When captive customers bear the risk. [Natural gas prices and utility customer bills]
- California State Univ., Fullerton, CA (United States)
Before open access, long-term contracts between gas producers, pipelines, and local distribution companies (LDCs) were the rule. Since then, spot trading has dominated the gas market. Spot prices govern short-term transactions and often determine adjustments in longer-term contracts. Experts have repeatedly predicted a return to long-term fixed-price (LTFP) contracts. ([open quotes]Fixed[close quotes] means unrelated to spot prices, but not necessarily frozen.) They have perceived spot dealing as a response to temporary chaos, or as the consequence of a [open quotes]bubble[close quotes] of deliverable gas that would soon vanish. The Federal Energy Regulatory Commission staff's analysis of Order 636 anticipates that the order will foster long-term contracts. But as the dust settles, the reign of spot gas continues. LTFP gas contracts certainly appear superior to spot trades. In readily, LTFP contracts are inferior at almost every turn. Paradoxically, they are riskier than spot transactions. If LTFP contracts were worthwhile, most large gas buyers would use them. Instead, those buyers purchase spot gas and hedge it with futures and options. Electric utilities, nonutility generators, and LDCs are virtually the only users of LTFP contracts. Unlike other gas buyers, utilities can shift risk onto their customers through automatic adjustments in their regulated rates. If ratepayers were not captives, they would not bear the added risk of LTFP contracts without compensation. LTFP contracts are a thing of the past, a security blanket for utilities that is paid for by their customers. If regulators do not put an end to LTFP contracts, competition will. Customers with choices will not hold still for LTFP pass-throughs, as has become evident in LDC gas bypass.
- OSTI ID:
- 5317087
- Journal Information:
- Fortnightly; (United States), Journal Name: Fortnightly; (United States) Vol. 131:21; ISSN FRTNE8
- Country of Publication:
- United States
- Language:
- English
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Related Subjects
200600* -- Fossil-Fueled Power Plants-- Economic
Industrial
& Business Aspects-- (1990-)
29 ENERGY PLANNING, POLICY, AND ECONOMY
296000 -- Energy Planning & Policy-- Electric Power
CONTRACTS
ELECTRIC UTILITIES
ENERGY SOURCES
ENERGY SYSTEMS
FIXED-PRICE CONTRACTS
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
MARKET
NATIONAL ORGANIZATIONS
NATURAL GAS
NATURAL GAS DISTRIBUTION SYSTEMS
PRICES
PRICING REGULATIONS
PUBLIC UTILITIES
REGULATIONS
SPOT MARKET
US DOE
US FERC
US ORGANIZATIONS