FERC's pilot project to eliminate the price cap on capacity release: a walk with Bob through 'This Old House'

The Federal Energy Regulatory Commission's (FERC) recent attempt to remove the price cap on secondary market products, including released capacity, was described. Unfortunately, lifting the cap was conditional on sound market power analysis and joint filing with an open access local distribution company (LDC). There were few applications, and all but two have been rejected. The two companies whose applications were approved, subsequently decided not to proceed with the project, claiming that the diminished scope of the experiment would prevent the gathering of meaningful data. This author argued that a perfect market power analysis is not necessary; the natural gas market being a secondary market, lifting the price cap at the retail level would provide very good indication of the value of the capacity in the marketplace. From the pipeline's perspective the ultimate goal is to establish market benchmarks to value mainline capacity; this should be the goal of FERC, as well. A variety of arguments in favour of this view were presented; these were supported by illustrative examples based on Canadian experience