Texas should reform its pipeline policy to ensure fair competition, lower fuel prices and a thriving energy sector.
As gasoline prices continue to fluctuate around historic highs, policymakers, regulators and even consumers are trying to figure out how to fix the problem — or at least who to blame. Republicans are pointing the finger at President Joe Biden’s energy and fiscal policies, House Democrats are shaming US oil companies, and now a Texas crude oil pipeline and storage company is under scrutiny scrutiny for what another company claims to be anti-competitive behavior. While there is no one-size-fits-all solution, clarifying Texas common carrier laws to address companies’ ability to exclude potential competition would at least be a step in the right direction, allowing national crude oil to be transported – more fairly and less expensively – through Texas pipelines.
Under Texas law, midstream energy companies are empowered to more efficiently build pipelines to transport oil and natural gas from where it is developed to where it is refined, exported or otherwise required. However, in exchange for this power, “common carriers” are required to allow the pipelines of other, often competing, companies to interconnect with their infrastructure. This ensures that fewer pipelines are ultimately needed. Without access to these existing pipelines, new market entrants would be required to build their own transportation infrastructure, a costly undertaking that is not even possible in many situations due to geographic, environmental and other concerns. By requiring companies to allow competitors to interconnect and ship crude oil through these pipelines, Texas common carrier laws are designed to preserve competition and protect the interests of consumers and the economy as a whole. together.
However, the reality hasn’t lived up to expectations due to legal limitations that tie regulators’ hands when a common carrier refuses interconnections offered by potential competitors seeking to enter the market.
If two transit pipelines reach shared points, the law explicitly requires them to interconnect. When there is no connection at such a point, the Texas Railroad Commission can compel a company to allow an interconnection. However, the new company must first build everything but the actual connection, show that the proposed interconnections are necessary by showing specific customer demand, and then be denied that connection before the commission can find a violation of the regulated obligations of the public carriers. It could cost tens or hundreds of millions of dollars – a risk few companies can take without the insurance of the market.
Policy makers must take decisive action to prevent this type of anti-competitive behavior. The Texas Legislature can take a pro-consumer stance by passing legislation clarifying that the common carrier’s obligation to connect requires incumbents to negotiate reasonable, non-discriminatory interconnection terms long before the new project is actually completed. . Similarly, the Board of Railway Commissioners may be able to enact a new rule to the same effect.
Until something is done, some companies will have to take the huge financial risk of building a project that could ultimately sit idle while they wrestle with monopoly incumbents or pursue antitrust litigation.
Recently, Converge Midstream, which owns and operates an underground salt dome cavern storage facility, filed suit against Magellan Midstream, owner of the Houston Crude Oil Distribution System (“HDS”). Through HDS, which Magellan brought together by linking pipelines they acquired through mergers and joint ventures, the company essentially controls the last mile of crude oil distribution in the Houston energy market – the one of the most important in the world and perhaps the most important in the world. United States.
According to Converge’s complaint, Magellan arbitrarily refused to allow potential competitors to connect to HDS for years, protecting its virtual monopoly over distribution in the Houston market through a variety of anti-competitive practices. If a lack of competition for transportation and storage increases the cost of doing business in the region, some producers and shippers could reroute their crude oil to other markets. The loss of business could result in the loss of hundreds or even thousands of jobs supporting the community, as refineries are forced to close due to volume cuts, meaning loss of competition for refining. The downward spiral that could result would have existential implications for the entire region.
Converge’s lawsuit may have been filed simply as a measure to protect its own business, but it represents something far more important. The Consumer Fuel Price Gouging Act may never pass, and FTC investigations and actions may have limited impact. But Texas policymakers and courts tasked with cracking down on abuses of common carrier laws and monopolistic behavior could help turn on the tap to fairer use of pipelines, lowering prices for consumers at the pump.
Joe Barton is a former Republican congressman and chairman of the House Energy and Commerce Committee. He wrote this for The Dallas Morning News.
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