Producers and marketers have accused Natural Gas Pipeline Co. ofAmerica (NGPL) of conducting its capacity auctions in an illegalmanner and are looking to FERC to overturn the results of a recentauction and to prevent the re-occurrence of the alleged violationsin the future.

In a Section 5 complaint lodged last week, Amoco Production Co.,Amoco Energy Trading Corp. and Burlington Resources Oil & Gascalled on the Commission to terminate any contracts that wereexecuted during an allegedly illegal auction, which ended lastThursday (Oct. 8), and to order NGPL to revise its auctionprocedures to conform to its tariff and existing Commissionprecedent. They requested that “fast track” procedures be used toaddress the complaint. NGPL is expected to formally respond to thecomplaint by Friday.

Specifically, the Indicated Shippers accused NGPL of: 1)creating an undue preference for negotiated-rate bids byprohibiting shippers from bidding a discounted rate in therecourse-rate form; 2) proposing impermissible bundling byrequiring shippers to bid on non-contiguous capacity as part of thesame capacity auction; 3) unduly discriminating againstrecourse-rate bidders by exempting only negotiated-rate biddersfrom separately paying for GSR and Account No. 858 surcharges; and4) improperly restricting a shipper’s capacity-release rights in aprevious auction, which the pipeline later canceled. Some producersand marketers contend they were “effectively prevented” fromparticipating in NGPL’s capacity auction because of the allegedillegal procedures. They also said they faced the prospect of”non-competitive prices” for capacity.

Although the financial impact of the claimed violations cannotbe “readily calculated,” Indicated Shippers estimated that each onecent/Dth overbid in NGPL’s auctions would result in an overpaymentof about $400,000 a year. The figure, however, doesn’t take intoconsideration “the impact of inaccurate market signals on gas soldand transported or other capacity,” the group said.

In NGPL’s auction process, Indicated Shippers contend thepipeline has shown a clear “preference” for negotiated-rate bids byeffectively denying shippers the right to submit recourse-rate bidson a discounted basis. Instead, NGPL has structured it such thatbidders are limited to maximum recourse-rate bids, the group said.As a result of this alleged action, “these [recourse] bidders areexcluded from submitting bids that may exceed the NPV [net presentvalue] of the negotiated-rate bid.”

Indicated Shippers also complained bidders were required to bidon “non-contiguous capacity” in NGPL’s South Texas, Midcontinentand Permian Zones, and as a result often wound up with capacitythey neither wanted nor needed. For instance, “a bidder onlywanting South Texas is forced to bid on Midcontinent and PermianZone capacity, and a bidder only wanting Midcontinent Zone capacityis forced to bid on South Texas and Permian Zone capacity.”

Bidders on NGPL “must have the flexibility to bid on only thecapacity they desire and should not be required to bid on unwantedcapacity,” Indicated Shippers said. The Commission recognized thisright in a November 1998 order, the group noted.”…..[B]yimproperly bundling non-contiguous segments of capacity, NGPL isinterfering with market signals regarding the value of capacity andsuch interference could distort the market price for natural gas onNGPL’s system.”

Moreover, Indicated Shippers insist NGPL has further created an”undue preference” in favor of negotiated-rate bidders by exemptingthem from GSR, Account 858 and other discountable surcharges, butdenying this to recourse rate bidders. In the November 1998 order,the group noted the Commission expressed concern in this area, anddirected NGPL to remove all surcharges from its NPV calculations toensure the transparency of the bidding process.

The producer-marketer group also asked FERC to address thelegality of NGPL being allowed to place limitations on a winningbidder’s ability to segment capacity awarded in an auction and onthe rights of a replacement shipper.

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