Comments to Federal Energy Regulatory Commission (FERC) on Natural Gas

The Federal Trade Commission staff has told the Federal Energy Regulatory Commission (FERC) that market rivals may be able to use the agency's regulatory process to impede competition in the distribution of natural gas.

In comments sent to the agency, the FTC staff referred specifically to a case involving two natural gas pipeline companies that have petitioned the FERC to use its regulatory powers to block the entry of a third pipeline company into the Indianapolis market.

The two firms, ANR Pipeline Co. and Panhandle Eastern Pipeline Co., say they can provide service to an Indianapolis distribution firm, Citizens Gas and Coke Utility, more efficiently and with more environmental safeguards than a third firm, Texas Gas Transmission Co. Panhandle is now the sole supplier of gas to Citizens. The latter has signed a long-term contract with Texas Gas to purchase about half the volume of gas covered in its expiring service agreement with Panhandle.

The FTC staff said the result of motions like the ones filed by Panhandle and ANR may be anticompetitive. "When incumbent firms intervene in certification proceedings to oppose the entry of potential rivals in the incumbents' market, their actions may raise their rivals' costs, increase their own profits and reduce industry output as well as consumer welfare," the FTC staff said. In addition, the staff said the "incumbents' invocation of the FERC's administrative process may involve rivals in prolonged and expensive -- and possibly meritless -- legal action. Such actions may increase the cost of entry into a market and, by deterring entry, reduce competition." If rivals like Panhandle and ANR are in fact the least-cost suppliers, they should have been able to underbid Texas Gas for a contract with Citizens, the FTC staff said. If they could not, they should not in turn be permitted to use FERC's regulatory process to achieve what they failed to in a free, competitive environment.

Although FERC may be obligated by its rules of procedure to permit rivals to intervene in the regulatory process, it might want to follow a more limited review to avoid costly, protracted hearings on issues raised by rivals if that would hinder and delay competition, the FTC staff said.  The comments represent the views of the Bureaus of Competition, Consumer Protection and Economics and do not necessarily reflect the views of the Commission or any individual Commissioner. The Commission authorized the staff to file the comments, with Commissioner Patricia P. Bailey and Commissioner Mary L. Azcuenaga dissenting.

Copies of the comments are available from the FTC's Public Reference Branch, Room l30, 6th Street and Pennsylvania Avenue N.W., Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502.