- The Washington Times - Tuesday, November 19, 2002

During the first week of December, the Federal Energy Regulatory Commission will conduct one of its most important hearings in years regarding the operations of multistate natural-gas pipelines. As it considers issues with vast ramifications for pipelines across the nation, the commission should keep one all-important principle foremost in mind: Safety comes first.

During the years I was chairman of the Federal Energy Regulatory Commission (FERC) (1989-93), the natural gas pipeline industry underwent significant restructuring, enhancing competition and benefiting the nation's consumers. Some estimate that consumers have benefited by more than $100 billion as a result of these actions.

Throughout this process, however, FERC never lost sight of the fact that safety always must come first. We took great pains to ensure that interstate pipeline service would be reliable and safe. In doing so, we expressly recognized the Department of Transportation's (DOT) exclusive authority to promulgate federal safety standards for facilities used in natural gas transportation. The result has been the creation of one of the safest pipeline industries in the world.

In a recent decision involving El Paso Natural Gas Co., however, a FERC administrative law judge seems to have called into question major aspects of this successful regulatory scheme. The recommended decision deals with aspects of what has been termed the California energy crisis, the period of extreme electric and gas price volatility in California during the winter of 2000-2001. Although I have no intention of getting into the middle of the seemingly endless debate over who was at fault for California's energy problems, I do want to remind my former FERC colleagues to refrain from getting caught up in this ongoing blame game and allow themselves to start-second guessing a pipeline's legitimate safety and operational decisions.

Safety and reliability considerations underlie the literally hundreds of operational and engineering decisions pipelines make every day. We should not with the benefit of hindsight, but without reference to sound engineering principles try to identify instances where different operational, not commercial, decisions made by pipeline engineers in good faith might have caused more gas to flow into a particular market.

Instead, the FERC should recognize that operational decisions are driven by safety and reliability factors, which often are the direct result of DOT regulations and instructions. For example, maximum allowable operating pressure (MAOP) is a safety-based constraint on pipeline operations imposed by DOT. DOT safety regulations prohibit sustained operations above MAOP. I am hard-pressed to understand how a pipeline can be faulted for failing to operate its system at and even above MAOP. This is especially troubling where, as in this case, the pipeline effectively was precluded from operating at MAOP by a DOT directive resulting from a tragic pipeline rupture it experienced on its system near Carlsbad, N.M.

FERC also must recognize that the amount of gas that physically can flow on a pipeline, and its ability to operate at MAOP, is based on many factors outside its control. Flow is not only dictated by DOT requirements, but also by weather conditions, necessary maintenance and the daily (even hourly) decisions of third-party shippers on how much gas they will ship and where it will be delivered.

In fact, the central tenet of FERC's historic industry restructuring was that shippers, rather than pipelines, decide how much gas to flow or not flow. A policy whereby a pipeline is deemed to have "withheld" capacity because different shipper decisions might have resulted in increased gas flow flies in the face of FERC-mandated pipeline restructuring. Indeed, FERC mandated that the shipper not the pipeline decide when and where to deliver any given quantity of gas to a pipeline for the pipeline to transport at the shipper's direction.

FERC historically has refused for good reason to second-guess the engineering and operational practices of interstate pipelines when acting according to DOT safety rules. FERC has never allowed its review of pipeline operational and engineering decisions to be driven by an after-the-fact evaluation of market conditions. And, in opening up the pipelines to competition, it never was FERC's goal to have economic considerations eclipse safety considerations.

The California energy debacle should not claim as another victim the historic discretion pipelines have been given by FERC to conduct prudent operations. If this occurs, pipelines will be faced with one of two choices: either they will be forced to seek FERC approval to decrease the amount of capacity available under their FERC certificates or they will be forced to conduct operations that DOT and the pipeline's own engineers deem to be unsafe. This is a bad choice for pipelines, their shippers and the country.


Martin L. Allday served as chairman of the Federal Energy Regulatory Commission from 1989 to 1993.


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