In Texas, unregulated intrastate gas pipelines and gathering lines have put the squeeze on consumers and producers. The federal government does not regulate intrastate facilities. The oversight responsibilities lies with the Texas Railroad Commission. The RRC has taken the position that it will regulate pipelines that certify themselves as a “public utility.” The RRC’s self-certification process allows most pipelines to easily become unregulated and become exempt of the reporting requirements.
Controversy recently erupted in the Barnett Shale when one pipeline sent letters to producers that they would not be buying their gas based on the Houston Ship Channel index any longer because it is no longer a “representative index” of Barnett Shale gas. Producers will be paid in the future based upon the Waha index, less $0.25 per thousand cubic feet (Mcf). The difference between HSC and Waha in December was $1.37 or a 22 percent decline in price.
The pipelines, which have a monopoly throughout Texas, do not “negotiate” contract terms. It is a take-it or leave-it situation.
The lack of transparency at the RRC allows the pipelines to hide behind a vale of secrecy, keeping producers and consumers in the dark.
Lawmakers and regulators must remember that producers and consumers must be protected from market manipulation. Confidence in the marketplace is paramount. Once the confidence of producers and consumers has eroded, the system will crumble.
Alex Mills is President of the Texas Alliance of Energy Producers, which represents more than 3,200 members.
Devon Energy is the company that recently decided to pay based on Waha AND one of the main companies that has a monopoly on pipelines.