The latest dispute over PJM’s bidding rules has raised the level of uncertainty in organized electricity markets. Efforts at reform have created a market structure so jumbled that it can’t produce...
When Shippers Seek Release
Price caps, secondary markets, and the revolution in natural-gas portfolio management.
to afford the natural-gas secondary capacity markets—which are more mature, more robust, and more competitive than electric transmission secondary markets—the same degree of flexibility.” (See comments, New Jersey Natural Gas, FERC Dockets RM06-21, RM07-4, p. 16, filed Apr. 11, 2007.)
Nevertheless, the story doesn’t end here. In fact, various industry players have taken a cue from the two industry petitions, and from FERC’s announced willingness to rethink established policy, to suggest even more radical ideas. For instance, some say that FERC should give up on the idea of trying to prohibit the “brokering” of pipeline capacity by third-party shippers. Others go so far as to urge the commission to eliminate the price cap that applies to short-term firm and interruptible transportation (IT) service provided by the pipelines themselves, thus deregulating a significant portion of the primary market.
For example, Kinder Morgan Interstate Pipelines points out that FERC already has recognized—as in its 2005 policy statement on selective discounting by pipelines ( 111 FERC ¶61,309 )—that when pipes offer short-term firm and IT services, they effectively compete against firm capacity that shippers release into the secondary market. On that occasion, FERC declared that the capacity release program “has been successful in creating a robust secondary market where pipelines must compete on price.” So if the pipes must compete against a service (capacity release) that is freed of its price cap, then FERC should deregulate the pipeline service as well. (See comments, Kinder Morgan, p. 12, filed Apr. 11, 2007.)
Spectra Energy Transmission (the pipeline recently spun off by Duke Energy) tends to agree. It adds that data from the U.S. Energy Information Administration shows significant growth in the amount of capacity acquired by replacement shippers in the secondary market. (See “Released Capacity Has Increased,” Natural Gas Issues & Trends: 1998, EIA 1999.)
Not all agree, however. The American Public Gas Association points out that when FERC last considered deregulating the gas-pipeline primary market, seven years ago in Order 637, it had recognized the importance of maintaining cost-of-service regulation to “protect its primary constituency,” that being the captive holders of long-term firm capacity. (See Dkt. Nos. RM98-10, 98-12, Feb. 9, 2000, 90 FERC ¶61,109.)
The APGA thus complains that the pipelines “are engaging in the ultimate bootstrapping, by urging deregulation of the secondary market and then urging, without a scintilla of evidence regarding the primary market, that it be deregulated as well.”
When FERC launched its capacity release program in 1992, as part of its groundbreaking Order 636, LDCs held the lion’s share of pipeline-capacity rights, which they needed and used to ship gas to the city gate. The commission designed capacity release to provide an outlet in the secondary market for scarce pipeline rights that weren’t being used. FERC assumed, quite logically, that LDCs would release only that capacity that they did not need.
Now however, it turns out some LDCs are releasing not just their unused capacity rights, but all of them, even as those rights remain crucial to retail-distribution service. And that also goes for gas-fired merchant-power producers. They