NGI The Weekly Gas Market Report / NGI All News Access

NGPL's Auction Activities are Illegal, Shippers Say

NGPL's Auction Activities are Illegal, Shippers Say

Producers and marketers say Natural Gas Pipeline Co. of America (NGPL) conducted a capacity auction earlier this month in an illegal manner, and now are looking to FERC to overturn the results of the auction and to prevent the re-occurrence of the alleged violations in the future.

In a Section 5 complaint, Amoco Production Co., Amoco Energy Trading Corp. and Burlington Resources Oil & Gas (Indicated Shippers) called on the Commission to terminate any contracts that were executed during the auction, which ended on Oct. 8th, and to order NGPL to revise its auction procedures to conform to its tariff and existing Commission precedent. They requested that "fast track" procedures be used to address the complaint.

If remedial action is warranted, which NGPL doesn't think will be so, the pipeline said it should be imposed prospectively "to protect good-faith bidders and the integrity of the auction process." Nothing would be "more destructive to the auction process or to the evolving market for pipeline capacity than reversing an auction."

Specifically, the Indicated Shippers accused NGPL of: 1) creating an undue preference for negotiated-rate bids by prohibiting shippers from bidding a discounted rate in the recourse-rate form; 2) requiring shippers to bid on non-contiguous capacity as part of the same capacity auction; 3) unduly discriminating against recourse-rate bidders by exempting only negotiated-rate bidders from separately paying for GSR and Account No. 858 surcharges; and 4) improperly restricting a shipper's capacity-release rights in a previous auction, which the pipeline later canceled. Some producers and marketers contend they were "effectively prevented" from participating in NGPL's capacity auction because of the alleged illegal procedures.

NGPL called the complaint a "collateral attack" on its tariff, the FERC orders approving its tariff and Commission orders and policies. Moreover, it doesn't believe the complaint is a "real dispute," given that the bid submitted by Amoco during the auction "not only was.....invalid, but it was also not competitive under any possible analysis..."

Although the financial impact of the claimed violations cannot be "readily calculated," Indicated Shippers estimated that each one cent/Dth overbid in NGPL's auctions would result in an overpayment of about $400,000 a year. The figure, however, didn't account for "the impact of inaccurate market signals on gas sold and transported or other capacity," the group said. NGPL responded by calling it an "arbitrary" calculation. "No basis in fact has been shown for this or any other monetary claim of harm."

In the most recent NGPL auction, Indicated Shippers contend the pipeline showed a clear "preference" for negotiated-rate bids by effectively denying shippers the right to submit recourse-rate bids on a discounted basis. Instead, NGPL structured it such that recourse-rate bidders could only submit bids equal to the pipeline's maximum rate, the group said.

The pipeline established a different reserve price - the minimum price that it's willing to receive for capacity - for negotiated-rate and recourse-rate bids during the auction in an attempt to "basically eliminate" bidding by recourse shippers, said Steve Tarpey, gas regulatory representative for BP-Amoco. The reserve price for recourse-rate bids was equal to $11.38 million, he noted, while the reserve price for negotiated-rate bids was "somewhere in the area of $2 million." This disparity "absolutely" discouraged bidding by recourse shippers "because you're not competing on an even playing field."

Indicated Shippers also complained bidders were required to bid on "non-contiguous capacity" in NGPL's South Texas, Mid-continent and Permian Zones, and as a result often wound up with capacity they neither wanted nor needed. For instance, "a bidder only wanting South Texas [was] forced to bid on Mid-continent and Permian Zone capacity, and a bidder only wanting Mid-continent Zone capacity [was] forced to bid on South Texas and Permian Zone capacity."

Bidders on NGPL "must have the flexibility to bid on only the capacity they desire and should not be required to bid on unwanted capacity," Indicated Shippers said. The Commission recognized this right in a November 1998 order, the group noted. ".....[B]y improperly bundling non-contiguous segments of capacity, NGPL is interfering with market signals regarding the value of capacity and such interference could distort the market price for natural gas on NGPL's system."

Moreover, Indicated Shippers insist NGPL has further created an "undue preference" in favor of negotiated-rate bidders by exempting them from GSR, Account 858 and other discountable surcharges, but denying this to recourse rate bidders. In the November 1998 order, the group noted the Commission expressed concern in this area, and directed NGPL to remove all surcharges from its net present value calculations to ensure the transparency of the bidding process.

The producer-marketer group also asked FERC to address the legality of NGPL being allowed to place limitations on a winning bidder's ability to segment capacity awarded in an auction and on the rights of a replacement shipper.

Susan Parker

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Comments powered by Disqus