Natural Gas Pipeline Co. of America’s (NGPL) interpretation of aNovember order addressing its auctioning practices was dead wrong,FERC said last week in denying the pipeline’s request forrehearing.

Natural told FERC it had interpreted the Nov. 4 order to mean itwas allowed to set different reserve prices — the lowest price apipeline is willing to accept for the capacity being auctioned —for recourse-rate bids and for negotiated-rate bids. But theCommission countered that the pipeline’s version was “in error,”and was “inconsistent with current Commission policies.”

On rehearing, Natural argued that identical reserve prices forrecourse -rate and negotiated-rate bids would rob it and itscustomers of the benefits associated with negotiated-ratetransactions, and would “aggravate” decontracting problems on itssystem [RP00-18]. In the event rehearing was denied, the pipelineasked the Commission to put the Nov. 4 order on hold until theannual review of Natural’s auction procedures, which would occur nolater than January 2000, or convene an expedited technicalconference. FERC denied both requests.

The Commission, however, said Natural could raise the issue atits year-end review of auction procedures. Also, “if Natural andits customers can substantially agree on a manner in which Naturalcan objectively and transparently determine and justify differentlypriced reserve prices for different rate forms, the Commissionwould consider a pro forma filing by Natural to set separatereserve prices for different rate forms.” Since the strategy woulddeviate from established policies, FERC wants to see ample back-upfor it.

Until such a proposal is submitted, FERC said it would requireNatural to continue to award capacity to those who value it mostbased on the net present value (NPV) analysis of guaranteed income.

The Commission’s Nov. 4 order was in response to a complaintbrought by Amoco Production, Amoco Energy Trading and BurlingtonResources Oil & Gas, which accused Natural of trying todiscourage recourse-rate bidders in an October auction by settingthe NPV for recourse bids at $11.38 million, while the NPV fornegotiated-rate bids was listed at zero. The winningnegotiated-rate bidder paid a little more than $2 million for theauctioned capacity. But under Natural’s auction rules, arecourse-rate bidder would have had to outbid the winningnegotiated-rate bidder by more than five-fold to win that samecapacity.

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