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NGPL's New FT Auction Approved

NGPL's New FT Auction Approved

A revised auction process for firm capacity, described as more market responsive, on Kinder Morgan's Natural Gas Pipeline Company of America won approval from the Federal Energy Regulatory Commission last week (RP97-431-009).

FERC rejected most of the requests for revisions in the contested settlement plan, which replaces an auction process installed in 1998.

Under the terms of the settlement, newly available firm capacity will be posted 15 months before the date it is scheduled to become available. Postings will be updated daily. An Initial Open Season (IOS) will be held each month for capacity posted during the previous month. In this initial auction, all bids must be in Natural's current SFV format. NGPL also must establish a reserve price or reserve price matrix for each IOS, defining minimum acceptable bids which must be equal to or less than maximum rates.

If capacity is not awarded in the IOS, Natural may sell the capacity in prearranged transactions under request procedures or conduct an Alternate Open Season (AOS). In the AOS, negotiated rate bids will be evaluated based on net present value. Customers also may initiate a shipper-initiated open season (SOS) for capacity still available, using SFV-based rates.

Regarding objections from some customers to negotiated rate deals, FERC agreed with NGPL that since it has disposed of its marketing affiliate its incentive is to maximize revenue by accepting the best deal, whether it is in the form of a maximum recourse rate or a negotiated rate. Since the first auction --- the IOS --- provides for SFV rate bidders only, "the proposed proceedures provide a reasonable opportunity for recourse rate bidders to obtain capacity without competition from negotiated rate bids." The Commission noted that separating the bid methods into separate auctions eliminates the "inherent difficulty of directly comparing negotiated rate bids and SFV recourse rate bids."

Ellen Beswick

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