A top official with the US Federal Energy Regulatory Commission has conceded the so-called "gray market" helped drive natural gas prices sky high in southern California late last year.
Industry sources described the gray market for pipeline capacity and natural gas as the sale of "packages" of capacity and gas by marketers or even by gas distribution companies with access to gas and capacity that might be reselling them.
With these packages, it is impossible to properly attribute which portion of the final price belongs to the gas commodity and which portion belongs to the transportation capacity, hence the term "gray market."
'Gray market' concerns
Alice Fernandez, FERC director of tariffs and rates, agreed that the activities of the gray market might be a factor to be considered in analyzing the California market. She also said the secondary pipeline capacity market was blamed unnecessarily by analysts for the higher prices.
Fernandez spoke late last month at Houston Energy Expo, sponsored by the National Energy Services Association.
She said El Paso Corp.'s pipeline to California released little capacity in that market above the cap. Interstate pipelines have a maximum (called the cap) and minimum tariff that can be charged.
In October 2000, about 11% of all capacity releases were above the tariff cap. But for other months of 2000, the amount of releases above the cap varied 3-8%. That means only a small percentage of the total capacity released to shippers was priced above FERC's maximum tariff. Fernandez cited figures for August 2000-February 2001.
Nevertheless, in a recent FERC conference on marketing affiliates, Fernandez said natural gas producers expressed concern about the gray market packages. They want FERC to change the rule governing affiliate transactions and to look into redefining "affiliate."
Others were concerned about market monitoring, she said.
Many market participants said they don't have the time or the resources to monitor the market themselves. They want FERC to take a more active role.
FERC's summer plans
Concerning the supply of gas and electricity in California and the overall tight market expected nationwide this summer, FERC is taking what steps it can to help, Fernandez said. FERC had sought comments by Mar. 30 on granting blanket certificates to pipelines for portable compression that would keep the capacity of pipelines constant during summer maintenance.
FERC also sought comment on rate incentives for adding electricity transmission upgrades and pipeline capacity. The faster the work can be completed, the higher the incentives will be, she said.
In addition, the agency has shortened the permitting time for new pipelines without significant environmental issues to 210 days in 2000 from 299 days in 1999, said Fernandez.
On the electric side, the commission granted waivers for certain permits to small generators called "qualifying facilities" so they can sell power to the grid more easily and to parties with distributed generation that also want to sell back to the grid.