Dynegy: Pipes Should Drop SFV; Install Competitive, Volumetric Rates
If pipelines want the freedom to negotiate competitive deals,
they must first get rid of the "most notorious symbol of market
power" - the straight-fixed variable rate design (SFV) - and offer
volumetric rates, Dynegy Marketing and Trade told FERC last week.
"Who in a competitive market can force their customers to pay
all the fixed costs of their business and guarantee a profit to
boot?" Dynegy, formerly the Natural Gas Clearinghouse said in
offering an alternative to the Columbia pipelines' proposal to
provide customers with negotiated terms and conditions of service.
Dynegy said its alternative could apply to any pipeline that wants
to be able to offer unfettered competitive services.
The marketing company also proposed setting up regional
Independent System Administrators (ISAs) to determine the amount of
pipeline capacity that's available for sale. The ISAs would not
have operational authority as do the Independent System Operators
(ISOs) on the electric side.
The switch from SFV would take place on a set, uniform day,
according to Dynegy. "It would sort of be a jump-ball for all the
pipelines," said Peter G. Esposito, vice president and regulatory
counsel for the Houston-based marketer. At that time, all pipelines
interested in negotiated services would agree to accept bids based
on a volumetric rate for all of their capacity and services.
Bids - perhaps blind - would be accepted on a net present value
(NPV) basis for the recourse, or standard, service. A pipeline
would be required to accept all bids in excess of variable costs up
to the capacity of the pipeline. Existing service holders would
have a right to match the highest bid for their existing service,
or assign that right to another party. Pre-granted abandonment
would apply after the initial round. And, rights of first refusal
would be negotiated thereafter.
Only then - after all the capacity has been awarded - would
pipelines be able to fully negotiate terms and conditions of
service, Dynegy proposes. "In this way, the pipeline cannot
exercise market power going in, and all capacity would be awarded
to the highest bidder on a level playing field basis."
Under Dynegy's proposal, any "diminution of service" for
remaining recourse customers would be grounds for damage claims;
any change in terms, conditions and rates of service henceforth
would be negotiated, eliminating the need for unilateral Section 4
rate filings; purchasers of all firm capacity would have the right
to resell that capacity; and purchasers could repackage the
capacity (negotiate the terms and conditions of the release to the
same extent the pipeline could), and the pipeline would be required
to recognize the repackaged capacity.
Esposito said the ISA's job would be to "figure out how much
capacity is available to put up for sale." The ISA would be a
"less-active, less hands-on" organization than the ISO.
The ISA would perform the initial auction of pipeline capacity
to ensure "maximum impartiality," as well as nominations and
scheduling. Following the initial auction, the pipelines themselves
would continue to sell the space and services on their respective
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