Two states have decided to review the high cost of gas this past winter and the effect the price hike has had on the states' gas utilities.
Florida. While granting requested rate...
should be interpreted with care. Companies may vary in how they define concepts. A slight change in LDC response greatly affects the magnitude of the
estimates. Also, the amount of capacity involved is unknown. Nevertheless, the data do show that LDCs are involved in leasing. In addition, market rates, negotiations, and auctions are not mutually exclusive, but, in fact, similar. Taking this into account, LDCs still reported higher responses for each category than did pipelines, indicating greater experience.
Is storage provided as a bundled or unbundled service? As storage becomes more competitive, one would expect to find unbundled storage services ever more available.
According to Table 5, 100 percent of pipelines and 80 percent of LDCs offer an unbundled storage service. While they do not tell us what percent of all storage service is involved, these figures reveal the possible beginnings of a competitive storage market. FERC Order 636 explains the 100-percent response of the pipelines, but the high response from LDCs indicates that they, too, are unbundling storage services. Customer demand for access to these services is probably the driver for new and innovative arrangements of services, including unbundled rates.
The LDC response of 60 percent for bundled service refers to transport customers and not necessarily retail sales services (em otherwise, we would expect a 100-percent response.
Unbundling is a natural phenomenon in the transformation from monopoly to competive markets. Thus, competitive pressures may help explain, in part, the increase in unbundling. However, regulatory changes may also play a role. In fact, history has shown that unbundling must sometimes be mandated, which then leads to more competition.
On the Horizon
Care must be taken in drawing broad conclusions regarding the development of the natural gas storage market. Pipelines and LDCs differ substantially; no single LDC or pipeline is like the next. Nevertheless, the survey data do provide a snapshot of the current state of affairs and offer some insights into where the market is heading.
Clearly, LDCs and pipelines use the gas storage market for different purposes. LDCs use gas storage primarily as a surrogate for reserves (em no surprise, given their obligation to serve. However, the data also indicate that leasing storage may play an increasingly important role for LDCs, one in which they are currently gaining valuable experience. LDCs will require time to develop the expertise and efficiency they needed to succeed.
For their part, pipelines employ gas storage primarily for leasing. Although currently restricted to pricing leasing at cost of service, pipelines may enjoy greater flexibility as the market becomes more competitive and the FERC permits more market-based rates. Leasing should continue to play a dominant role, and pipelines will begin to see more competition as time develops.
While it is always difficult, if not impossible, to predict the course of events, gas storage seems likely to continue to gain in importance on both the demand and the supply side. LDCs will see storage as an opportunity to supply a profitable service; customers will see additional choice in their overall consumption. Both will benefit. t
Ruth Kretschmer has