COASTAL CEO URGES INDUSTRY COOPERATION ON RELIABLE SUPPLIES
HOUSTON, Nov. 14 /PRNewswire/ -- James R. Paul, president and chief executive officer of The Coastal Corporation, today urged the natural gas industry to help its customers assure sufficient peak-day supplies by uniting to modify a proposed change in federal rules regulating the industry.
Paul also urged the industry to look beyond today's rule-making crisis and work toward a unified, industry approach to natural gas service, which would better serve customers while favoring no one segment of the natural gas industry.
Citing the U.S. Federal Energy Regulatory Commission's (FERC) notice of proposed rule making, or mega-N.O.P.R., Paul told a meeting of the Natural Gas Association of Houston:
"We believe the rigid standard of restructuring now contained in the mega-N.O.P.R. will kill competition, cramp innovation, introduce inefficiencies and disrupt the industry to an unprecedented degree. But, more importantly, it will disrupt customer service."
The mega-N.O.P.R. was announced July 31 as a move to complete deregulation of the natural gas industry and introduce competition to the formerly regulated business. Part of that ruling would eliminate bundled services that pipelines traditionally have provided both producers and consumers of natural gas. Bundled service contracts have resulted in the ability of pipelines to guarantee supplies for peak-demand periods.
Paul said the proposed rules would restrict customer options by outlawing bundled service contracts while unnecessarily changing a system that has worked well for nearly five decades. He added, "If it isn't broken, don't fix it."
In addition, constantly shifting regulations create uncertainty among investors, he said. "Since 1978, the propensity of the regulators to constantly change a gas system, which worked well has created tremendous uncertainty in the investment community."
Paul predicted severe, unintended side-effects from the latest proposed federal rules change:
"Watch the independents drop out, watch investors turn down requests for capital for some and raise the cost to all, watch profits flow to the majors, and watch what happens when one of those Canadian blasts moves into Minnesota, Wisconsin and Michigan -- dumping that invigorating arctic air into midwest and east coast cities.
"When a local distribution company tries to buy more gas at a pooling point 1,200 miles or 1,500 miles away, when customer pilot lights shut off because of low pressure, when factories shut down and schools send the kids home -- then you'll know the mega-N.O.P.R. just won't work."
Paul said curtailing customers' rights to purchase bundled services would transfer to the customers the burden of managing peak-day demand.
Only the biggest producers would have sufficient supplies to contract efficiently for delivery to the cities, he said, and even the largest producers would not be able to react to peak-period demand at single points.
"The local distribution companies and the state regulators now stand to take the fall if the peak-day service falters," Paul said of the proposed rule. "Local distribution companies will assume all the risk management offered by the old, bundled sales service contract...In this new world, a cold front -- even one that misses the local distribution company's service area -- will trigger buying at premium prices to cover the just-in-case situation."
The Coastal chief executive also predicted smaller, independent producers would be hit hard by the rules change while the major producers profited. He said small producers typically have relied on pipeline companies to buy independents' output, blending it into larger streams.
"When the majors take over pipeline capacity and customers, the new level playing field will put independents out-of-bounds," he said, adding that the number of independent producers in America dropped from 13,000 in 1982 to fewer than 5,000 today because of earlier unfavorable regulations.
"You can imagine the terms the majors will offer a local distribution company or any other customer when (current) purchase contracts expire," Paul said. "Today, pipelines manage capacity and are closely regulated by the FERC. In the new world, large, unregulated sellers will control capacity and charge what the traffic will bear -- the classic monopolistic pricing policy you read about in economics 101."
As an alternative, Paul proposed that the natural gas industry pull together to formulate a comprehensive, industry-initiated approach which benefits customers and all industry segments.
"I am convinced that we must eliminate the squabbling and sit down, hash out a real energy industry policy and sell it," he said.
Paul said such a policy should focus on the consumer, help America's large industrial users meet global competition, encourage a healthy, responsible natural gas industry, and balance benefits to the various segments of the natural gas industry.
"The ideal solution will definitely not maximize any one segment's hoped-for big kill," Paul said. "What's best for all won't necessarily be best for one in the short run."
The Coastal Corporation (NYSE: CGP) is a Houston-based energy holding company. It has consolidated assets of $9 billion and subsidiary operations in natural gas transmission and storage, oil and gas exploration and production, refining and marketing, coal and chemicals, trucking and independent power production.
/CONTACT: Dave Scott of Coastal, 713-877-3839/
(CGP) CO: The Coastal Corporation ST: Texas IN: OIL SU: JT -- NY082 -- 1178 11/14/91 14:49 EST