WHETHER YOU CALL IT "DEREGULATION" OR "re-regulation," the promised move to competition does not mean less regulation - at least not any time soon.
Pipelines: Beware of Riptides
Gas restructuring didn't end with Order 636, it just outran the regulators. Now the rules come from the downstream dealmakers.
With the implementation of Federal Energy Regulatory Commission (FERC) Order 636, many observers of the gas pipeline industry felt the worst was over. The big problem of the 1980s, take-or-pay, was finally put to rest through a full pass-through of GSR (gas supply realignment) transition costs.
Unfortunately, the respite was short-lived. The current decade has brought its own set of hurdles for gas transportation: local distribution company (LDC) unbundling, mandated standardization, restructuring of the electric industry, and a divergence from the straight fixed-variable (SFV) rate method. Each issue noted can alone materially affect a pipeline's operations, but regarded in tandem these issues have the potential to synergistically increase the complexity and number of transactions a pipeline processes beyond its ability to handle them efficiently with its current processes and information systems.
Fragmented Capacity; Back-Office Anxiety
Much attention has focused on how pipelines will deal with LDC unbundling and the consequent capacity turnbacks. Unsubscribed, this released capacity poses financial problems. Resubscribed, as it eventually will be, by retail marketers, aggregators, and end users this capacity becomes a back-office problem for pipelines. Capacity that was once used by only one customer will be fragmented among many. Capacity that was marketed, nominated, scheduled, and invoiced to one LDC will, when fragmented, have to go through that process for multiple marketers or end users. The number of shippers and nominations a pipeline handles are direct cost drivers for many of its functions, including the scheduling, balancing, and invoicing functions.
In addition, marketers and end users tend to be higher maintenance as customers for pipelines than large LDCs. While typically more advanced in their use of electronic communication than an LDC, marketers more than offset this benefit to pipelines by being less predictable and handling a wider variety of deals ( e.g., end-user and off-system transport deals, being active in both field and market areas, higher frequency of nomination changes).
Shorter Cycle Time
Having received recommendations on gas pipeline business practices from the Gas Industry Standards Board (GISB), the FERC released its Notice of Proposed Rulemaking 1 on gas pipeline business practices on April 26, 1996. In that proposal, the FERC decreed format and time requirements for nominations and confirmations:
- Shipper nomination delivered to pipeline: 11:45 a.m. (central time zone).
- Pipeline confirmation to shipper: 4:30 p.m. (central time zone).
- Cycle time: 4.75 hours
An informal survey of eight pipelines reveals that the proposed standards will shorten pipeline-to-shipper response time (see Table) .
Also, currently shippers have staggered cut-off times for their nominations, because each pipeline has defined its own nomination deadline. With a single cut-off time, shippers', especially marketers', nominations will likely be more rushed, hence more inclined to change. If the new deadlines prove unmanageable for shippers, then standardization of