Two Fundamental Questions

Abstract

Chapter 8 concluded that pipelines’ transportation service is definitely growing in risk and that pipelines are a risky industry. The level of take-or-pay risk was down from the level of a few years ago, but a transition to sales comparability reopens this issue. This does not imply that pipeline rates of return can be left at, let alone reduced from, the level of the mid-1980s, because those rates of return clearly were not compensatory for the risks the industry faced at the time. Nor do the regulatory and business changes the industry is going through imply pipelines are now a low risk industry. Very substantial risks remain, particularly from uncertain regulatory rules and growing competition, certainly more than existed in the pre-NGPA days.

Homeowners in Chicago, seduced by falling electric rates, are abandoning gas at a four-per-week pace, while Chicago’s electric utility, Commonwealth Edison Co., is signing up some 70 new residential customers a week. . . .

As for gas producers, their number has plunged 60% since 1985. They are going out of business at the rate of one a week, and the pace is expected to quicken. Many gas producers are writing down assets, renegotiating loans and selling off properties they can’t afford to explore and drill.

All this will eventually mean less drilling, shorter supplies and still-higher retail prices. Already, drilling for gas has all but stopped in the U.S. (Johnson 1992, A1)