Dynegy Inc. is the only gas-related company so far to publiclypropose an alternative to FERC’s notice of proposed rulemaking(NOPR) that seeks to institute industry-wide auctioning ofshort-term capacity in return for lifting the price cap on thatcapacity. “There’s nothing else that’s been made public,” saidPeter G. Esposito, vice president and regulatory counsel.

The Houston-based gas marketer proposal calls for the Commissionto get rid of straight-fixed variable rate design (SFV) on thosepipelines that favor such action, and reward them with removal ofthe rate cap. Dynegy stressed that this would not be mandatory forall pipelines, but rather would be limited to willing pipelines.”Basically, there are some pipelines out there that don’t have themarket to support the risk that goes along with it [eschewing SFV].And there’s others that have the market and will take the risk inorder to take the upside,” Esposito noted.

Instead of an auction, Dynegy proposes that pipelines berequired to put all their capacity out for bid in an open season ona net-present-value (NPV) basis at volumetric rates. “In a perfectworld, the pipeline would have [one large] open season, sort ofwhat I call the ‘Big Bang’ theory, and then you would have it[smaller open seasons] periodically when the contracts expire.” Thepipeline would have to take whatever was bid until all firmcapacity was sold, the marketer noted.

Shippers would bid on the recourse service, which is “today’sexisting services plus what I call ‘the no-brainer changes,'” suchas more flexible receipt and delivery points, and better segmentrights, Esposito noted. In addition, bidders could bid a minimumvolume guarantee over a specified term. “It’s like what we did withEl Paso. [We] agreed to what amounts to a take-or-pay for 50% [ofcapacity] one year and 70% the next.”

The Dynegy proposed plan also would give pipeline customers thebenefit of negotiated terms and conditions through secondary-marketsales of service components. After a pipeline’s capacity has beensold, shippers then could resell or trade components of the servicethey have purchased to or with others. For example, shipper A, whomight have his own market-area storage or peak-shaving, could selloff some of its imbalance flexibility to shipper B, who might havemore significant load swings, the proposal said.

“We think that our alternative has a lot of the positive pointsof the FERC [proposal], that is where there is competition you canhave market-based rates. But we don’t have all the administrativeburden” associated with an auction, Esposito said. “The keydifference between our proposal and FERC’s is that essentially weview the market power being exercised in the short-term [market]not in the long term.”

Dynegy has been “floating” the proposal around the gas industryfor reactions. So far, “I’m getting ‘intrigue’ basically” fromLDCs, small producers and state commissions, he said, adding thathe wouldn’t go as far as to say it was “positive feedback.”

Susan Parker

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