Amoco likes auctions but advocates removing price caps only inthe very short-term (intra-month) transportation capacity market,according to a lengthy filing made at FERC last week by AmocoProduction and Amoco Energy Trading

“Capacity auctions are nothing new, despite much rhetoricsuggesting the contrary…The Commission will undoubtedly beassaulted with comments opposing a capacity auction, especially atruly market-based auction with no reserve price for next-daycapacity. But the Commission should not be dissuaded by theseclaims,” the Amoco companies said in their comments on the noticeof proposed rulemaking focusing on the short-term transportationmarket [RM98-10].

Specifically, Amoco asked that the auction: be standardizedacross all pipelines; exempt prearranged deals of less than onemonth unless they involve a pipeline and its affiliate; allowpipelines to set a reserve price for periods of greater than a day,but not in the daily market; require pipes to offer and post allavailable pipeline capacity; implement closed bidding, with thewinning bidder paying the actual price bid rather than the “marketclearing” price; and require all transactions to be immediatelyposted.

On a related initiative, Amoco recommended that removal of theprice caps in the short-term market be limited to only transactionsinvolving a term of less than one month (often referred to as theintra-month market) and be subject to mandatory conditions,including the capacity auction. The NOPR, in contrast, seeks tohave price-cap removal apply to longer term deals–less than oneyear.

For the purposes of their proposal, the companies suggested theduration of the short-term market be narrowed to less than onemonth (the intra-month market), as opposed to less than one year.They also proposed that the long-term market be redefined as onemonth or more, rather than as a year or more. The new definitionswould more properly reflect the “transactional realities of today’sgas markets.”

Amoco contends few shipper benefits would be realized byremoving price caps in the FERC-endorsed intra-year market, whichit claims is highly concentrated and not competitive. It believesthe intra-month to intra-day operational markets are preferable. These “are generally the most liquid markets with capacity morereadily tradable than in longer term markets. There are more activeparticipants in the intra-month market and, in fact, the vastmajority of capacity-release transactions are for periods of onemonth or less.”

In addition to redefining the short-term market, the Amococompanies said other limits and conditions would have to be met forthem to support lifting the price cap: FERC would have to implementcapacity auctioning of short-term capacity; instill effectivemonitoring and reporting requirements; require cost-based andseasonally adjusted transportation rates in the longer term market;require the competitive auctioning of long-term capacity to ensurethe viability of recourse service; bar discount adjustments unlesscapacity auctioning is in place; and maintain the existingmarket-power test in the alternative ratemaking policy statement.

In further addressing discount adjustments, Amoco noted existingCommission policy was lopsided because it permitted pipelines tomake discount rate adjustments in subsequent rate cases but deniedsimilar adjustments for negotiated rates. As long as such a policyremains, “pipelines will have an incentive to categorize every’negotiated rate’ contract with a lower-than-maximum rate as a’discounted rate’ in order to gain the benefit of the discountadjustment policy. This will exacerbate the currentcross-subsidization problem.”

Of all the initiatives in the NOPR, Amoco said it was mostconcerned about the proposal that would permit pipelines tonegotiate terms and conditions of services with customers. “InAmoco’s view, this issue is not, as pipelines claim, aboutproviding flexible or innovative services to customers who desirethem. It is instead about reversing an ongoing pro-competitiveevolution…[towards] the commoditization of short-term pipelinecapacity.” Amoco and others especially question whether recourserates will be sufficient to protect captive customers from anycompetitive advantage caused by negotiated services.

At the very most, any authority for pipelines to negotiate termsand conditions should be “limited and conditioned,” Amoco told theCommission. Specifically, FERC should permit “financial risk”management services to be negotiated, but limit the negotiation of”operational” services; require that negotiable “operational”services be primary-point specific and associated with specifiedfacilities; require the terms of an affiliate contract to be madeavailable to all shippers; bar negotiated services for contractswith a term of less than one year; subject negotiated contracts togeneral system rate increases; hold pipelines “at-risk” forrevenues associated with negotiated services; and prohibit thetying of negotiated services.

The Amoco companies further noted they were “generallysupportive” of the Commission’s proposals to require nominationequality, expand segmentation rights and the use of flexiblereceipt and delivery points, and to standardize penalty procedures.

Susan Parker

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