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FERC Workshop on Auctioning Set for Mid-October

FERC Workshop on Auctioning Set for Mid-October

Chairman James Hoecker last week announced that FERC plans to hold a workshop with the gas industry in mid-October to flesh out the details involved in the auctioning of short-term capacity. The workshop will occur prior to the deadline for industry comments on the notice of proposed rulemaking (NOPR) that addresses regulation of short-term capacity, specifically the auctioning of that capacity. The comments are due in early November.

The Commission in its July NOPR proposed the concept of capacity auctioning in return for lifting the price caps on short-term capacity, but the proposal was bereft of any specifics about how the auctioning process would be carried out. This lack of details has drawn criticism from nearly all quarters of the gas industry.

"The question that's relevant in the current discussions outside the agency is how's it going to work precisely, and rather than await comments that simply tell us that we haven't said enough, we think we need to have a discussion on that issue," Hoecker said at the FERC open meeting last Wednesday. "So the Commission staff will provide some background information, and this process hopefully will facilitate comments on the gas NOPR," with a special focus on auctioning.

A workshop is "very important to improving our understanding and the understanding of industry as to how this might work," he said. "It's a very new issue. And it's broader than simply the bidding and allocation processes for capacity that exist now." The workshop will be held at 9:30 a.m. on Oct. 20 at FERC's headquarters.

In Dynegy Corp.'s view, the proposed daily auctioning of short-term capacity could lead to a logistical nightmare for marketers and other buyers of pipeline capacity. "Just the logistics of a day-ahead market will be incredibly (and unnecessarily) complicated. We'll have a day-ahead capacity bid, two prior-to-gas-day nominations and four bumping opportunities," it noted in comments that still are in the draft stage.

Auctioning will unnecessarily demand shorter lead times for purchasing transportation and supply, ultimately playing havoc with the market, Dynegy believes. "We're talking about introducing into the gas market one of the primary reasons [why] the electric market has become so volatile. In the electric market, short lead times (and concomitant price volatility) are inevitable because of the lack of storage. [But] gas has storage and line pack, so daily and hourly trading is much less of a necessity," the company draft said.

Also, since daily auctioning will force gas suppliers to line up supply, transportation and markets simultaneously, they will always either be long or short, Dynegy noted. "Suppliers need to be able to match the supply deal with capacity deal. This can be accomplished today via pre-arranged deals. But, if under the FERC's proposal, one has to bid for transportation before supply is wrapped up or has to buy gas before transportation, then we've created a situation where suppliers are perpetually long or short. This is a huge market dislocation. There will be fewer and fewer willing to play in this distorted market."

Susan Parker

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