Energy Market Principles

Unbundling the midstream Where, at the beginning of the twentieth century, the Rockefeller empire in oil was based on the principle of controlling all links of the value chain from drilling rigs to the retail sales of petroleum products, by the mid-1990s the principle advocated by U.S. regulators was unbundling. This idea was incorporated in the natural gas regulations by the U.S. Federal Energy Regulatory Commission (FERC) in its justly famous FERC Order 636: pipeline companies were told to make money selling pipeline capacity and usage fees, while gas marketing companies were told to make money selling gas and related hedging instruments. The target of FERC Order 636 was old buddy system where the pipeline company and the gas marketing company together controlled markets. This principle, with varying degrees of success, is also being applied in the electric power industry: generators are told to generate, electric utilities are told to install meters and deliver electricity.

In Mexico the principle of unbundling has made some advance in the area of natural gas:. The Energy Regulatory Commission (CRE) has required the state-owned oil monopoly to price natural gas and natural gas transportation separately. The CRE rules have not, however, yet resulted in the emergence of competitive conditions in Mexico's natural gas markets.