You've heard talk lately about the convergence of electricity and natural gas. That idea has grown as commodity markets have matured for gas and emerged for bulk power.
The Federal Energy Regulatory Commission (FERC) has approved a policy statement, Alternatives to Traditional Cost of Service Ratemaking for Natural Gas Pipelines, giving pipelines greater flexibility to use market-based, negotiated/ recourse, incentive, and other alternative rates (Docket Nos. RM95-6-000 and RM96-7-000). Pipelines may negotiate new rates with customers, but may not negotiate services that might degrade open-access service under Order 636. The FERC is still considering what type of service flexibility it should allow.
Market-based rates are allowed only if the pipeline makes a "persuasive case" that it lacks market power. Such a determination will depend upon a variety of factors, such as the number of customer alternatives. Incentive rates revise the FERC's Policy Statement on Incentive Regulation (Docket No. PL92-1-000), allowing rates to exceed cost-of-service levels if efficiency gains are shared with customers.
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