FERC Does NotTake the Wrong Path in Pricing Policy
n May, the Commission issued its statement I of policy as to the pricing of new pipeline facilities. Would they be rolled-in, or would they be incremental?
The Commission decided that it depends. It depends on the nature of the facility, on the relative cost of the facility, and on the mix of costs and benefits experienced by both new and old customers. In many ways, the Commission policy ran parallel to the position of the Interstate Natural Gas Association of America (INGAA), the pipeline trade association. The INGAA position was itself a compromise, balancing the interests of various pipelines that ranged from strongly pro-incremental to strongly pro-roll-in.
Did the Commission do a good job? In the September issue of this publication, Dr. Jeff Makholm, an economist with National Economic Research Associates, said he did not think so ("FERC Takes the Wrong Path in Pricing Policy"). Makholm's article is, in fact, extremely critical of the Commission's May policy statement, accusing it of replacing free and open competition with regulatory adjudication. He believes that the Commission failed in three respects: regulatory philosophy, competition and economic efficiency, and administrative cost and inefficiency.
In essence, he appears to believe that nothing other than incremental pricing can ever make sense, based primarily on his analyses of competitive price signals and on notions of economic efficiency. Makholm is especially critical of the
Richard G. Smead is senior vice president of Colorado lnterstate Gas Company, a subsidiary of Coastal
Corp. He is past chairman of the Rate Committee of the American Gas Association.