Results Of Interviews Of State Officials And Market Participants

I interviewed Ms. Gail Watkins, an attorney for the Texas Energy and Natural Resources Advisory Commission (TENRAC) and Mr. Hamp Baker, Chairman of the Oklahoma Commerce Commission.

Chairman Baker indicated that Oklahoma was not confronted with the serious problem Louisiana is now facing. He attributed Oklahoma's more favorable situation to the fact that its intrastate gas market is dominated by one large, sophisticated pipeline whose supply situation is very good. He also stated that Oklahoma's Natural Gas Price Protection Act, which sets a ceiling on the price that can be charged for certain old intrastate gas, had reduced aggregate intrastate gas prices by approximately one billion dollars.

Ms. Watkins stated that her agency had not been able to identify promising state actions that would be upheld against a constitutional challenge. The only actions TENRAC has identified that offer clear opportunities to improve the situation fall into one of two categories: (1) state actions that would be held unconstitutional; or, (2) actions that require changes in federal law. Both Chairman Baker and Ms. Watkins indicated their willingness to work with Louisiana officials in an effort to identify potential solutions to the problems of the intrastate gas market.

I also interviewed a number of people who play major roles in the Louisiana gas market, including lawyers and officers of intrastate pipelines, producers, and major consumers. In each case, I asked for suggestions concerning any actions the state might take to alleviate the problems of the Louisiana intrastate market. I will summarize the results of those interviews without identifying the source of each set of comments or suggestions.

Interviewee A

The problem is NGPA. It can only be solved at the federal level. I cannot think of any good state actions at present.

Interviewee B

There is no solution at the state level. The only answer is at the federal level. Some things would help intrastate pipelines at the expense of consumers and vice versa.

Interviewee C

We do not need state help. We just want equal treatment. NGPA does not provide equal treatment. Louisiana Act 16 helped a lot by allowing pipeline interconnections. The state lease provisions help some, but the state should make it more difficult to obtain a waiver. Interstate pipelines usually cooperate voluntarily in transporting gas for intrastate pipelines usually cooperate voluntarily in transporting gas for intrastate pipelines, but sometimes they do not. In those circumstances, the state can help some by putting pressure on the interstate pipeline.

Interviewee D

This is an enormous problem. The survival of the industry is at stake. The problem is one of price competition, not access to gas. Maybe the state could go into the business of producing gas itself and sell to intrastate pipelines at a discount. Intrastates would need a discount of about $1-2 per MMBTU today and $0.50-1.00 after 1985. Offsystem sales from interstate pipelines to intrastates can be very helpful if they are handled properly. This requires a long term, firm contract with a pipeline whose long-term supply situation is very good. Maybe Louisiana should pass a Price Protection Act like Oklahoma.

Interviewee E

Maybe the state could get in kind payments of the severance tax and sell the resulting gas to the intrastate market.

Interviewee F

Offsystem sales by interstate pipelines can be vary disruptive of the competitive situation in the intrastate market. Maybe intrastate pipelines can be given a right of first refusal on expiring intrastate contracts like the interstate pipelines have.

Interviewee G

The major answer has to be at the federal level. Offsystem sales help, but often the physical connections do not exist to transport the gas where it is needed. Interconnections are a big problem for consumers. Only the state knows the location, capacity, and throughput of lines. The state could help by making this data available and forcing interconnections. Interstate and intrastate pipelines have too little incentive to cooperate, and there are legal impediments to their cooperation.

Interviewee H

The answer has to come from the federal government, I know of no state level solutions. Interstate pipelines sometimes do not cooperate with producers and intrastate pipelines.

Interviewee I

The Louisiana law that gave Louisiana consumers a right of first refusal was helpful, but it was held unconstitutional.

Interviewee J

I am worried about interstate pipeline raiding of intrastate customers. The state can stop this by regulating direct sales of interstate pipelines in unfavorable ways. Intrastate pipelines could be helped by a statute requiring prior permission to abandon any sale by a producer and regulating the prices charged by producers that sell intrastate.

Generally, these responses are discouraging in terms of the prospects for state actions that would survive scrutiny under the U.S. constitution and offer the potential for significant improvements in the Louisiana gas market. There are a few suggested actions, however, that warrant consideration.

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