✦ LIBER ✦

The Economics of Block Pricing

✍ Scribed by Weber, John W.

Publisher: John Wiley and Sons
Year: 2008
Weight: 311 KB
Volume: 2
Category: Article
ISSN: 0743-5665
DOI: 10.1002/gas.3410021204

No coin nor oath required. For personal study only.

✦ Synopsis

Why is block pricing included in the Federal Energy Regulatory Commission's (FERC's) Order No. 436? What is its role in this overall scheme of things? Understanding the rationale for block pricing requires some knowledge of how the economics work in rolledin pricing and how they work in block pricing. The best way to acquire a working understanding of the economics of these two pricing schemes is through an example.

Rolled-in Pricing

Consider a hypothetical gas distribution company with a sendout of 50 billion cubic feet (bcf). Say that this company has access to 20 bcf of old gas at an average Block 1 regulated price of $1.50 per mcf, and acquires the remainder of its needs at an average unregulated (Block 2) price of $3.50 per mcf. The distribution company thus has an average,

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