270 EXTENSIONS OF REMARKS January 19, 1989 EXTENSIONS OF REMARKS THE NATURAL GAS TRANSITION Similarly, in a series of recent orders, ing competition for natural gas supply ACT OF 1988 FERC has substantially broadened the itself, which furthers the Congressional availability of interstate pipeline transpor­ policy of wellhead competition established tation service that is not subject to any in the NGPA and (2) recognizing the prima­ public interest regulatory review. Under cy of state and local interests in retaining a OF MASSACHUSETI'S Section 31l<a) of the NGPA, FERC is au­ regulated monopoly in the provision of local IN THE HOUSE OF REPRESENTATIVES thorized to pennit interstate pipeline trans­ natural gas distribution service. Thursday, January 19, 1989 portation service "on behalf of" LDCs and intrastate pipelines that is free of FERC's SECTION-BY-SECTION SUKMARY Mr. MARKEY. Mr. Speaker, today I am in­ NGA jurisdiction. In Hadson Gas Systems, troducing the Natural Gas Transition Act of Inc., 44 FERC f 61,082 <1988), appeal pend­ Section 1 1989. This legislation addresses an important ing, Associated Gas Distributors, et al. v. This section designates the title of the Act problem-the growing trend of natural gas by­ FERC, D.C. Cir. No. 88-1856, FERC inter­ as the Natural Gas Transition Act of 1989. The reference to "transition" recognizes the passes of local utilities by large gas users. Be­ preted this statutory provision in such a manner as to open non-NGA jurisdictional fact that the natural gas industry is moving cause of the significant effects that bypasses transportation to virtually all shippers, in­ to a more competitive, less regulated envi­ have on local ratemaking, my bill is designed cluding parties bypassing local utilities. See ronment, and this Act is intended to protect to give State and local commissions the also Cascade Natural Gas Corp. v. North­ the interests of consumers of gas nationwide choice of deciding whether a bypass is or is west Pipeline Corp., 44 FERC 161,081 during that transition. not in the best interests of a majority of all <1988), appeal pending, Associated Gas Dis­ Section 2 ratepayers. A detailed description follows: tributors, et al. v. FERC, D.C. Cir. No. 88- This section, entitled "Bypass Restraint", EXPLANATION 1857. Thus, under color of NGPA section consists of four parts. The first, Subsection 311<a), as currently interpreted by FERC, The purpose of this Act is to limit the <a>. provides new limits on the Commission's power of the Federal Energy Regulatory parties may construct new facilities and ac­ authority, pursuant to either the NGA or Commission <FERC or Commission) to complish a bypass of an LDC with virtually the NGPA, to authorize a new service where pennit new natural gas service which would no federal regulatory review of public inter­ that service would displace service which is displace or "bypass" local public utility serv­ est considerations. being provided or which could be provided ice to end use customers. As such, it would The Commission's campaign to relax by an LDC. Subsection <a> also provides a function as an overlay to the Natural Gas market entry in the name of competition is new legal standard under which FERC must Act <NGA> and the Natural Gas Policy Act at the same time highly disruptive of tradi­ evaluate proposals for such service. <NGPA>, without specifically amending tional public utility service and the local The second part of Section 2, Subsection either statute. The Act explicitly recognizes regulatory responsibilities of the States. It (b), creates a prior public notice require­ and clarifies the role of the state and local imposes huge economic costs upon those ment for any proposed service that would utility regulatory agencies in this area of es­ consumers who must continue to rely on the bypass an LDC. The third part, Subsection sentially local concern and provides specific local utilities for service-economic costs (c), defines the tenn "local distribution com­ procedures under which proposed service that may well exceed any benefits realized pany" for purposes of this Act. Finally, Sub­ that would bypass local utilities must be by the pipelines and end users seeking to section <d> provides for immediate effective­ evaluated by FERC before any approval bypass. ness of the Act upon enactment, and fur­ may be granted or any blanket authoriza­ The regulatory authority that is clearly ther clarifies the universe of services to tion may be relied upon to perfonn the best situated to review the costs and bene­ which it applies. fits of a proposed bypass is the state or local bypass service. Subsection 2(a) Until recently, the Commission's long-held commission with jurisdiction over the af­ policy was to prefer that natural gas service fected public utility. That regulatory body The first subsection of Section 2 is cast in to end users be provided by their local dis­ is responsible for setting the rates and prohibitory language. It states that the tribution companies <LDCs), which are reg­ tenns of utility service to all classes of gas Commission may not, by either certificate, ulated as public utilities. See, e.g., Panhan­ consumers in the utility's service area. Yet, rule, or order, pennit any interstate natural dle Eastern Pipeline Co., 36 FPC 1107 in the context of the most common fonn of gas service <i.e., service authorized pursuant (1966); Missouri Edison Co., 47 FPC 849 bypass undertaken today-in which the to the NGA or the NGPA> that would dis­ <1972>; Southern Natural Gas Co., 25 FPC pipeline provides a direct transportation­ place service offered by an LDC in the event 925 <1961); and American Louisiana Pipe only service to the end user-the ability of of either of two occurrences. One relates to Line Co., et al., 20 FPC 575 <1958). Of the state and local regulatory authorities to actions taken by the state or local regula­ many rationales underlying this policy, the review proposed bypass service has been tory authority, and the other is triggered by most important consideration was the questioned. In National Steel Corp. v. Long, the local utility threatened with the bypass extent to which the loss of large industrial 689 F. Supp. 729 <W.D. Mich. 1988), appeal itself. customers of the LDC economically and pending, Michigan Consolidated Gas Co. v. State/Local Commission CertiJication. operationally impacts its remaining custom­ Panhandle Eastern Pipeline Co., 6th Cir. The first situation in which bypass is pro­ ers. No. 88-1650, a federal district court deter­ hibited, Paragraph <a>< 1 ), is where the state Recent federal policies deregulating well­ mined that, despite the "substantial local or local regulatory authority that has juris­ head prices and providing for "open access" interests at stake" in a bypass case, the diction over the "affected" LDC certifies to transportation, however, have restructured Michigan Public Service Commission's regu­ FERC that the proposed service would prej­ the way gas is bought and sold in the inter­ latory authority was preempted by a FERC udice the present or future interest of the estate marketplace. In furtherance of its decision to authorize an interstate pipeline remaining customers of that utility. new policy to encourage competition in the bypass of a Michigan distributor by means The reference to "state or local" authority natural gas industry, the Commission has of a transportation-only service. The court parallels the tenn "state commission" as shifted its focus of public interest consider­ explicitly noted, in conclusion, that if feder­ such is defined in NGA Section 2(8), see 15 ations away from the long-tenn rate conse­ al preemption results in inadequate protec­ U.S.C. § 717a<8> <1982). The NGA definition quences on residential customers of the tion of the important local interests at stake of "state commission" is "the regulatory LDC and onto the short-tenn economic ben­ in a bypass case, "then it is for Congress to body of the state or municipality having ju­ efits realized by the industrial customer. fashion an appropriate remedy." Id. at 738. risdiction to regulate rates and charges for See, e.g., Kansas Power & Light Co. v. Wil­ Importantly, this Act does not protect the sale of natural gas to consumers within liams Natural Gas Co., 45 FERC f 61,272 LDCs from the threat of bypass in all in­ the state or municipality." Likewise, the ref­ <1988>; American Distribution Co. <Alabama stances. Nor is it intended to insulate dis­ erenced tennis meant to include both state Div.), 37 FERC f 61,282 <1986); Panhandle tributors from the pressures of a more com­ regulatory commissions, the most common Eastern Pipe Line Co., <Hayes Albion), 29 petitive marketplace for natural gas. regulator of local distribution companies, as FERC f 61,338 <1984). Rather, it achieves a blend of <1> encourag- well as other local regulatory bodies, such as e This "bullet" symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor. Matter set in this typeface indicates words inserted or appended, rather than spoken, by a Member of the House on the floor. January 19, 1989 EXTENSIONS OF REMARKS 271 municipal authorities, which have compara­ It should also be noted that the Act does Ass'n v. FERC, D.C. Cir. No. 87-1588. Sever­ ble jurisdiction to state authorities. not dictate or in any way foreclose the pro­ al States have followed suit, either with The concept of a local commission "certi­ cedures to be undertaken at the state level "mini-Order No. 436" open access programs fying" to the federal Commission its deter­ in advance of a state or local commission's <e.g., Wisconsin, New Mexico>, generic trans­ mination-which certification is to be treat­ certification of the effects of a proposed portation rate design guidelines <e.g., Virgin­ ed by FERC as conclusive-is also found in bypass arrangement.