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LDCs Second Best in Capacity Release Market

Local distribution companies (LDC) are leaving some capacity trading money on the table, compared to non LDC parties trading in the released capacity market, according to the latest survey data from Capacity Center.

"Given that most capacity is owned and released by LDCs in the first place, I would have expected that they would be the biggest winners," profiting from FERC's lifting of the maximum rate cap on short-term capacity releases, said Capacity Center president Greg Lander. To the contrary, non LDC capacity sellers did much better, recovering more than 93% of max rate value on trades done since the cap was lifted Aug. 1, 2008, which means they nearly balanced out below-max rate deals with transactions above the maximum rate. LDCs recovered just 72% of max rate value during the same time period.

"It appears that a lot of money is being made, but it is not yet going to LDCs or their ratepayers," Lander added. Since Aug. 1 there have been only 12 LDCs that have profited from above-max rate deals, while 46 non LDC sellers have profited. LDCs generated $16 million, while non LDCs generated $75 million. And of the LDC's $16 million, $10 million was picked up by just three LDCs. Lander did not name them but said they operated in Indiana, Illinois and Michigan for capacity coming out of the Oklahoma basin.

Lander also pointed to the longer duration of released capacity trades after the Federal Energy Regulatory Commission's Order 712 removal of the cap went into effect. For the last five months of the year the duration of transport trades increased by 50% over earlier in the year, from an average of 111 days to an average of 163 days. "This indicates a substantial forward market is evolving in transport capacity, which is something you would expect when price controls are removed. Also striking is that the market perception from years past that the capacity release market is highly discounted is no longer reality," Lander said.

Overall 2008 annual trading figures on 53 interstate pipelines showed a total of more than 20 Tcf of capacity traded with another 4.4 Tcf of storage capacity trades. The total transaction value of traded capacity for 2008 was $6.2 billion, with $5.96 billion in transport and $266 million in storage. Of the total 28,428 capacity trades, 31% were done at discounts to max rates, 3% above max rates and 66% at the maximum rate, Capacity Center reported. Retail aggregators continued to dominate the secondary market with just over 60% of the deals traded, according to capacitycenter.com.

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