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Gas Executives Forum: The New Downstream Dynamic

Gas distributors tell how their business strategies are changing in response to issues such as higher gas prices, electric M&A, LNG, and gas pipeline development. 

Fortnightly Magazine - April 2005

the utility provides a pretty good product right now as the supplier of last resort. We hedge our portfolio so the customer sees only about one-half of the volatility in prices.

Regulators have been reluctant to assign customers because that has the smell of slamming. As long as we have a good utility backstop product, the customer has to make the final choice of whether to switch.

Orange & Rockland has a program that we are looking at, in which they assume receivables from customers. We could work with customers on buying receivables. This would facilitate risk management during this period to help transition customers into the market.

Over time marketers should be responsible for taking their own credit risk. We shouldn't have marketers redlining customers. I hope we will find better solutions that protect customer interests.

Bertasi, Southern Company Gas: How regulators define the market as a whole is important, so marketers can customize products and offer different price structures for different customers. The key is for regulators to get the approach right.

Getting Gas

Worries about future gas-supply shortages recently abated somewhat, as two major gas-import projects took decisive steps forward.

In mid-February, the Federal Energy Regulatory Commission (FERC) issued Order No. 2005 to establish open-season provisions for the proposed Alaska natural gas pipeline. The FERC order followed Congress' October 2004 enactment of the Alaska Natural Gas Pipeline Act as part of an appropriations bill. The act approves up to $18 billion in federal loan guarantees to build the 3,500-mile pipeline, which could bring 4.5 billion cubic feet (Bcf) of gas per day into the Midwestern United States beginning in 2014.

Also in February, Cheniere Energy closed financing on an $822 million credit package for its 2.6 Bcf/day Sabine Pass LNG terminal in Cameron Parish, La. The deal involved a syndicate of 47 financial institutions, led by HSBC and Société Générale. "As the largest domestic LNG financing to date, this transaction will serve as a template for future LNG project financings," says Dan Bartfield, a partner with Milbank, Tweed, Hadley & McCloy, which represented HSBC and SG in the deal.- MTB