Frontlines

Fortnightly Magazine - October 15 1995
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And wires in the air. Together they form the interstate natural gas pipelines and the electric transmission grid. When the talk turns to deregulation, whether on the gas or the electric side, the pipelines and the transmission grid are almost always voted "most likely to." That is, to remain regulated monopolies (em with cost-of-service rates protected by the Federal Energy Regulatory Commission (FERC).

Let's have a look at that idea.

The FERC has unbundled gas commodity sales from pipeline transportation. It touts Order 636 as a triumph. Even so, many gas pipelines are reeling. They won the "right" to recover all their fixed costs through the straight fixed-variable (SFV) method, but someone forgot to ask shippers what they would pay to wrap their gas in steel.

Today, the "monopoly power" in the pipelines that underlay Order 636 is looking a little less than firm. "Decontracting" and shrinking throughput threaten the finances of certain pipelines, especially out West. Released pipeline capacity is trading on a "gray market," apparently to sidestep the FERC's regulatory price ceiling in the secondary market. Why? Unbundling has exposed inefficiencies in gas transportation. Computers and real-time information have turned the pipes inside out, and gas "basis" upside down. It has taught shippers, marketers, and local distributors how to buy more gas with less steel.

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