Judging from a recent survey, the secondary capacity marketappears to be working efficiently and not putting a crimp on gasindustry competition. While deal activity is leveling off, themarket is still dynamic enough to accommodate new entrants,according to energy industry consulting firm Skipping Stone Inc.

Secondary capacity transaction activity leveled off from thefirst six months of 1998 to the first six months of 1999. On 42pipelines tracked daily, there were 13,816 capacity acquisitions inthe first six months of 1999 compared to 18,885 during the sameperiod in 1998. Skipping Stone noted the leveling off of activityto about 27,000 deals/year but pointed out some big movers amongthose playing the capacity release game.

For instance, in the first six months of 1999, Enron dominatedthe list of the most active capacity traders, doing 973 deals inthe period. No. 2 behind Enron was Duke Energy, which did 590 dealsduring the period. Enron’s year-to-year growth in capacity tradeswas substantial. In the first six months of 1998, it only did 554deals and was No. 2 behind Sonat Marketing, which did 563 dealsduring that period.

A big mover on the ranking of capacity traders was ReliantEnergy which moved from No. 9 to No. 3 in Skipping Stone’s tally.”You’ve seen strong advance of other companies, Reliant among them.And companies that weren’t in the top-20 radar screen in ’98, likePG&E Energy Services, Enline Energy Solutions and Sempra reallycame out of nowhere from ’98 to ’99,” said Greg Lander, SkippingStone principal.

Skipping Stone presented some results from the survey “TheSecondary Capacity Market – Who’s Up – Who’s Down” last week at thefifth annual meeting of the Gas Industry Standards Board in SanAntonio. More details are available from Skipping Stone for a fee.

Absent from Skipping Stone’s list of the most active capacitytraders during the first half of 1999 are Dynegy, TransCanada GasServices, KN Energy, CNG Energy Services, Allenergy Marketing,Seagull Energy and Williams Energy. All of these companies hadappeared in the top 20 list of most active capacity traders in thefirst half of 1998. CNG Energy Services exited the wholesalebusiness, and Dynegy acquired a bundle of capacity on El Paso.However as for the other companies, Skipping Stone noted thatnothing in the data it analyzed explained the absence of thesecompanies from the top 20 most active capacity traders in the firsthalf of 1999.

A significant new entrant to the top 20 list is PG&E EnergyServices, which ranked No. 9 for the first six months of this year,having done 201 deals during the period. For the first six monthsof 1998, PG&E Energy Services was ranked No. 27 among capacitytraders.

“Even in a market that’s now five years along and very mature,to have companies sort of come from nowhere and be able to get inmeans there aren’t barriers to entry. A company that puts its mindto getting into the capacity business gets to do so and movecommandingly into a position of presence in a broad way,” Landersaid. “That says a lot about the company that’s doing it. It says alot about the market. What it says about the company that’s doingit is, one, obviously there is management focus in the area; andtwo, a systems focus. They have to have systems that can managethat.”

Lander pointed to “huge increases” in the number of deals doneon Texas Eastern and Tennessee Gas and the entrance of EastTennessee to the list of pipelines on which numerous big playersare trading capacity and said it “means to me that the unbundling[of LDCs] has really moved and it has an impact on the wholesalemarket.”

The number of parties trading capacity on East Tennessee pickedup substantially between 1998 and 1999. “And the only real thingthat I can tell that changed on East Tennessee in those two yearswas Atlanta [Gas Light] is going through its unbundling. EastTennessee serves Atlanta from the very end of the system with aspur that comes off of East Tennessee and goes down into Georgia,serving some of Atlanta’s territory, and therefore, that to me isthe only thing that’s changed in Tennessee. What you’re seeing hereis the impact of one jurisdiction’s unbundling really affecting thewholesale market.”

Lander said FERC and the industry have created a capacityrelease market “where it’s pretty easy to get into, pretty easy tooperate in, and I bet that that has helped keep the entire gasmarket competitive because if the capacity is easy to access, easyto use, easy to get a hold of, that makes the whole marketcompetitive.

Joe Fisher, Houston

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