Fortnightly Magazine - January 1 1999

It's not as straightforward as it seems, says an industry veteran.

No one can foresee with a high degree of certainty how electric energy markets will be structured over the long-term. The changes facing the electric energy industry may be as profound as those upheavals we've seen in the airline industry during the past two decades. In the "good old days," a flight from New York to Chicago had one price and an electric generating plant had a regulated price for each kilowatt-hour produced.

A debate on the FERC proposal to put short-term capacity up for bid.

Last summer the Federal Energy Regulatory Commission truly outdid itself. In a move that left the gas industry speechless, the FERC proposed that it would remove all price controls or cost-based regulation for capacity rights shorter than one year's duration, and instead would resort to auctions for the purchase and sale of such "short-term" rights to transport natural gas on interstate pipelines.

The reason? The FERC said it wanted to level the field between short- and long-term contracts.

Auctioning gas imbalances offers advantages over bidding on available pipeline capacity.

In a Notice of Proposed Rulemaking issued last summer, the Federal Energy Regulatory Commission proposed a series of auctions for all unutilized short-term rights in pipeline capacity, with the most frequent auction being for transmission rights for the next day. All transporters and the pipeline would be required to release available short-term capacity rights to be auctioned. (See FERC Docket RM98-10-000, Regulation of Short-term Nat. Gas Transp.

Rising projections, with few expenditures to date, paint an uncertain picture.

"In almost all cases, companies will have material events and changes requiring updated year 2000 disclosure in each quarterly and annual report filed with us."

That was the general mandate suggested by the Securities and Exchange Commission last summer in its interpretive release on the disclosure requirements for the Y2K issue.