Natural Gas System
Natural Gas System
The Natural Gas Policy Act took the first steps towards deregulating the natural gas market, by instituting a scheme for the gradual removal of price ceilings at the wellhead. However, there still existed significant regulations regarding the sale of gas from an interstate pipeline to local utilities and local distribution companies (LDCs). Under the NGA and the NGPA, pipelines purchased natural gas from producers, transported it to its customers (mostly LDCs), and sold the bundled product for a regulated price. Instead of being able to purchase the natural gas as one product, and the transportation as a separate service, pipeline customers were offered no option to purchase the natural gas and arrange for its transportation separately.
Several events led up to the ‘unbundling’ of the pipelines’ product. In the early 1980s, noticing that a significant number of industrial customers were switching from using natural gas to other forms of energy (for example, electric generators switching from natural gas to coal), several pipelines instituted what they called Special Marketing Programs (SMPs). Essentially, these programs, which were approved by FERC, allowed industrial customers with the capability to switch fuels the right to purchase gas directly from producers, and transport this gas via the pipelines. However, SMPs were found discriminatory by the District of Columbia Circuit Court of Appeals in several 1985 cases. The court ruled that SMPs were discriminatory in that no other customer of the pipelines had the ability to purchase their own natural gas and transport it via pipeline. As a result of this, SMPs were eliminated on October 31, 1985.
However, the practice of allowing customers to purchase their own gas, and use pipelines only as transporters rather than merchants, was not abandoned. In fact, it became part of FERC policy to encourage this separation by way of Order No. 436.
FERC Order No. 436
In 1985, FERC issued Order No. 436, which changed how interstate pipelines were regulated. This order established a voluntary framework under which interstate pipelines could act solely as transporters of natural gas, rather than filling the role of a natural gas merchant. This order provided for all customers the same possibilities that the SMPs of the early 1980s had afforded industrial fuel-switching customers, thus avoiding the discrimination problems of the earlier SMPs. Essentially, FERC allowed pipelines, on a voluntary basis, to offer transportation services to customers who requested them on a first come, first served basis. The interstate pipelines were barred from discriminating against transportation requests based on protecting their own merchant services. Transportation rate minimums and maximums were set, but within those boundaries the pipelines were free to offer competitive rates to their customers. Although the framework established by Order 436 was voluntary, all of the major pipeline systems eventually took part.
FERC Order No. 436 had a number of immediate effects, including:
* Pipelines began offering transportation service to all customers
* Pipeline customers realized cost savings, in that the spot market prices of natural gas were much lower than the prices offered for natural gas by the pipelines (due to the long term ‘take-or-pay’ contracts that the pipelines were bound under)
* The payments necessary under these ‘take-or-pay’ contracts increased for pipelines, as few customers were willing to purchase higher priced gas from the pipelines
* Pipelines and producers were often forced into litigation to resolve issues surrounding ‘take-or-pay’ contracts
FERC Order No. 436 also had a number of longer term effects, including:
* The transportation function became the primary function of pipelines, as opposed to offering the bundled merchant service
* A wide variety of natural gas purchasing and transportation patterns and practices emerged due to the availability of choices to the end user
* New pricing patterns emerged, known as ‘netback’ pricing, in which a reasonable price was set at the point of consumption, and that minus the cost of distribution, minus the cost of transportation, gave the ‘netback’ price to the producer at the wellhead
The movement towards allowing pipeline customers the choice in the purchase of their natural gas and their transportation arrangements became known ‘open access’. Order No. 436 thus became generally known as the Open Access Order.
While the general thrust of Order 436 was upheld in Court, several problems arose regarding the ‘take-or-pay’ contracts under which the pipelines were still obliged. Given these problems, and under remand from the D.C. Circuit Court of Appeals, FERC issued Order No. 500 in 1987. This order essentially encouraged interstate pipelines to buy out the costly take-or-pay contracts, and allowed them to pass a portion of the cost of doing so through to their sales customers. The LDCs to which these costs were passed through were allowed by state regulatory bodies to further pass them on to retail customers. However, the open access provisions of Order No. 436 remained intact.
Open access to pipelines also spurred the first appearances of natural gas marketers.
Today you can take advantage of deregulation third party providers and LOWER THE RATE YOU PAY FOR NATURAL GAS. We simply supply the utility’s companies with Natural Gas for a discounted rate and we pass the savings on to the customers.
We Are behind the scene supplier.
* THEIR IS NO COST TO ENROLL.
* THEIR IS NO INTERRUPTION IN SERVICE.
* YOU STILL PAY YOUR UTILITY COMPANY.
* IF YOU HAVE A PROBLEM WITH YOUR ENERGY YOU STILL CALL YOUR UTILITY COMPANY.
* IN YOUR UTILITY BILL IT WILL SAY THIRD PARTY BILLING THAT IS THE ONLY CHANGE IN SERVICE OTHER THAN A LOWER RATE PLAN.
TO SAVE MONEY WITH A LOWER ENERGY RATE EMAIL:LOWENERGYRATE@GMAIL.COM