Part way through the Feb. 27 conference on electric competition, it was so quiet you could hear a hockey puck slide across the ice. No, hell had not frozen over. Rather, it was Commissioner Marc...
When Shippers Seek Release
Price caps, secondary markets, and the revolution in natural-gas portfolio management.
As evidence, it claims that its capacity release revenues more than tripled in the three years ending in April 2007, rising by 360 percent.
A majority of the commenting parties appear to favor a lifting of the price cap on capacity release in the secondary market. Some favor that only for short-term releases (less than one year’s duration). Still others (including the commission itself) have suggested a different type of price ceiling, using basis differentials from commonly published price indexes to put a value on released capacity.
One objection is that some hubs or market centers lack enough trading volume or liquidity to produce reliable index prices. However, others fault the idea for more fundamental reasons. Marisa Sifontes of Dominion explains in her comments why this idea makes no sense in the real world of markets:
“Using ‘basis differentials’ to value capacity has at its core a fatal circularity. Any particular ‘basis differential is the market-clearing value. … It makes no logical or practical sense to place a ceiling on a market price by reference to that price itself, for surely that would mean that there was no cap at all.”