There is zero probability the Federal Energy RegulatoryCommission can design a pipeline capacity auction that wouldefficiently operate in the marketplace, according to an eminenteconomist who suggested the best strategy would be to get rid ofFERC.

Citing the example of the Civil Aeronautics Board that wasdisbanded at the start of airline deregulation, Paul W. MacAvoy,formerly dean of Yale University School of Management, toldWashington energy attorneys the regulatory agencies should be”closed down before the market becomes competitive, notafter….You have to cut them off now or they will never go away.”

MacAvoy advised members of the Federal Energy Bar Associationyesterday that what he called the “Moler phenomenon” of “managedcompetition,” named after the former FERC chairperson who was amongthe speakers on the platform beside him, would not work. Thatdoctrine promotes “managing competition until there is enough,” andprompts the prayer “oh Lord, oh Lord, will there ever be enough?”Natural gas prices would be fifty cents lower if FERC were notstill “managing the competition,” MacAvoy said,

As for auctions, there are thousands of possible variations inthe way they can be structured and there is virtually no way FERCcould choose the “right auction” that would work and function toefficiently allocate resources.

Commissioner Curt Hebert responded in a luncheon address, sayingthat although industry has been sniping at FERC’s proposal of anauction, “they have offered no alternatives….and the issue ofmarket power must be addressed.” For emphasis, Hebert repeated”market power must be addressed.”

Meanwhile, the industry is seeking a consensus at a meeting ofthe Natural Gas Council today on requesting another extensionbeyond the current Jan. 22 deadline for comments on theCommission’s NOI and NOPR regarding proposed auctions and otherindustry changes. While some industry segments were suggesting asix-month extension, others were in favor of a shorter period.Also, the extension granted earlier was sought in order to giveindustry time to figure out how to make an auction work, this onemay be devoted to coming up with other alternatives, sources said.

MacAvoy’s arguments against regulation also were rebutted inpart by Richard Meyer, senior regulatory counsel for the NationalRural Electric Cooperative Association, who questioned whether wecan “trust the marketplace to do the right thing.” He pointed tothe consolidation among industry players that tends toshort-circuit competition. Also, he said, most major marketers arestaying out of the retail market because it is a low marginbusiness, which means residential customers will not reap thebenefits of competition. He noted the unpredictability of marketsas evidenced by last summer’s Midwest price spike.

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