Gas restructuring didn't end with Order 636, it just outran the regulators. Now the rules come from the downstream dealmakers.
David A. Foti is a senior consultant at Arthur Andersen's Energy Consulting Practice in Houston. Brian J. Cohen is a manager at Andersen's Customer Satisfaction Practice in Houston.
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.