Amoco Backs Auction for Short-, Long-Term Markets
In a lengthy filing at FERC earlier this week, Amoco Production
and Amoco Energy Trading registered their strong support for the
controversial auction of capacity in both the short-term and
long-term transportation markets.
"Capacity auctions are nothing new, despite much rhetoric
suggesting the contrary...The Commission will undoubtedly be
assaulted with comments opposing a capacity auction, especially a
truly market-based auction with no reserve price for next-day
capacity. But the Commission should not be dissuaded by these
claims," the Amoco companies said in their comments on the notice
of proposed rulemaking focusing on the short-term transportation
Specifically, Amoco asked that the auction: be standardized
across all pipelines; exempt prearranged deals of less than one
month unless they involve a pipeline and its affiliate; allow
pipelines to set a reserve price for periods of greater than a day,
but not in the daily market; require pipes to offer and post all
available pipeline capacity; implement closed bidding, with the
winning bidder paying the actual price bid rather than the "market
clearing" price; and require all transactions to be immediately
On a related initiative, Amoco recommended that removal of the
price caps in the short-term market be limited to only transactions
involving a term of less than one month (intra-month market) and be
subject to mandatory conditions, including the capacity auction.
The NOPR, in contrast, seeks to have the price-cap removal apply to
longer term deals-less than one year.
For the purposes of their proposal, the companies suggested that
the duration of the short-term market be narrowed to less than one
month (the intra-month market), as opposed to less than one year.
They also proposed that the long-term market be redefined as one
month or more, rather than a year or more. The new definitions
would more properly reflect the "transactional realities of today's
Amoco contends few shipper benefits would be realized by
removing price cap in the FERC-endorsed intra-year market, which
it claims is highly concentrated and not competitive. It believes
the intra-month to intra-day operational markets are preferable.
These "are generally the most liquid markets with capacity more
readily tradable than in longer term markets. There are more active
participants in the intra-month market and, in fact, the vast
majority of capacity-release transactions are for periods of one
month or less."
In addition to redefining short term, the Amoco companies said
other conditions would have to be met for them to support lifting
the price cap; the Commission would have to implement capacity
auctioning; instill effective monitoring and reporting
requirements; require cost-based and seasonally adjusted
transportation rates in the longer term market; require the
competitive auctioning of long-term capacity to ensure the
viability of recourse service; bar discount adjustments unless
capacity auctioning is in place; and to maintain the existing
market-power test in the alternative ratemaking policy statement.
Of all the initiatives in the NOPR, Amoco said it was most
concerned about the proposal that would permit pipelines to
negotiate terms and conditions of services with customers. "In
Amoco's view, this issue is not, as pipelines claim, about
providing flexible or innovative services to customers who desire
them. It is instead about reversing an ongoing pro-competitive
evolution...[towards] the commoditization of short-term pipeline
capacity." Amoco and others especially question whether recourse
rates will be sufficient to protect captive customers from any
competitive advantage caused by negotiated services.
At the very most, any authority for pipelines to negotiate terms
and conditions should be "limited and conditioned," Amoco told the
Commission. Specifically, FERC should permit "financial risk"
management services to be negotiated, but limit the negotiation of
"operational" services; require that negotiable "operational"
services be primary-point specific and associated with specified
facilities; require the terms of an affiliate contract to be made
available to all shippers; bar negotiated services for contracts
with a term of less than one year; subject negotiated contracts to
general system rate increases; hold pipelines "at-risk" for
revenues associated with negotiated services; and prohibit the
tying of negotiated services.
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