1. Natural Gas David Loomis Illinois State University

2. ECO 436 David Loomis 309-438-79792 OVERVIEW Wellhead pipeline City gate LDC customer direct access Few economies of scope - little vertical integration

3. ECO 436 David Loomis 309-438-79793 Wellhead price regulation In 1981, 12,000 field producers, all markets unconcentrated 1954 Supreme Court, Phillips Petroleum v. Wisconsin - ruled that producers were able to exact excessive prices and that Natural Gas Act of 1938 authorized FPC to regulate wellhead prices. Wellhead prices that were sold interstate were regulated since 1954

4. ECO 436 David Loomis 309-438-79794 Wellhead price regulation (contd) 2 tiered gas prices - interstate gas subject to Federal regulation –intrastate gas priced much higher –caused allocative distortion

5. ECO 436 David Loomis 309-438-79795 Wellhead price regulation (contd) 1978 - Natural Gas Policy Act –old gas - dedicated to interstate commerce before NGPA continue price ceilings (amt. Of old gas declines as wells are depleted) –new gas - no price ceiling on Jan. 1, 1985 price ceilings from 1978-1985 gradually raised

6. ECO 436 David Loomis 309-438-79796 Wellhead price regulation (contd) 1989 Natural Gas Wellhead Decontrol Act lifted all remaining wellhead ceiling by 1993.

7. ECO 436 David Loomis 309-438-79797 Price of Natural Gas Delivered to Residential Customers in IL Year$/Mcf (Nov- Apr) Percentage Increase 1998-19994.78- 1999-20005.6718.7%

8. ECO 436 David Loomis 309-438-79798 Price of Natural Gas per Therm for Residential Customers Company1999 (in cents/therm) CILCO61.54 Ameren-CIPS67.62 ILPower60.15 MidAmerican54.40 NICORGas43.06 PeoplesGas65.54 Ameren –UE72.05

9. ECO 436 David Loomis 309-438-79799 Price Spike Report Data

10. ECO 436 David Loomis 309-438-797910 Units of Measure BRITISH THERMAL UNIT (Btu) -- The standard measure of heat energy. It takes one Btu to raise the temperature of one pound of water by one degree Fahrenheit at sea level. For example, it takes about 2,000 Btus to make a pot of coffee. One Btu is equivalent to 252 calories, 778 foot-pounds, 1055 joules, and 0.293 watt-hours. Note: In the abbreviation, only the B is capitalized.

11. ECO 436 David Loomis 309-438-797911 Conversions MMBtu = Million BTU (British Thermal Unit) THERM - One hundred thousand (100,000) British thermal units (1 therm = 100,000 Btu).