GRI sees continued drop in gas tariffs

Gas Research Institute, Chicago, predicts transportation charges will continue declining for most pipeline customers due to a confluence of market and regulatory factors.

In a new study, it said contributing factors include the end of the Federal Energy Regulatory Commission's Order 636 transition costs and take-or-pay liabilities; an increase in pipeline load factors; and the use of incentive rates on portions of the transmission grid, which will foster improved efficiencies.

Study detailed

The study evaluated changes in firm service charges for 15 interstate natural gas pipeline companies immediately before and after implementation of Order 636.

Rate comparisons were made using three general customer groups: low load factor (30%), market average load factor (60%), and high load factor (90%).

GRI said low-load customers are likely to see their transmission charges increase moderately, while the other two classes will see charges remain the same or drop slightly.

The study also examined how pricing of interstate pipeline services could affect gas prices, pipeline utilization, and gas transportation. It predicted that the need for new pipeline capacity could decline, while incentives to develop new storage capacity could increase.

What's changed

GRI said the evolution of pipeline services under Order 636 has produced a greater continuum of services that reflect varying degrees of firmness or interruptibility, creating new meanings for these terms:

"As some companies become more vertically integrated, many of the distinctions between the gathering, transmission, storage, and distribution components of burnertip prices will become more blurred. While the price measure has not changed, the substance behind the price has changed dramatically."

The study also said Order 636 transition costs are small compared with take-or-pay costs incurred earlier: "Most transition costs represent the cost of contracted gas and would have occurred even if Order 636 had not been issued. Order 636 affects the timing of when these costs are recovered, not their magnitude."

It said the switch to straight fixed variable rate design does not necessarily lead to higher gas transmission charges: "Order 636 increases the incentive to increase utilization of existing gas transmission capacity. To the extent increased utilization is accomplished, total gas transmission charges will be reduced."

And the study found that incentives to develop storage capacity will increase: "Because Order 636 provides significant incentives to maximize load factors, low-load customers could be at a competitive disadvantage.

"New storage capacity, particularly peak-shaving, will provide an option for such customers to improve their load factors on the pipeline system, thereby reducing their gas transmission charges," it said.

Energy & Environmental Analysis Inc., Arlington, Va., prepared the study for GRI.