Spurred on by LDC unbundling and subsequent decontracting,interstate gas pipelines are bracing for a brave new world thatcould portend significant changes in the way capacity is priced andin the types and range of services that will be offered tocustomers in the years ahead, pipeline executives said last week.

In an effort to end the “price confusion” among customers in thecapacity market, Glenn Kettering of Columbia Gas Transmissionbelieves FERC should allow gas pipelines to take advantage of thefinancial instruments commonly used to price the natural gascommodity to also price pipe capacity in the future.

Specifically, he said pipes and customers, in an effort to “moreefficiently develop new capacity,” should be allowed to formulateoptions and forward contracts. For example, in order to justifyfuture expansions, pipelines could go to the market and writeforward contracts at prices based on predicted basis differentials. This is “worthy of further debate” in the industry, notedKettering, senior vice president, at GasMart/Power ’98 in NewOrleans.

Less and less pipeline capacity will be held by LDCs, which hasprompted pipelines, such as Columbia, to press the Commission togive them more flexibility with respect to the types of servicesoffered to customers. According to a study by the InterstateNatural Gas Association of America (INGAA), LDCs continue to hold67% of all pipeline capacity, while marketers hold 16%; end-users,8%; pipelines, 6%; and producers, 3%. Although the study showedLDCs continue to control a huge amount of pipeline capacity, thisis expected to change soon. In fact, 60% of distributors surveyedin an American Gas Association study plan to reduce their pipecapacity this year, up from 26% of LDCs in 1995, Kettering noted.Capacity shed by LDCs will be picked up by marketers, electricgenerators, industrials and producers.

This “increasingly diverse group of customers will havedifferent energy needs,” and will require a different set ofservices, he said. “Electric generators, for example, want theoperational flexibility to bring gas on line and off line veryrapidly.” As such, pipelines are looking to FERC to provide themwith the ability to “tailor” their services and to align the priceof capacity with the value of capacity in the marketplace.

The need is greater than ever for the Commission to providepipelines with the ability to negotiate terms and conditions ofservice “so long as no other recourse customer’s service isadversely affected or degraded,” Kettering said. He suggested arecent Northern Natural rate case could provide a “real livecontext” within which FERC could address this controversial issue.

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