Wisconsin LDCs See Mandatory Auction as Last Resort
A group of Wisconsin distributors say FERC should resort to a
mandatory auction of short-term capacity only as a last measure -
after it has implemented and weighed the effects of its other
proposed initiatives, such as increased pipeline reporting
requirements, and finds they failed to achieve a similar
"...[B]efore imposing any auction requirement, the Commission
[first] should try to meet its competitive objectives through its
proposals for mandatory disclosure of capacity and
transaction-related information. Full information disclosure will
help create the transparency required for the market to work more
efficiently without mandating the manner in which capacity is
sold," the Wisconsin Distributor Group (WDG) said last week in its
initial comments on the mega-notice of proposed rulemaking (NOPR)
and notice of inquiry [RM98-12, RM98-10].
Like most gas distributors, the Wisconsin group believes FERC's
proposal to increase pipeline reporting and posting requirements
for sales of short-term capacity would be the best defense against
pipeline market power, and in the process would cancel out the need
for the controversial auction. At the very least, it said the
Commission should give the market a chance to function on an
experimental basis in a "new, more transparent environment with
full and equal access to information" before imposing an auction
that could prove "unnecessary, complex and cumbersome to implement
properly or promptly."
WDG and other LDCs are big fans of the NOPR initiative requiring
pipelines to report a wider range of information on available
capacity, including total design capacity of each point or segment;
the amount scheduled at each point on each segment on a daily
basis; and planned and actual maintenance or system outages that
would reduce the amount of capacity available. Also, pipes would
have to include in their Index of Customers the receipt and
delivery points held under contracts; the zones or segments in
which capacity is held; a shipper's contract number; the affiliate
relationship between pipeline and shipper/shippers; and identify
asset holders that control 20% or more of capacity in a rate zone.
Additionally, pipelines would be required to report more
contract-related information. Distributors believe the availability
of this type of information would go a long way towards increasing
the transparency of the gas market, and in turn would minimize the
need for a mandatory auction.
The auction, as spelled out by FERC, has too many "practical
obstacles," the Wisconsin LDCs said. For one, the Commission has
yet to address how bids and capacity awards would be coordinated in
situations involving multi-pipeline transactions, they noted.
On a related proposal, the Wisconsin distributors recommended
that the Commission remove the price cap on all short-term capacity
at some "predetermined date certain" after the market has had time
to "become accustomed to the newly available information and other
changes." It proposed that FERC remove the price cap on an
"experimental one-year basis," with a review of its policy at some
With respect to negotiated terms and conditions, the Wisconsin
distributors proposed an interesting approach. They suggested that,
in addition to the "guiding principles" for negotiated rates and
services already proposed, the Commission condition a pipeline's
authority to negotiate rates and services on it agreeing not to
block competitors from entering its markets and on it providing
rate options to recourse shippers.
Moreover, the distributor group agreed the tying of negotiated
transportation services to "unwanted" sales services or other
services shouldn't be permitted by pipelines or their affiliates.
Additionally, the Wisconsin LDCs said they supported FERC's
proposal to make certain terms non-negotiable. For instance, a
pipeline shouldn't be permitted to negotiate scheduling,
curtailment priority, or capacity release and flexible receipt and
delivery point rights.
To eliminate the bias against long-term contracts, the
distributors proposed term-differentiated rate options for recourse
Surprisingly, the distributors asked FERC to postpone an
industry-wide review of the straight-fixed variable (SFV) rate
design until other long-term ratemaking issues are resolved.