In a sharp break with past policy, federal energy regulators yesterday imposed new rules on natural-gas pipelines, saying that an increase in competition in gas markets soon will produce lower prices for business and household gas users.
The Federal Energy Regulatory Commission put off action, however, on the most controversial part of its new policy, which would have given gas customers preferential access to the cheapest supplies of natural gas, at the expense of gas producers and the pipeline companies.
That so-called "block bidding" plan triggered protests from the producers and pipelines, who beat a path to Congress and beseiged FERC with filings documenting their complaints. "We do read this stuff," FERC Chairman Raymond J. O'Connor told a hearing room bulging with lobbyists and observers watching the commission's vote yesterday. FERC tentatively scheduled the block-bidding provision to take effect next June 1, although another hearing on the issue will occur before then.
The key provisions of yesterday's rule involving gas transmission by pipelines take effect Nov. 1.
"Our goal in this landmark rule is to give natural consumers more options for gas supplies," O'Connor said.
"If pipelines choose to participate in this new program, consumers and their local utilities, for the first time, will be able to shop around for the cheapest and most reliable gas supply," O'Connor said. The commissioners unanimously approved the new policy.
The new pricing rule pressures pipelines to limit their role to transporting natural gas purchased by their customers: the local distribution companies such as Washington Gas Light Co. and Baltimore Gas & Electric Co., and large industrial users.
Most pipelines have been active buyers and sellers of natural gas as well as transporters, but FERC concluded that the gas market would become more competitive if the pipelines were limited primarily to a transportation role.
The new rule is described as a voluntary procedure for the interstate natural-gas pipelines, but industry officials predicted nearly all of the major pipelines would be obliged to adopt the rule's new pricing procedures, for financial reasons.
"Virtually all of them will use this procedure," said George H. Lawrence, president of the American Gas Association, which represents both pipelines and gas distribution companies.
"If you're a pipeline with capitive customers and a captive market, you don't have to worry about the new rule ," said one industry expert. But few pipelines are in that category anymore, because the expanding interconnections in the industry have created a virtual nationwide gas market.
Lawrence called FERC's action "essentially positive." It will give distributors such as WGL and BG&E greater access to the less expensive gas now flowing through the interstate pipeline system, he said.
The decision should help push natural gas prices down slightly this winter, Lawrence said.
But the industry offered no immediate estimates of the new rule's impact. Lawyers still were struggling yesterday with the size and scope of the commission's 500-page-plus rule; and there was no comment from WGL, BG&E, Columbia Gas Transmission Corp. or Transco Energy Co., the pipelines that supply the Washington metropolitan area.
FERC's decision to delay final action on the controversial "block bidding" part of its plan contributed to the uncertainty.
Senators from gas-producing states had introduced legislation to thwart the "block bidding" provision and it had been scheduled for consideration within the next week. But industry sources said that senators from northern and midwestern states -- where gas is an important household and industrial fuel -- had the advantage. The temporary shelving of the "block bidding" issue by FERC will make the Senate debate moot for now, industry sources predicted.
A debate will continue, however, on the impact of the rule on gas producers, who protested that they would bear the brunt of lower prices resulting from competition. The result would be a decline in future exploration and production of gas, industry officials contend.