Recent Trends in the Interstate Gas Pipeline Industry
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By any standard, the pipeline industry has faced a period of upheaval during the 1980s, but debate has arisen over the level of risk the industry faces today. Traditionally, a pipeline served a bundled merchant and transportation function. The pipeline would buy gas from producers ‘at the wellhead’ under contract, transport it, and sell the gas ‘at the city gate’ to distribution companies or end-use customers. The ratemaking process that went with this environment is depicted in Figure 6−1. The return to invested capital is partly depreciation (return of capital) and partly operating earnings (return on capital). The cost of providing service, i.e., the return to capital plus operating expenses and the cost of the gas itself, must be recovered from the pipeline’s customers. This cost can be viewed as having two parts: costs that are fixed in the short run and costs that are variable in the short run.
KeywordsEconomic Principle Regulatory Risk Bond Rating Federal Energy Regulatory Commission Distribution Company
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