FERC reaction to “decontracting” to lead to LDC decisions

✍ Scribed by Smith, William H.

• Book ID: 102220281
• Publisher: John Wiley and Sons
• Year: 2007
• Weight: 305 KB
• Volume: 12
• Category: Article
• ISSN: 0743-5665
• DOI: 10.1002/gas.3410120409

✦ Synopsis

FERC Reaction to "Decontracting" to Lead to LDC Decisions

any pipelines are confronting a phe-M nomenon described as "decontracting" or "demand turnback." As existing contracts expire, customers, especially LDC customers, are demonstrating the validity of the notion of elasticity of demand, as taught in the early chapters of any economics textbook. Even without all the demand curve graphs in the textbook, the idea is simple: If something costs more, people buy less of it. In this case, the "something" is firm pipeline capacity priced on a straight fixed-variable rate design.

Decontracting-Next Step in the 636 Revolution

Revolutions have a habit of going farther than their early revolutionaries intended. When FERC introduced the first dose of natural gas supply competition, it gave the customer-mob a taste for the real thing. Now that they are intent on exercising real choices, we have to look ahead to some of the possible consequences.

Real freedom of choice includes the right to know the price before committing to a purchase and the right not to buy if the price exceeds the value the buyer places on the goods. The 1995 round of contract renewals shows LDCs trying to assert basic buyer rights. And it will test whether FERC has the stamina to let the revolution run its course or whether it will intervene to protect the old guard or to protect the mob from itself.

William H. Smith Jr. is chief of the Bureau of Rate and Safety Evaluation for the Iowa Utilities Board and directs the Board's FERC patikipation.