FERC executive points to 'gray market' in gas price surge

By Ann de Rouffignac
OGJ Online

HOUSTON, Mar. 21, 2001—Alice Fernandez, director of tariffs and rates at the Federal Energy Regulatory Commission, Wednesday conceded the so-called "gray market" helped drive 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 that have access to gas and capacity, that might be reselling the products.

With these packages, it is impossible to properly attribute what portion of the final price belongs to the gas commodity and what portion belongs to the transportation capacity, hence the term "gray market."

Fernandez agreed 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 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 concerned about the gray market "packages." They wanted 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 didn't have the time or the resources to be monitor the market themselves. They wanted FERC to take a more active role.

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, she said. FERC is seeking comments by March 30 on granting blanket certificates to pipelines for portable compression that would keep the capacity of pipelines constant during summer maintenance.

FERC is also seeking comment on rate incentives for adding electric transmission upgrades and pipeline capacity. The faster the work can be completed the higher the incentives, she said.

The agency has also 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 who also want to sell back to the grid.

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