Special Rate Treatment Allowed Natural Gas Pipeline Production Programs

EMD-80-10: Published: Oct 26, 1979. Publicly Released: Oct 26, 1979.

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A study examined rulings by the Federal Energy Regulatory Commission (FERC) and its predecessor, the Federal Power Commission (FPC), which afforded certain natural gas pipeline companies financial assistance to conduct natural gas exploration and production programs by allowing such companies to charge special prices for the gas they produced. The rulings, initially made by the FPC, were designed to permit special rate treatment of some interstate pipeline companies in the sale of gas produced from bases acquired on or after October 8, 1969, to offset the cost of exploration not incurred by intrastate pipeline companies. Prior to the Natural Gas Policy Act, enacted November 8, 1978, intrastate natural gas prices were substantially higher than interstate gas prices; the act will eventually eliminate this price disparity. Careful examination was made of the largest two of the four companies given special rate treatment, while limited information was gathered on the remaining two companies. The report addressed the FPC rulings which permitted the companies special rate treatment and FPC/FERC administration and monitoring of the programs.

It was determined that the design and administration of the special rate programs were inadequate. Consequently, the FPC/FERC could not provide assurance that its rulings on special rate treatments were just and reasonable or that the programs were properly administered. Specifically, the FPC/FERC did not determine the need for applying the special rate treatment to leases on Federal domain and whether such rates would provide the pipelines operating on Federal lands an undue financial advantage in relation to other producers of natural gas for the interstate market; did not set limits on the size of all programs, relative to company needs, and the cost the companies could charge their customers for gas produced under the programs; and did not require adequate reporting or timely evaluation of program results and costs.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The FERC should (1) determine, on the basis of documented cost-benefit analyses, the need for special rate treatments; (2) set limits on the size of special rate treatment programs, relative to company needs, and on the costs companies can charge customers for gas produced under the programs; and (3) require periodic reporting on program progress and results to facilitate meaningful program evaluations of this and any other special program or experiment.

    Agency Affected:

 

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