Regulation

PL04 Order 636 (the Restructuring Rule—Mandatory Unbundling)

Through Order 636, The Federal Energy Regulatory Commission (FERC) required interstate pipelines to unbundle, or separate, their sales and transportation services and to provide open-access transportation services equal in quality whether the gas is purchased directly from the pipeline company or from a producer, marketer, or elsewhere. 

The order includes provisions that

(1)  encourage use of market centers where several pipeline systems interconnect and buyers and sellers can make or take gas deliveries;

(2)  established a “released capacity” market for transportation and storage capacity under which shippers are permitted to release their unneeded firm capacity to a replacement shipper who may re-release that capacity if permitted by the terms of the initial release; and

(3)  imposed and new rate design (“straight fixed-variable”) that was intended to promote competition among gas suppliers by eliminating price distortions inherent in the pre-existing rate design that allocated certain fixed costs such as return on equity and related taxes to a commodity (usage) charge.  This charge was levied on a per unit basis and applied to the volume of gas actually used, thus affecting costs for firm and interruptible customers alike.