulate pipelines.

GAO noted that: (1) historically, the federal government has regulated the rates charged by interstate pipelines because these pipelines have the characteristics of natural monopolies and associated cost advantages that make it difficult for other pipelines or other transportation modes to compete; (2) the regulation of pipelines has been imposed to ensure that all shippers have access to pipeline transportation services and that the rates charged by pipeline carriers for these services are reasonable and nondiscriminatory; (3) the Interstate Commerce Commission Termination Act of 1995 limited STB's role in regulating pipelines by specifying that the Board can investigate pipeline issues only in response to a complaint by a shipper or other interested party; (4) the act also eliminated the requirement for pipeline carriers to file the rates they charge to transport commodities, which was the sole reporting requirement for pipelines under the Interstate Commerce Commission's (ICC) regulations; (5) over the last 10 years, only five cases concerning pipeline issues have come before ICC or STB; (6) one factor that may have limited the number of cases is the use of multiyear contracts, which makes it less likely that shippers will be dissatisfied with the rates charged by a pipeline; (7) the ability of alternatives to pipelines to compete with the two anhydrous ammonia pipelines in the Midwest varies; (8) while some market areas currently served by the pipelines also have access to alternatives, other market areas may not; (9) because of the large number of local markets that exist along the two midwestern anhydrous ammonia pipelines, GAO was not able to definitively determine the number of market areas that do or do not have competitive alternatives to the pipelines; (10) no clear conclusions can be reached on whether the continued economic regulation of pipelines under STB's jurisdiction is needed because such a determination requires the examination of competition in numerous local markets along 21 pipelines; and (11) however, as Congress considers reauthorizing STB, issues to consider include: (a) whether pipelines lack effective competition in a significant number of market areas, and subsequently have the potential to charge unreasonably high rates; (b) what are the costs of regulating pipelines; (c) whether the limited number of pipeline cases in the history of STB and its predecessor indicates that there is no need for continued regulation; and (d) whether shippers would have any recourse if SBT's economic regulation of pipelines were eliminated.

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