July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Wired or Mired? Electronic Information for the Gas Industry
Management expert Peter F. Drucker has observed that our society has entered a "post-capitalist" stage in which economic activity is organized around information: "The basic economic resource ... is no longer 'capital' nor 'natural resources'... nor 'labor.' It is and will be knowledge."1 In Orders 636 and 563, the Federal Energy Regulatory Commission (FERC) drafted the gas industry into joining this information revolution.
The FERC wisely recognized that natural gas industry participants were best-suited to develop the standardized formats and protocols required for capacity release and other transactions. The Commission, however, let the pipelines determine the "look and feel" of their proprietary electronic bulletin boards (EBBs) while mandating that certain information be made available. The wisdom of this policy has been called into question by some industry participants.
Initially, the EBB Working Groups labored mightily and
accomplished much to create the data standards for capacity release. Now the torch has passed to the Gas Industry Standards Board (GISB) to develop industrywide standards for customer-specific transactions. Progress, however, has been stalled by factional disputes within the industry. The gas energy information "atlas" is balkanized into the "local roads" and unmapped territories of proprietary EBBs. A patchwork of isolated systems links clusters of market centers to intra- and interstate pipeline systems.
Two barriers block the "on ramp" to the energy information road. First, all industry segments must agree on the standards required for convenient and efficient electronic commerce in natural gas and capacity. Of even greater importance, however, is the need for an easily navigable, interconnected "energy infobahn" that links suppliers, transporters, marketers, retailers, and end users.
If these barriers are not removed and the gas industry fails to establish an innovative, seamless electronic information infrastructure, then 1) the FERC will redraw the "roadmap" for the industry's electronic commerce infrastructure, or 2) users will opt for electricity or renewable energy, which offer more user-friendly and innovative information technology. Electronic commerce in our nation's economy is moving like a high-speed train; the industry must get on board, get run over, or get left behind.
A Natural for Networks
Order 636 has made natural gas one of the most difficult forms of energy to purchase and transport. Unbundling of gas service functions has increased the number of transactions required to move gas from the wellhead to the city gate, and even to the retail meter. A gas seller now needs wellhead purchase and gathering agreements from producers, sales agreements with buyers, and various transportation, balancing, and storage agreements with pipelines. As unbundling develops at the state level, the number of transactions involved in moving gas will multiply further.
The complexity and volume of these transactions has inhibited the growth of natural gas use in various markets, particularly as a fuel for electric power generation. Electric power generation requires reliable fuel prices and supply. Peaking-service turbines require gas that can be dispatched on a moment's notice.
Making standardized transaction information available through integrated gas and capacity electronic trading systems should help remove the difficulties perceived by the electric industry and other end users. But electronic trading of