A recent capacity auction conducted by the Natural Gas PipelineCo. of America (NGPL) was “unreasonable and unduly preferential,”FERC said last week, but it refused to overturn the auction’sresults, as was requested by producers and marketers. It gave thepipeline the benefit of the doubt on this score, saying that NGPLhad “followed an arguable interpretation of its tariff,” which hadbeen approved by the Commission.

Responding to a Section 5 complaint filed last month, FERC saidthat while it found “Natural’s interpretation of its tariff [led]to unreasonable results” in the auction, which ended on Oct. 8, itwould not “disrupt the awarded capacity at this juncture.” TheCommission, however, directed the Lombard, IL-based pipeline tomake prospective changes to its tariff to prevent a similar outcomein future auctions.

Amoco Production Co., Amoco Energy Trading Corp. and BurlingtonResources Oil & Gas (Indicated Shippers) had complained thatduring the auction Natural: 1) created an undue preference fornegotiated-rate bids by prohibiting shippers from bidding adiscounted rate in the recourse-rate form; 2) unduly discriminatedagainst recourse-rate bidders by including GSR and Account No. 858charges in the bids of negotiated-rate shippers; and 3) requiredshippers to bid on non-contiguous capacity as part of the samecapacity auction.

The Commission found merit to the first charge, and appeared tobe siding with Indicated Shippers on the second one, but said itneeded more information. FERC noted Natural was within its tariffon 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 disputedauction, Natural required recourse-rate shippers to submit bidswith a net present value (NPV) equal to $11.38 million, while theNPV for negotiated-rate bids was listed at zero. The winningnegotiated-rate bidder, MidAmerica Energy Co., paid a little morethan $2 million for the auctioned capacity.

“To require that those placing more value on the capacity thanthe prearranged bidder to exceed the prearranged shipper’s[negotiated] bid by five-fold, as Natural required here, simplyprevents those who would pay incrementally more than theprearranged shipper from participating in the auction on ameaningful basis,” the FERC order said [RP00-18].

“This is not the type of economically rational result theCommission envisioned when it accepted Natural’s tariff provisions.In the Commission’s view, it is unjust and unreasonable to shut outall recourse-rate form bidders that would pay more than $2 millionfor the capacity, but are unwilling to pay the full recourse rate”of approximately $11 million, it noted. FERC further said Natural’saction was “inappropriate” because it required a “large guaranteedrevenue stream” from recourse-rate bidders, but not fromnegotiated-rate bidders. “Such a requirement discriminates againstrecourse-rate form bidders.” It ordered Natural to change itstariff to allow for discounted recourse-rate bids in futureauctions.

On the issue of surcharges, the order said that to allowsurcharges to be included in negotiated-bids “defeats theCommission’s purpose that the bids be transparent, and results inconfusion over the method by which Natural compared the bids andwhether it preferred certain bidders.” However, it noted that itwould need “further explanation and information” from the pipelineto determine whether it correctly calculated the winning bid.

“Accordingly, Natural is required to post on its EBB itsanalysis of the winning bid with surcharges clearly indicated andthe manner in which the [NPV] was calculated clearly defined andsubmit the same to the Commission for review. In future postings,the Commission expects that Natural will include the base rate bidand a listing of the applicable surcharges stated separately inorder to ensure that the bidding process maintains itstransparency.”

Indicated Shippers complained about being required to bid onnon-contiguous capacity in Natural’s South Texas, Mid-continentaland Permian zones. This forced bidders to bid on capacity theydidn’t need to get the capacity they wanted, they said. But theFERC order said this was not inconsistent with Natural’s tariff.

Susan Parker

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