ast month, we took a general overview of L Order 637, the Federal Energy Regulatory Commission's (FERC's) latest initiative addressing transportation issues on interstate gas pipelines. This month, I would like to get into a bit more detail on the issue that seems to be most troubling to producers-the removal of rate caps in the secondary market for terms of less than one year.
The commission decision on this issue is truly groundbreaking. The decision represents the first time the commission has effectively deregulated interstate transportation services without a study or evaluation of market concentration and competitive options in connection with specific services being offered on a specific pipeline. While the generic nature of the action and the relatively broad justification for it are certainly elements of concern, it is the commission's reasoning as to why this action will not allow firm-capacity holders to extract monopoly rents that is most troublesome.
The commission decision on
this issue is truly g rou ndbrea ki ng.
Long-standing judicial precedent requires a showing that a market is sufficiently competitive to ensure just and reasonable rates prior to the removal of price caps. In Order 637, the commission did not make that showing with respect to the short-term capacity-release market. The commission made generic assumptions regarding the operation of the secondary market but