FERCs Order No 436

The impetus for interstate pipeline carriage came with FERC's Order No. 436, later slightly changed and renumbered No. 500, which provided more flexibility in pricing and transporting natural gas. In passing the 1986 ruling, FERC was attempting to get out of the day-to-day operations of the market and into more generic rule making. More significantly, FERC was trying to get interstate pipelines out of the merchant business into the transportation business—a step requiring a major restructuring of contracting in the gas industry.

FERC has expressed an intent to create a more competitive market so that prices would signal adjustments in the markets. The belief is that direct sales ties between producers and end-users will facilitate market adjustments without regulatory requirements clouding the market. As more gas is deregulated, FERC reasoned that natural gas prices will respond to the demand: Lower prices would assist in clearing excess supplies; then as markets tightened, prices would rise drawing further investment into supply development.

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