FERC actions change face of US energy pipelines

Sept. 16, 2002
In 1992, the US Federal Energy Regulatory Commission issued Order 636 requiring pipeline companies to "provide open-access transportation and storage, and to separate sales from transportation services completely."

In 1992, the US Federal Energy Regulatory Commission issued Order 636 requiring pipeline companies to "provide open-access transportation and storage, and to separate sales from transportation services completely."

The ruling sought to encourage new downstream marketing venues and to produce favorable conditions for acquisitions, mergers, and joint ventures among pipeline companies.

Subsequent FERC Orders 888 and 889 in 1997 promoted competition and established standards of conduct. Altogether, these orders advanced changes in the industry, served to unbundle services, and motivated development of independent gas marketing companies.

Effects

Some companies ventured into large geographical combinations. Others diversified into non-core industries, such as the Williams Cos., Tulsa, and Duke Energy, Charlotte, NC, moves into telecommunications.

Companies were rewarded for their growth with increased resources, favorable financing terms, tax advantages, brand recognition, and administrative efficiencies. As electric-power companies increasingly turned to natural gas as a clean, cost-effective, and readily available substitute for fuel oil and coal, they sought ownership or equity interest in natural gas pipeline systems to guarantee supply. At the same time E&P companies were selling off pipeline assets, thus creating a fluid exchange market for both buyer and seller.

As natural gas consumption grew 12% between 1992 and 1997, the value of utility combinations increased by 143% and numerous mergers and acquisitions among transportation companies occurred.1 2

The table lists a selection of those notable changes.

The stunning fall of Enron Corp., Houston, and the subsequent cascade of corporate disclosures of questionable accounting practices and "roundtrip trades," forced further pipeline system M&A activities as Enron Corp., Dynegy Inc., Houston, Williams Cos., and others struggle to prop up stock prices by divesting assets.

Although various major restructurings are expected, most of the natural gas pipeline and marketing corporations created as a result of FERC filings in the 1990s should continue profitably through the current decade.

References

  1. "Corporate Realignments and Investments in the Interstate Natural Gas Transmission System," US DOE Energy Information Administration, 1998, p. 2.
  2. "Natural Gas 1998: Issues and Trends," US DOE Energy Information Administration, Apr. 18, 2001, p. 147.

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