NGPL Auction 'Unreasonable,' But FERC Refuses to Cancel Results
A recent capacity auction conducted by the Natural Gas Pipeline
Co. of America (NGPL) was "unreasonable and unduly preferential,"
FERC said last week, but it refused to overturn the auction's
results, as was requested by producers and marketers. It gave the
pipeline the benefit of the doubt on this score, saying that NGPL
had "followed an arguable interpretation of its tariff," which had
been approved by the Commission.
Responding to a Section 5 complaint filed last month, FERC said
that while it found "Natural's interpretation of its tariff [led]
to unreasonable results" in the auction, which ended on Oct. 8, it
would not "disrupt the awarded capacity at this juncture." The
Commission, however, directed the Lombard, IL-based pipeline to
make prospective changes to its tariff to prevent a similar outcome
in future auctions.
Amoco Production Co., Amoco Energy Trading Corp. and Burlington
Resources Oil & Gas (Indicated Shippers) had complained that
during the auction Natural: 1) created an undue preference for
negotiated-rate bids by prohibiting shippers from bidding a
discounted rate in the recourse-rate form; 2) unduly discriminated
against recourse-rate bidders by including GSR and Account No. 858
charges in the bids of negotiated-rate shippers; and 3) required
shippers to bid on non-contiguous capacity as part of the same
The Commission found merit to the first charge, and appeared to
be siding with Indicated Shippers on the second one, but said it
needed more information. FERC noted Natural was within its tariff
on the third issue, but suggested it should be "further discussed"
during the annual review of the pipeline's auction procedures.
In an effort to discourage recourse-rate bids in the disputed
auction, Natural required recourse-rate shippers to submit bids
with a net present value (NPV) equal to $11.38 million, while the
NPV for negotiated-rate bids was listed at zero. The winning
negotiated-rate bidder, MidAmerica Energy Co., paid a little more
than $2 million for the auctioned capacity.
"To require that those placing more value on the capacity than
the prearranged bidder to exceed the prearranged shipper's
[negotiated] bid by five-fold, as Natural required here, simply
prevents those who would pay incrementally more than the
prearranged shipper from participating in the auction on a
meaningful basis," the FERC order said [RP00-18].
"This is not the type of economically rational result the
Commission envisioned when it accepted Natural's tariff provisions.
In the Commission's view, it is unjust and unreasonable to shut out
all recourse-rate form bidders that would pay more than $2 million
for the capacity, but are unwilling to pay the full recourse rate"
of approximately $11 million, it noted. FERC further said Natural's
action was "inappropriate" because it required a "large guaranteed
revenue stream" from recourse-rate bidders, but not from
negotiated-rate bidders. "Such a requirement discriminates against
recourse-rate form bidders." It ordered Natural to change its
tariff to allow for discounted recourse-rate bids in future
On the issue of surcharges, the order said that to allow
surcharges to be included in negotiated-bids "defeats the
Commission's purpose that the bids be transparent, and results in
confusion over the method by which Natural compared the bids and
whether it preferred certain bidders." However, it noted that it
would need "further explanation and information" from the pipeline
to determine whether it correctly calculated the winning bid.
"Accordingly, Natural is required to post on its EBB its
analysis of the winning bid with surcharges clearly indicated and
the manner in which the [NPV] was calculated clearly defined and
submit the same to the Commission for review. In future postings,
the Commission expects that Natural will include the base rate bid
and a listing of the applicable surcharges stated separately in
order to ensure that the bidding process maintains its
Indicated Shippers complained about being required to bid on
non-contiguous capacity in Natural's South Texas, Mid-continental
and Permian zones. This forced bidders to bid on capacity they
didn't need to get the capacity they wanted, they said. But the
FERC order said this was not inconsistent with Natural's tariff.