FERC Order 636 and how it affects different segments of the natural gas industry

Conference · Tue Dec 01 04:00:00 EST 1992 · Interstate Oil and Gas Compact and Committee Bulletin; (United States)

OSTI ID:5394228

Kevra, J ^[1]

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1. Panhandle Eastern Corp., Houston, TX (United States)

The interstate pipelines' perspective of Order 636 is presented. Being the industry segment actually regulated by this rule making, one might think pipelines will be the most heavily affected by it. If one looks at recent history, however, it will be seen that the producer and end-user segments will actually be affected more...for pipelines, Order 636 merely completes a transition that began several years ago. Over the course of the past 7 or 8 years much has changed. The impetus of this change has been FERC's drive to provide more choices to customers and increase competition among suppliers. FERC did this by implementing regulations encouraging [open quotes]open-access[close quotes] transportation. The transition started off in 1984 with Order 380, which eliminated minimum bills. This allowed LDCs to purchase third-party gas. Next came Order 436, which essentially allowed LDCs to convert long-term gas purchase contracts with pipelines to transportation contracts. The customers then used these transport agreements to move the low-cost, short-term supplies made available to them by Order 380, while maintaining the pipeline merchant function as a back-up. The result was that pipelines were left with obligations to purchase gas for which there was a substantially shrinking market...a mismatch between the pipelines' supply obligations and the customers' purchase requirements. This created huge obligations to take or pay for gas, to the tune of about $10 billion, of which the pipelines ultimately absorbed about $4 billion. That was no insignificant amount. It badly damaged pipelines' balance sheets, caused wholesale downgrading of pipelines' debt ratings, and drove several major pipeline companies into or close to bankruptcy.

• OSTI ID: 5394228
• Report Number(s): CONF-9212102--
• Conference Information: Journal Name: Interstate Oil and Gas Compact and Committee Bulletin; (United States) Journal Volume: 6:2
• Country of Publication: United States
• Language: English

Related Subjects

03 NATURAL GAS
031000* -- Natural Gas-- Legislation & Regulations
032000 -- Natural Gas-- Transport
Handling
& Storage
ENERGY SYSTEMS
FERC GAS AREAS
IMPLEMENTATION
INDUSTRY
NATURAL GAS DISTRIBUTION SYSTEMS
NATURAL GAS INDUSTRY
PIPELINES
REGULATIONS