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Shippers Seek Modifications in MRT's Auction Proposal

Shippers Seek Modifications in MRT's Auction Proposal

Caught in the midst of heated criticism of FERC's proposed auction mechanism, Mississippi River Transmission (MRT) is defending its proposed new auction procedures from attack by marketers and producers.

Although the St. Louis, MO-based pipeline subsidiary of Reliant Energy has made "numerous concessions" in its proposed tariff revisions that would result in a "more functional auction" mechanism, Dynegy Marketing and Trade said it still had a number of concerns with MRT's initiative.

It called on the Commission to require MRT to 1) adopt an open, interactive auction process, or, at a minimum, to adopt a single auction process; 2) designate in its tariff what "other factors" MRT would consider in awarding available firm capacity; 3) remove the provision allowing MRT to aggregate bids when awarding capacity; 4) exclude prearranged deals from auctions if they are for a term of one year or less; 5) post any applicable reserve price; and 6) clarify that bids can be withdrawn prior to the end of an open season [RP98-404-003].

Additionally, Dynegy asked FERC to state unequivocally that MRT's auction process would not serve as a "precedent" for resolving the issues that have been raised in the mega-notice of proposed rulemaking (NOPR) on short-term transportation services [RM98-10]. The pipeline's auction proposal would permit it to award capacity based on the net present value (NPV) of a bid rather than based on its current first-come, first-served approach. FERC already has accepted and suspended the filing to be effective March 17, but Dynegy and others have taken issue with certain tariff revisions sought by MRT.

Dynegy contends that an open, interactive auction process on MRT's system - as opposed to a sealed bidding system - would help to provide the transparency needed in the marketplace. Also, it would ensure that MRT's bidding procedures "are above-board, and that the capacity actually is going to the bidder that values it the most." In the alternative, Dynegy asked that MRT be limited to one type of auction procedure for all auctions. The pipeline, on the other hand, wants the discretion to use either open or closed bidding.

"...[I]f every pipeline across the country decides to join MRT in implementing two very different auction procedures, it will be difficult, it not impossible, for nationwide marketers like Dynegy to learn all of the procedures to be able to compete effectively in the auction process," the Houston-based marketer said.

MRT's claim that it would consider "other objective and non-discriminatory factors" when awarding available firm capacity also sent up a red flag with Dynegy. "Dynegy is concerned that MRT's 'other factors' are not defined in the tariff, and they would give MRT discretion to favor certain shippers." This would be contrary to the mega-NOPR, the marketer said, in which FERC favored prior disclosure of auction procedures in pipeline tariffs.

Furthermore, it urged the Commission to reject a proposal that would permit MRT to aggregate two or more bids and award the available capacity to the combination of requests that results in the highest incremental revenues to the pipeline. "This provision either will result in aggregated shippers who may not place the highest value on the capacity nevertheless receiving the capacity, or a single shipper having to pay extra to take more capacity, or to take capacity for a longer term in order to receive the capacity," Dynegy said.

Amoco Production and Amoco Energy Trading criticized MRT's proposed tariff changes in its auction procedures as being "overly broad and vague," saying they would give the pipeline "too much discretion in the way that auctions are conducted."

The Missouri Public Service Commission focused its protest on the tariff provisions for pre-arranged deals. These would require the pipeline to post the terms of all pre-arranged deals so that other shippers could bid, but would give the pre-arranged customer the chance to match any higher bids that are received.

"This arrangement all but guarantees the pre-arranged customer will obtain the capacity," the state commission said. "Rather than fostering real competition, this provision is...likely to have a dampening effect on the number of parties willing to bid for the available capacity against the pre-arranged customer." Moreover, it opens up an opportunity for abuse by the pipeline, the Missouri PSC said. "For example, if MRT were to negotiate with an affiliate company for capacity, the affiliate, in having the right to match a high bid, would be virtually assured of winning the capacity."

Susan Parker

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