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Competition that causes gas transport facilities to be duplicated is ineffective, argues a reader.

From recent FERC [Federal Energy Regulatory Commission] decisions, it appears that the commission is bending over backwards to allow competition between interstate pipeline companies for the provision of natural gas transportation service. How can this be good public policy when applied to a service that is a natural monopoly? Is it really in the public interest for some customers to be connected to more than one pipeline company through wasteful duplication of facilities?

Sure, it is good for those individual customers because they can play one pipeline against the other to obtain discount rates. However, the pipeline's other customers are required to make up for this lost revenue in the form of higher rates. The losing pipeline's remaining customers are left to bear the burden of the stranded cost, also in the form of higher rates.

If FERC continues in this direction, it may be that investors begin to see the pipeline business as more risky. This could lead to the need for higher returns on equity when pipelines file their rate cases.